Start a Successful Consumer Goods Company Without Breaking the Bank
Apr 10, 2017
I see a lot of people complain that starting a business is too expensive. They would be right if the year was 1982 and the internet didn’t exist.
OK, you’re right, if you’re trying to get into biotech or pharma. You still need a lot of money for that.
…but you do not need a lot of money to get into consumer goods.
We have several companies we have started with a measly 4 figures in capital when we were in our teens/early twenties that now bring in 7 figures in revenue yearly.
We didn’t need to sell equity, take out expensive loans, or borrow from friends & family. Best of all, we did it quickly.
While we don’t stick to these rules anymore because we have a healthy amount of capital to play with, we got our start by following these rules and still follow the spirit of them.
Here they are…
Sell a product that solves a need, and test test test. Then test some more.
This seems obvious but a lot of people go out and create products that don’t really solve a need. Or, they create a product that they think solves a need.
If you think you have found a product that people need, then find out where potential customers hangout and poll them!
You don’t need to spend money to poll them. Just join a forum that where they congregate and ask forum administrators for permission to run your poll.
Or you can walk into a physical location where these people hangout and tell them what you’re doing and why you need their help.
People will be thrilled to see a company that creates products based on their input.
Ask questions about what features are important to them, how much they would pay, existing pain points with current market offerings, etc… Just try to keep your survey relatively short. I recommend Google Forms for this because it’s flexible and free.
Not only is it free to do market research this way but it can also be used as a selling point for the product! We did this with the hair products BluMaan sells, our guitar strings with Wired Guitarist, and the guitar pedals that Horizon Devices makes. It is a real win/win for everyone involved.
The best part about doing market research is that you’re ensuring that you aren’t throwing away a lot of your time and money creating a product nobody cares about or wants.
If you can make prototypes of your product easily, then take them somewhere where your customer base hangs out, and see if they buy the product.
Don’t spend on R&D when other people will do it for free.
Having an amazing product is important and it’s what will determine if your company is successful or not, but you don’t need to break the bank to create an amazing product.
Very few people realize this, but most reputable manufacturers will happily take care of R&D for you for free. There’s no need to go out and spend $175,000 on engineering you can’t afford when your manufacturer will do it for you.
After all, they are poised to make a lot of money off of you if the product does well, so they want you to succeed even more than your friends or family do.
Now, manufacturers aren’t just going to go out and invest in doing R&D for the first guy that walks through their doors. You will need to show them why your idea is good, how you’re qualified to pull it off and how you are going to make them filthy rich.
The one caveat is that most of the time these manufacturers will own the IP in exchange for doing your R&D. If you’re working with someone reputable, this isn’t a big problem and even then some manufacturers will let you keep the IP or let you purchase it from them if you politely negotiate with them. Keep in mind that they are the ones taking a risk by investing in your idea, so don’t be unreasonable when negotiating with them. If they really won’t bite, you can get creative and offer them a royalty that expires down the road.
Establish demand, then buy inventory.
Selling products on a preorder basis is now socially acceptable.
Why would you go out and buy $100,000 worth of inventory if you don’t even know how interested people will be in the product?
Utilize platforms like Kickstarter to launch your product. Sure, they take a fee but they provide you with a risk-free way to test out demand for your product. You don’t even need to build a website if you’re using Kickstarter!
Highstance, a sock company we recently acquired, didn’t have a real logo, the copywriting was OK, and the product images were shot by the founder of the company.
Leo at Kickstarter still managed to sell $20,000+ CAD in socks!
Obviously Kickstarter didn’t magically do all the work for him. He still had to create a desirable product. What he didn’t have to do though is spend a large amount of money on buying inventory before checking to see if people even care about the product.
You can even do this if you’re building homes. Tyler started Pomwell by selling houses built to spec for customers which hedged a huge amount of risk for him when he started out. To find the customers all he had to do is make a few craigslist posts and get active in the local community. He already had a good reputation as a reliable contractor that he was able to leverage successfully to land clients.
Another classic way to test demand is to build a landing page with UnBounce or Instapage, and then run PPC traffic to it and see if it converts and at what price.
Be cheap. Really really cheap.
I see a lot of people spend money on things they definitely don’t need.
The best example I can think of was someone Ben & I pitched many years ago on marketing consulting…
He was in his 40s, and used the equity he had in his house to take out a massive loan to start a business.
One of the first things he did is hire a branding consultant that he was paying $2000 a month to, and grabbed an office in the trendy part of town for $3500 a month.
This might seem obvious to you, but for some reason once people get approved for a loan they start spending money they don’t have on unnecessary things.
Please, don’t do it — especially if you’ve taken out a loan.
As far as expenses like logos, sites, etc… keep in mind that you can get a great logo for as little as $20 — $100 through companies like LogoJoy. LogoJoy is even instantaneous so there’s no real wait for a logo.
Need a phone line? I recommend Line2. You can get a toll-free number that supports texting as well for something like $16 a month. You can take calls via their app your phone or your computer. The first month is free too!
Borrow as much equipment as you can from friends & family too. Don’t go out and buy a DSLR to take pictures of your products when you can borrow one from your cousin that uses her DSLR exclusively to take selfies every 6 weeks.
Everything is negotiable.
Never buy something without asking for better payment terms or a lower price and don’t ever believe anyone if they say something is a rule at their company; especially if they aren’t a real decision maker.
A lot of these “rules” companies have are very flexible.
For example, when we started Wired Guitarist, our online guitar retailer, we were told by many brands that they don’t allow online-only retailers to sell their products.
We even talked to a few of the higher ups at some of these companies and were still told no.
Normally, this is where people give up and call it a day. Luckily we knew from previous experience that a no from someone who doesn’t own the company isn’t really a no. It’s just someone following a rule that their boss told them is a rule.
After being denied, we thought about why these companies didn’t want people who only sell online exclusively to carry their brands…
What we realized is that these brands don’t want people who have no idea what they’re doing to carry their products!
Physical locations are capital intensive and (supposedly) naturally prevent inexperienced entrepreneurs from opening a guitar store.
Fair enough, I wouldn’t want someone who doesn’t know how to run a business potentially ruining my company’s reputation either!
Keeping the above in mind, we then spent a few hours crafting a pitch that showed these brands why we are a good fit and how knowledgeable we are about their products.
We then approached the CEO of one of these companies at a yearly conference. He agreed to let us carry their brand and even waived the supposedly mandatory $50,000 buy-in because he saw that we were dedicated entrepreneurs who knew the product, not one of the burnout rockers from the 1980s looking to open a guitar store for fun that usually approach them.
Don’t spend on expensive untrackable marketing!
This is probably the most debatable point I’ll make in this article but in my opinion if cash is tight, you shouldn’t be spending large sums of money on marketing efforts that are expensive and untrackable.
Pay-per-click ads and tactical media buys like banner ads on forums are still the greatest way for a consumer goods company to market their products online because you can easily tell if they are making you money. The best part is that it only takes $20 — $150 to test and find out if there’s potential for a scalable PPC campaign.
It might take some time and expertise to execute a great PPC campaign, but you can learn just about everything you need to know online. There are hundreds of free videos you can watch on YouTube and Google/Facebook even offer free training.
Google will even give you access to someone that helps you put together a campaign regardless of how much money you are spending with them. (edit: it appears since I used this service in ~2012 the quality has changed, so maybe think twice before utilizing it!)
Sure beats spending $23929289328.666 on a billboard ad, doesn’t it?
Do as much as humanely possible.
You need to be willing to put in 100-hour weeks. Period.
Your life needs to become the business.
If you’re holding down another job to provide income while you work on your business, that’s fine, just make sure you’re putting in as many hours as humanely possible.
You’ll save a lot of money doing things that others will usually hire for. In the process you’ll also learn how a lot of things are done and how to do them effectively.
How can you possibly hire a salesman when you have no idea what a good salesman is like?
Sure, you might get lucky and make a good hire, but you probably won’t and in the process you’ll burn through money finding a good candidate.
You’ll be surprised by how many skills you can learn quickly…
One of the first ‘real’ businesses I started was a reputation management company with Ben. We taught ourselves how to write copy and how to smile & dial with videos on YouTube (thanks Derek Lipsky). Our website was even coded by Ben who was basically computer illiterate at the start of our little venture. It wasn’t a great site, but it was more than enough to start selling and generate revenue!
Now, we definitely hire people like that for our businesses now, but only because cash isn’t tight and we can afford to hire great photographers, marketers and web developers.
Hopefully you’ve learned a thing or two!
I hate writing conclusions so I’m definitely going to skimp on one here. Sorry.
If you found this article useful, share it with some friends or donate to your favorite charity under the name “Harambe’s Revenge”. Feel free to use it wherever you want, just credit us properly. 🙂
This article was written by Mehtab Bhogal, a Co-Founder at Momentum Ventures, a Vancouver-based Venture Capital firm.