I've decided that for the new year, I'd like to become less of a side gig tinkerer/random contract person and actually take a shot at making "real" money. I have a couple designs for widgets that I believe there is a viable market for (audio, but not audiophoolery) and I'd like to explore the idea of getting product made and shipped.
As I've always been a wage slave and never run my own business, I'm out looking for advice on what plans to lay out first. I have an attorney who can refer me to associates who are familiar with LLC law, and advisors that specialize in helping manage small business planning, but they're not really specific to electronics or "light industrial" type operations.
I was in the same boat when I started out on y own. Definitely MAKE A BUSINESS PLAN! Google and you'll get examples. Plan your work and work your plan. Also, do a separate marketing plan. I can send you mine as an example. Go for it, if nothing else, you get a tax deduction for all the toys you buy!
Wait until a Republican administration. May take awhile... the voters are so ignorant they may actually buy another round of leftist bull-shit. ...Jim Thompson
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| James E.Thompson | mens |
| Analog Innovations | et |
| Analog/Mixed-Signal ASIC's and Discrete Systems | manus |
| San Tan Valley, AZ 85142 Skype: skypeanalog | |
| Voice:(480)460-2350 Fax: Available upon request | Brass Rat |
| E-mail Icon at http://www.analog-innovations.com | 1962 |
I love to cook with wine. Sometimes I even put it in the food.
You know they will eventually, 50% of the time in the long term.
But what's the difference to a little operation with no employees to buy insurance for? No regulations if you aren't doing your own manufacturing with waste products. Just taxes and they probably won't change much, and if they do they will change back a few years later.
I had some good advice handed to me once by a rather successful entrepreneur (making endodonic drills and burrs): Find a narrow part of the industry, so narrow that it will not attract the attention of the big guys in the business. Do your best to monopolize that narrow segment. Do not advertise, product release, or attract attention. You know who your potential customers might be so contact them directly. In other words, specialize and stay away from mass market ideas.
One of the biggest dangers to any product based business is getting copied or cloned. At best, a new competitor will cut your sales in half. At worst, you loose all your sales if your competitor is in China and has a much lower cost structure. It gets really scary when the clone of your product works better than yours, simply because your competitor has the benefits of YOUR experience and mistakes.
I can't claim that this advice has worked for me. I haven't done an independent product since about 1990. The few successes I've had were mostly the result of personal connections, perfect timing, and pure luck. However, I am considering doing another product and intend to follow my own advice. For you, methinks it might be better to take the advice of those you know to be successful.
I'm a bit worried about you not having previously run your own business. I've been involved with and helped run the various family businesses since childhood. I've had two service businesses fail under my mismanagement. I know how they work, what needs to be done, how to lie, cheat, and steal, and what it takes to survive. It's not something you can learn out of a book or online. However, if you're going to take the plunge, I suggest you at least talk to the SBA: They didn't do much for me in terms of getting a business going, but their SCORE advisor was very useful in pointing out some traps and pitfalls that would have killed my business before it even got started.
I know nothing about attorneys, and do my best to avoid them.
Good luck.
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Jeff Liebermann jeffl@cruzio.com
150 Felker St #D http://www.LearnByDestroying.com
Santa Cruz CA 95060 http://802.11junk.com
Skype: JeffLiebermann AE6KS 831-336-2558
The market segment I plan on addressing (electronic musicians) are generally older with a lot of disposable income. They're addicted to acquiring new shinies like smack addicts, and anything new and unusual attracts attention.
For example, Roland recently released digital recreations of some of their classic analog synthesisers from the early 1980s, priced at around 300 each. Among all the usual snobbery over whether they are as "good" as the old ones, they're flying off the shelves regardless. All my local Guitar Centers sold out of them this Christmas.
The difficulty with a small player is that one doesn't have that level of name brand recognition or historical cachet.
Thanks for the advice. I think the idea would be to target a market large enough to make a decent profit, but small enough such that the expense of some Chinese outfit would need to take in reverse engineering and tooling up to make clones wouldn't be justifiable.
That is to say, exhaust the market for a certain product before they get wind of what's happening. Then on to the next.
What's your mission statement? From your post, it seems like: "I'm kinda sorta thinking about maybe producing a widget..." Unless you have a CONCRETE plan and FAITH in your idea and are willing to put 100% of your time and money into making it happen, you will LOSE "real money". 90% chance you'll lose, even if you do.
If you're successful in a large enough market, the copycats will take it away from you. All that profit you'd planned to use to pay off your investment will disappear.
25 years ago, when I was having such thoughts, I found a local group of inventors and entrepreneurs. I went to a bunch of their meetings. Turned out that only one of them ever made a dime. Most succumbed to: Overestimating market interest in their widget. Underestimating the cost and difficulty of setting up a distribution channel. Underestimating the startup costs of manufacturing.
Someone with an existing manufacturing capability and distribution channel can easily take your successful product from you. Their marginal cost to add a product is far less than your first one.
Getting off the ground is the hardest part.
The only guy making money was on a plastic clip that held a pencil to your car sun visor with advertising printed on it. He contracted the whole thing out to some Chinese manufacturer. He took orders and forwarded the ad copy to China. Made $0.02 each on a large volume.
One of the worst disasters was a fertilizer product. The inventor decided that iron filings on your lawn would make it green. He tried it and it worked very well. Since the iron broke down slowly, he claimed you'd only have to apply it every decade... and offered a guarantee. Sold a bunch thru a local store chain. Long story short, after about 2 years, everybody was claiming their refund. Ruined not only that product, but the relationship with his distribution chain.
His manufacturing process was simple. Get plastic bags printed and shovel in the iron filings. Problem was that he couldn't find a supply of suitable filings. He had to buy a TRAIN CAR load to get what he needed and pay for a place to house it. Anybody wanna buy 90% of a train car load of rusting iron filings?
Didn't take long for me to decide that retirement suited me better.
Sales is the #1 thing. If that's there, everything else will fall into place relatively easily. If there are not enough sales at a high enough mark-up, **nothing** will help. Don't underprice your product, it's very hard to recover from that.
That's part of sales. Give yourself a deadline, in months, to achieve a positive *cash flow*, and come up with a credible plan to achieve it. If (when) it doesn't go quite as planned, be prepared to 'pivot' and use the knowledge you will only learn by giving it a shot to do something else that works.
There are plenty of resources available for start-ups.. some are aimed at the type of business that will either become enormously successful, crash and burn, or join the walking dead within a matter of months. Others at generic small businesses including the corner dry cleaners. There are some really useful books available- one is 'Crossing the Chasm' which talks a lot about promising but false starts. Here's a Canadian-based resource that's more aimed at IT and health startups that are headed for IPOs but still likely useful for you:
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and the price is right ($0).
But make sure (as quickly and as cheaply as possible) that the sales are there and don't spend too much time getting to the point of offering products, because that's usually only the beginning of the job, especially for a start-up. Chances are the market will want, at best, something a bit different than you think, and if you exhaust your resources getting to that point, you're dead meat.
--sp
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Best regards,
Spehro Pefhany
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I do sometimes wonder if attempting to do consulting and working exclusively on "one off" products to address a particular client's issue would be a better way to go.
I like solving problems, designing and building things. I worked in sales years ago, and to quote Alec Baldwin, I'm not sure I have the brass balls required for it anymore.
No. The problem is when you need money, go to the bank for a loan, and they declare that your method of doing business is not sustainable. They want to see a steady income, month after month so that you are able to make their loan payments on time. I had that problem when I was in the 2way radio service business. Most everything was time and materials. There were months when I would be rolling in cash. There were also months when I could barely meet payroll and fixed costs. In order to dig myself out of that mess, I switched to selling service contracts instead of time and materials. I did it all wrong, the customers took advantage of the situation, but I had my loan and was able to make the payments. Eventually, I paid off the loan, sold the biz, and lived happily ever after vowing not to repeat that mistake (which I did again anyways).
I also know of a horror story where a company was doing the design and R&D for a much bigger company. The small company was mostly done with the design, when the big company casually mentioned that they didn't have an air tight contract. They stole the design, and the small company went down in flames. The problem here is that you will have all your eggs in one basket. If something goes wrong, you're totally screwed.
Another story. Might was well mention names. I was working for Granger Assoc. One of the other divisions was working a what is called a TransMux, or an analog to digital telephony converter. Most of the 3,000 assorted US phone companies were switching from analog to digital and needed a band aid to temporarily act as an interface between the two systems until it was all digital. All 3,000 companies wanted Granger Assoc to make them a special, to their specs, and of course, to their price. A very sharp marketing director decided to tell them to go to hell, and built it to AT&T specifications, which was the biggest customer. Within days, all 3,000 specials went away, and everyone agreed to buy whatever AT&T was buying. Moral: Specials are tempting, but are really an expensive distraction. However, if that's the only way you can get the customer, then price it sufficiently high to make it worth your while.
I have few other horror stories if you're still not convinced.
Hint: Reduce EVERY decision to a money calculation. For this example, how would working for a single client affect your cash flow and overall finances? What is the benefits to risks ratio? Is the cash flow and aging better with a single client, than with a tangle of dealers, distributors, end users, and resellers?
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Jeff Liebermann jeffl@cruzio.com
150 Felker St #D http://www.LearnByDestroying.com
Santa Cruz CA 95060 http://802.11junk.com
Skype: JeffLiebermann AE6KS 831-336-2558
You might enjoy mine: "My purpose is to separate the customers from their money".
My repair biz motto is: "If this stuff worked, you wouldn't need me".
My URL's are:
All those are on my business card(s).
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Jeff Liebermann jeffl@cruzio.com
150 Felker St #D http://www.LearnByDestroying.com
Santa Cruz CA 95060 http://802.11junk.com
Skype: JeffLiebermann AE6KS 831-336-2558
I've seen that documentary on Netflix, It seems the market is saturated for component synthesisers. One name Moog. It's hard to compete against a name like that, unless you have something special. Really REALLY special.
I helped a guy set up a fishing rod blank manufacturing shop. He had lots of experience in manufacturing, but not so much in sales. When he started he priced his fly rods at about 10% less than Fenwick and Sage. He was in Kingston Washington and both Fenwick and Sage were close by. There was st ill plenty of profit margin. Fly rods take the least material and labor. But his sales were not great.
So he raised his prices so they were a bit above Fenwick and Sage, and his sales increased. Obviously his latest ( the same ) rods were superior to t hose made by Sage.
They cost more.
In the same vein, there was a shop in Bremerton that had graphite composite spinning rods that were made in Korea. They were about $15 . Ron said th ey were good rods and that he could not compete with them on price. But h e did not have to. Those rods were obviously inferior. How could they be any good at that price.
Moog is the high end of the market, their main products are in the several thousand dollar range.
With synthesizer guys, they aren't like "hmmm I'll get a Moog and that's it." It's not like a choice between Chevy and Honda. They say "Hmm, I'll get this. And this. And one of these. And that." And so on until their wife leaves them in despair.
Korg makes a little pocket synth that sells for 50 bucks and they sell tons of them.
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The one thing I do understand is the mentality of my target market...;)
I have somewhat the opposite experience to Jeff Lieberman.
I worked for a medium size company a long time ago, but when that slowed down about 30 years ago, I set up doing contract design for them, and various other customers - both software and hardware - and stuck with it. Eventually ended up with only 1 customer, but he supplied enough work to keep me busy for the last 20 years or so. I made a comfortable living doing the design work. He made a comfortable living building the gear and selling to a worldwide - but still very niche - market.
The advantage for me was I had essentially I no sales overhead. So I never needed money to buy stock, or keep a cashflow running on margin.
I had several ideas for other things, and designed a couple up to commercial items, but found that much bigger companies could step in and either take the design, or just go around it with another product angled at a slightly different area.
Maybe I was just lucky, but I still consider that the only way to operate as a small entity is to find some type of niche market, do it better that anyone else, and stay ahead of the competition. Attempting to compete in a big market will never succeed.
It isn't just the just the Chinese clone shops that are a problem. Large domestic companies have the irritating habit of pre-announcing products for the purpose of testing to see if there's a market or if it's worth building. You might be quietly selling some nifty gizmo, only to have MegaCorp product release a similar product with a better feature set or lower price. Most retailers and distributors would prefer to deal with MegaCorp than with you and will either sit on potential orders until MegaCorp can delivery, or demand that you match their prices. Never mind that the MegaCorp product is pure vaporware. I had that happen at a former employer. However, I found an easy solution. The MegaCorp product had not been FCC certified. By the FCC rules of the day, a company could not advertise a product for sale until after it had been certified. We managed to convince the FCC to send a reminder letter to the MegaCorp legal department, which promptly panicked in the desired manner. Today, the FCC would do absolutely nothing so don't count on using that trick.
Yep, that's the plan. The problem is that it's risky for a one man shop. You will need to divide your time between the all important job of selling your current product, and the equally important task of doing R&D on its replacement. When I was younger, I could do that, and juggle the books at the same time, but not today. I'm too old and lack the stamina to do everything myself.
It's also possible to do several products, but in radically different markets. If one product gets cloned, it's a problem, but it doesn't reduce your sales to zero. I worked for a company with that philosophy. Oddly, the side products brought in more money than the intended main product. Management refused to recognize this, and stubbornly continued to throw money at the wrong product line. Eventually the board of directors hired a management consultant, who immediately shoved the situation directly in their arrogant faces. Priorities were soon rearranged and things went more smoothly after that.
Hint: Define what you are selling and who your customers are. If you're making a standard product for sale, you're in the product biz. If you're customizing it for everyone that drifts in the door, you're selling engineering services.
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Jeff Liebermann jeffl@cruzio.com
150 Felker St #D http://www.LearnByDestroying.com
Santa Cruz CA 95060 http://802.11junk.com
Skype: JeffLiebermann AE6KS 831-336-2558
That's a "fashion" market, which is driven by promotion, word of mouth, advertising, hype, BS, and reputation. I don't think you have the advertising budget (which includes celebrity endorsements) to pull it off.
The problem with anything new and unusual is that there's often resistance to being different. Many market segments are actually very conservative, although you wouldn't know it reading the trade magazines. Easy example. Various appliance manufacturers have tried over the years to introduce labor saving devices into the kitchen that essentially do all the work for the overworked housewife. None of them have sold very well except as well intended giftware. The problem is that the housewife does not really want some machine to do the work for her. She has to be doing the cooking, not the machine. Same with a synthesizer. The musician does not want a machine that composes, arranges, orchestrates, and plays the music for him. He needs to be part of the process or he feels left out. Selling a Swiss Army synthesizer, effects generator, processor, mixer, and multi track recorder in one package usually fails in the non-professional market because the musician feels left out. However, selling such a device into the studio market, where the output is all important, and both the musician and the hardware are essentially invisible, works well.
If you actually plan to do something new and wonderful, think about doing something mundane, but packaging it in a way that attracts attention. For example, putting the electronics plain view under a layer of glass, some kind of exotic animated LCD display, heads up gamers display, or maybe a driver for a 3D smoke tank hologram projector. In other words, add a visual layer to the experience of making music.
Or, just go fully retro: Check out the prices before you dismiss the idea.
Or, do as I suggested and become a specialist. For example, modifying existing high end synthesizers by replacing the keyboard with one designed for small hands. I knew someone that was doing exactly that, but he burned out on drugs.
Well, at least they didn't to it with tubes (valves), tape loops, and spring box reverbs (effects). I guess raising the dead has its merits, but with your lack of name recognition, methinks that would be impossible. The best you can do is clone the packaging of some classic synthesizer, and "modernize" the mechanics and electronics.
Yep. So are you going to be selling technology or snobbery? If you're relying on nostalgia and having the highest priced instrument available, it's snobbery. Methinks you need to work on identifying the potential customers and defining what you are really selling.
Drivel... here's mine.
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Jeff Liebermann jeffl@cruzio.com
150 Felker St #D http://www.LearnByDestroying.com
Santa Cruz CA 95060 http://802.11junk.com
Skype: JeffLiebermann AE6KS 831-336-2558
Jim-out-of-touch-with-reality-Thompson hasn't noticed that the currently le ading contender for the Republican nomination is Donald Trump, who is produ cing such outrageous bull-shit that even the other Republican candidates ha ve noticed. There isn't actually much of a market for leftist bullshit in t he US - the electorate finds middle-of-the-road to be as leftist as they ca n stomach - but when the Republican candidates are for the presidential nom ination are competing to be the most lunatic right-winger in contention, an ything that isn't rabidly right-wing starts looking attractive.
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