How to launch a physical product without investors
Posted: Tue 25th Mar 2014
The rules of business have changed.
For most of the last century, if you wanted to run anything more than a corner shop, there was a good chance you needed investors or needed to quit your day job, at the least. But the advent of the internet has brought us lifestyle businesses, bootstrappers and lean startups. You don't need to be a mass producer to sell to a global audience anymore.
And yet"¦ there's an implicit assumption. We tend to think of self-funded entrepreneurs as people who sell one of the following:
Software (as a product or service)
Services (such as marketing, graphic design, etc.)
That's because it takes little or no startup capital to launch products and services like these. All they take is time.
The unfortunate fact, however, is that these spaces are usually ultra-competitive. Physical products are often a much less competitive space. Many industries are lacking innovation. It's the right place to fight a downhill battle, assuming you can afford to play.
Can entrepreneurs get involved with physical products if they don't have investors behind them? Yes, they can, and it's only getting easier.
Build a Unique Prototype
It should already be obvious that if you're going to play the physical product game, you're probably not going to be inventing the next iPad. It needs to be simple enough that you can do one of the following:
Build it yourself, from scratch
Assemble it yourself, from parts you can afford
Pay for somebody else to assemble a prototype or a small run
These restrictions might make it seem impossible to do anything new or innovative, but all it takes is a little creativity, and a willingness to be innovative. This isn't just so that you can find your space in the market. It's also so that you can sell at margins high enough to minimise the risks associated with manufacturing, shipping and other costs.
Don't become the product expert. At least, not unless creating the product is a craft that you truly love and would like to do for the rest of your life. Being a product expert isn't what's going to separate you from the competition.
It's the unique twist on your product that is going to make it a seller.
Take the Soma water filter, for example. Mike Del Ponte didn't need to be an expert on water filters to successfully pull over $100,000 on Kickstarter and launch a company. Instead, he approached David Beeman, a water filter expert who had worked with Starbucks and developed many innovative techniques, to design a compostable water filter that went above and beyond the competition.
Mike Del Ponte wasn't the product expert. He just had the unique idea: a beautifully designed and environmentally sustainable water filter. This was a product that did not exist. It was this idea that set Soma apart.
In Soma's case, they had to have enough capital to hire somebody who could design a water filter, but this is by no means a necessity.
Justin Winter built a $12 million business in 18 months by putting rings in candles. They built their first candles with a stove from Craigslist and a 5 quart stock pot.
The question mark lamp, inspired by video game blocks, started as a small operation building prototypes for friends and family, but it went on to launch a successful KickStarter with a $100,000 goal.
Remember, the key is to do something innovative in a stagnant industry, with products that are relatively simple to design and manufacture.
Use the Right Tools
It's important to be smart about how you invest your money. Here are a few specific examples of what I'm talking about:
Use a readymade e-commerce platform such as Shopify to set up your retail store and the tried and tested WordPress for your blog. Don't waste time or resources on web design or shop features. You want to have something up and running that looks professional without too much investment.
Outsource anything that would take extensive time or resources for you to learn how to accomplish, and that doesn't resonate with your skillset. This has two primary advantages. First, it allows you to get things rolling faster. Second, it allows you to clearly define what actually needs to get done. If it's not one of your core skills and you aren't willing to outsource it, it probably doesn't need to get done, at least not yet.
Start talking to manufacturers and drop shippers. In the long term, you don't want to be manufacturing or storing the product in your own garage. Most brand names are using white label manufacturers and shippers. You need to get an idea of how much upfront capital will be necessary to make this work. Focus on minimum overall cost, not minimum cost per unit. Remember, this is an experiment. Tim Ferris has some excellent advice on choosing a manufacturer, and the advice works well for drop shippers and any other third parties as well.
Start Building an Audience
Depending on the kind of product you are developing, you may be able to start off early selling luxury, custom versions of the product. Since these are one-off products, the scarcity is high. If your audience is big enough, this will allow you to earn a substantial profit with a relatively small number of products, because you will be able to keep the profit margins relatively high.
If the product in question doesn't lend itself well to this kind of model, you will need to either pick up a certain number of pre-orders or get crowdsourced funding in order to get your first manufacturing run off the ground.
Either way, you will need to build a sufficient audience in order for this to happen.
There are a number of ways to build an audience:
Post YouTube videos
Get involved on forums, Quora, and social networks
Pull a publicity stunt
Advertise (low barrier to entry with PPC or banner ads)
The method you choose to build an audience is up to you, your unique set of skills, and your budget. However, no matter what strategy you use, the following three keys are absolutely vital:
You must transform exposure into an email list. No matter how many people you reach, and no matter how much your project resonates with them, the vast majority of them will forget about launch day, and will probably forget you exist, if you fail to get an email address from them.
You must get as much feedback as possible from your audience and give them psychological ownership early on. This will allow you to hone your product to better suit the needs of your audience and focus your attention on the features that matter, eliminating the ones that don't.
You will almost certainly need to make some influential friends, most likely bloggers who have large email lists of their own. Give first and it will be much easier to ask for something in return.
Launch Day isn't Everything
You aren't launching an investor-backed enterprise, and you don't need to act as though you are. The purpose of the launch isn't to turn a massive profit or blow away expectations. It's to run an experiment and test your business model.
Whether you turn to crowdsourcing or pre-orders, you want to minimise surprises. Know exactly how much it will cost to manufacture, store, and ship the products, as well as the percentage of profits vendors, affiliates or other third parties are going to ask for.
The point is to be over-prepared. You want to know exactly how much money you'll need, conservatively, for your initial launch, and you'll want to know exactly how big your audience needs to be, conservatively, to pay for that using whatever funding you're assured of.
Make sure you have taken the steps to prevent orders when the product is out of stock.
While a hugely successful launch is what everybody hopes for, a weak launch is common and doesn't say much about your future success. Ramen profitability is a good sign. It means that you can invest the surplus back in your business and continue to scale.
You don't need investors in order to launch a physical product anymore. With a bit of experimentation, the right tools, and the right audience, success is well within reach.
Rohan Ayyar works for E2M, a digital marketing firm for startups. Rohan hangs out around the clock on Twitter @searchrook "" hit him up any time for a quick chat.