Whether you’re Kickstarting a product or already own a business, as a physical product entrepreneur, you’re in an entirely different ballgame than the vast majority of internet and Silicon Valley startups.
Good, Bad or Ugly – that’s the truth of the matter. The problem arises though when you follow “conventional” business logic.
See most major success stories, most influential entrepreneurs and authors, they built their business outside OUR space. Whether it’s SaaS apps and sites or service businesses and B2B contracts, the vast majority of thought leaders share entirely unrelated experiences outside physical product success.
Eric Ries is incredibly successful. He’s the father and founder of the lean startup movement – kind of a big deal. And in case you didn’t know, the lean startup’s the gold standard of entrepreneurship today – build and test a business fast and cheap, that’s the basic premise.
There are inherent challenges with this belief in the lean startup however, things Seth Godin in fact brought up in our interview and I expounded upon in a recent post.
And at it’s core, crowdfunding is meant to be the expansion of the lean startup for physical products. It’s a response to the challenges of manufacturing and making something you can hold, touch and test in the palm of your hands. Because honestly, it’s expensive. Between minimum order quantities, moulds, shipping etc the costs add and add.
Plus products are incredibly labor intensive too. We’ve discussed in-depth the challenges and strategies to find factories, use Alibaba and get products sourced and successful. But even after all that you still need prototypes, you need product to sell…and that’s all still pre-Kickstarter.
Typically tech startups are a bit more minimum – they move at an accelerated pace. Whether it’s coding up a beta, cold calling prospects or mocking up an app, most tech startups happen fast – that’s the lean startup lesson.
The upfront money and time to make product businesses successful is only the beginning however. Physical products, unlike their sexy tech counterparts are just that – physical. They have to be produced – time and money, every time.
And if it’s starting to sound like a sob story that’s intentional. Founding a product focused business is hard. But knowing the Dip, knowing the hurdles is half the battle(well not really, but you get the point).
It’s better to see what you’re up against before beginning an adventure – see if you’re up to it, see if it’s worth it.
For-profit businesses are built around making money, managing it is a big part of that.
Assuming you’re planning to produce this product post-Kickstarter to build and grow the business, you should consider cash flow from the get go.
For some this is as easy as paying your factory and selling your stuff, ie ecommerce-only businesses responsible only to themselves. They buy inventory, sell product and restock in advance to keep the cash coming. It can be that simple.
Other business models are a bit more complex however. Retailers for instance will almost universally demand net terms. This equates to a long, painful 30 or 60 days of waiting to be paid after shipping to retailers – you take all the risk.
And herein lies a massive hurdle virtually non-existent for software startups – big orders can bankrupt your business without proper financing.
Scratching your head? I’ll admit the concept of orders overwhelming a business was foreign to me at first too. So let’s look at an example, we’ll use my favorite one – Shido Stand!
So last post I offered insight into future of my standing desk startup and the reasons I’m excited by potential B2B business deals. But at the same time, retail’s really sexy too…
The idea of thousands of individuals seeing my stand desk in stores everywhere – can you say dream come true.
And in my crystal ball of crowdfunding awesomeness I can see it now, Shido Stand and a massive order with a medium sized retailer – psyched beyond belief. Run the numbers, got sufficient capital and place the order with our manufacturer.
It’s all well and good, but what happens if Apple or Best Buys calls out of the blue and wants to stock Shido Stand ASAP? Well unfortunately Shido’s broke. All that money, all that momentum – it’s all tied up in inventory with Net 60 pricing.
We’d be stuck, unable to take advantage of life changing opportunity.
That’s the worst and a terrible but all too common place to find yourself as a product entrepreneur.
This brings your startup to a fork in the road. You launched a bootstrapped business, took no outside funding and now have a semi-successful startup all your own, funded and financed via crowdfunding or otherwise.
What’s the next step?
Well there’s three options at this point: beg a bank, find an angel or scale slowly – that’s pretty much it. And there’s really no right way here. You’re the boss, choose your own adventure. What are your goals and aspirations for the business?
Banks bring money needed to speed sales and grow faster but come with interest rates and the obvious headaches of finding funding.
Angels can be awesome or awful depending on your partner, their expectations and any benefits or connections they bring to the table. And of course all this is assuming you’re willing to part with equity and have the time and connections to find a funder.
And scaling slowly, while not sexy has it’s pros and cons as well. It’s great retaining 100% ownership of the business and saving time finding financing, but really at what cost…
The all-important question to ask: will this influx of cash create a meaningfully different pie?
…then again, are you even that hungry in the first place?