If your startup is based on a new product, your relationship with a
manufacturer could be the most important partnership you will form.
Your manufacturer will strongly influence the quality of your product,
your speed to market, and whether you can make and keep delivery
commitments to retailers and to consumers.
“There’s
nothing that can move an entrepreneur with a product to the next level
of business like a good manufacturer,” says Gene Pepper, a
California-based small business consultant. “On the other hand, there’s
nothing that can sink a new company quite like a bad manufacturing
relationship.”
Here are three things you must do before establishing this crucial relationship:
- Do thorough research
- Consider using a rep
- Settle the overseas question
Do thorough research into manufacturers
There
are thousands of contract manufacturers out there. You can do most of
your research on the internet or at a library. And you can browse
products that are related to your product at retailers to glean
information about manufacturers from product packaging.
Start
by determining which manufacturing code covers your product; a system
called the North American Industry Classification System (NAICS) has
superseded the previous Standard Industrial Classification (SIC) codes.
Then canvass for manufacturers in that code. Contact trade
associations. Get the help of a local SCORE (Service Corps of Retired
Executives) counselor. Attend trade shows for the industry you’re about
to enter, where manufacturers and their representatives typically would
cluster. Search the Thomas Register online
for U.S.-based manufacturers. With an internet search, it’s also
possible for you to narrow in pretty effectively on overseas
manufacturers.
Consider using a rep when finding a manufacturer
The
job of manufacturers’ sales representatives is to find new accounts
like yours to bring to the door of their contract-manufacturer clients,
in exchange for a fee or a cut of revenues. So they can be very helpful
if there happens to be a good fit for you in their customer portfolio.
Industry directories and trade shows are great places to find them.
Some
startups have had bad experiences with reps. “I found that they’ll
promise anything, but not necessarily deliver,” says Rolf Scholtz,
president and co-owner of Dero Bike Rack Co., a Minneapolis-based
company that has dealt with several manufacturers since it went into
business. “And with reps adding their markups, it can prevent you from
being as cost-competitive as you need to be.”
Settle the overseas manufacturer question
One
of the first questions you may have about your product is whether you
can afford to have it manufactured in the United States. If it’s a
highly complex product, its components are heavy and unwieldy, or you
have short lead times, then making it in America is probably still the
answer.
“It was very important to me to be an
American company even though there’s probably a 10% cost penalty for me
to do so, so I chose a manufacturer in Ohio,” says Tina Aldatz, founder of Foot Petals. “Plus, if I have to, I can be there in a heartbeat.”
On
the other hand, you should consider a foreign manufacturer if your
product is a low-margin item or a commodity, if you need it to be
manufactured in high volumes, and if long lead times aren’t a huge
problem for you. Overseas suppliers now can match most American
companies in quality and reliability for these types of products.
Nan
Siemer is very happy with the Chinese manufacturer of Pooptents, the
bottomless-tent product that she invented to shield her dogs when they
have to “do their business” outside. “I found a tent maker in China
that I liked right away because he didn’t even want to talk about price
until after we had established a relationship,” says Siemer, who is
based in Alexandria, Va. “Besides, it was cost-prohibitive to make this
product in the United States.”
But counting on a
foreign manufacturer can also pose some problems. Chinese
manufacturers, for example, are notorious for ripping off the
intellectual property of their client companies in America and
elsewhere. And shipping issues can loom especially large because of the
length of your “supply chain.”
“In the startup phase,
your volume might not be huge, and if you have to bring over a quarter
of a container from China, that might be too much inventory to start
with,” says Jim Anderson, a SCORE counselor in Orange County, Calif.
Our Bottom Line
Finding
a good manufacturing partner is a crucial next step in bringing your
invention or new product to market. Using the internet and old-fashioned networking, you can efficiently come up with good prospects, even if the best ones are overseas.
