How to Be Profitable From Month One
Scott Weiner is a self-described "Android nut" who has always upgraded to the latest and greatest smartphone. When he traded in his previous phone for the new Samsung Galaxy Nexus in late 2011, he loved everything about it. Except for one aspect.
"The thing is as slippery as if it's got grease on it," says the web entrepreneur and former employment lawyer from Fort Lauderdale, Fla. "I think I dropped it three times in the first week. So I ordered a bunch of cases to see if one would solve the problem, and I was pretty dissatisfied. I thought, Why don't I start selling cases?"
In April, Weiner did just that, launching DBA Cases, a company that sells and now designs premium Android smartphone cases constructed from high-quality materials such as an impact-resistant polycarbonate, a polymer that is also used in bullet-resistant glass and fighter jets. (Weiner says he plans to manufacture cases for the iPhone 5 this year.)
His first shipment of 750 units nearly sold out within a month, grossing $2,450. That may sound like a small number, but it was definitely something. More important, he was learning the business; he quickly built a sterling reputation among customers, secured a $20,000 investment and then launched phase two: manufacturing and distributing 8,250 cases for the hot-selling Samsung Galaxy S III. (10 million units of the phone were sold within two months of its release.)
Turns out, mobile phone cases are big business. According to a report from industry research firm NPD Group, case sales grew 28 percent to 23.4 million units between 2010 and 2011, with revenue up 57 percent to $661 million. That said, it's not a business for the faint of heart. Because pre-release information and rumors about upcoming phone models can be incorrect, it's a costly possibility that case-makers could have to scrap entire manufacturing runs.
Knowing the danger of bad information, Weiner didn't rush his homework. Over the winter, he methodically scoured reviews of every Android case on sites like Amazon, eBay and Alibaba. Then he went deeper to find out what the bestselling handsets on eBay were (Amazon doesn't publish such numbers). Weiner ordered and hand-tested many of the cases he researched.
He also searched eBay to determine how quickly phone cases dropped in value. He discovered that prices start in the $12 to $15 range, then drop six to 12 months after release. However, they usually bottom out at $8. This told Weiner that, at a minimum, he had to figure out a way to make a profit on an $8 case.
While conducting his research, Weiner stumbled on an opportunity to get in the game with less risk: He discovered that a popular mesh case wasn't being sold for Samsung's Galaxy Nexus or Galaxy Note smartphones, both of which were still new to the market.
"I found the factory that made the mesh case and ordered sample cases for the Galaxy Nexus and the Note," he says. "I liked what I saw, but I didn't want to take a tremendous risk." So he ordered 600 pieces for the Nexus and 150 for the Note.
Weiner then sold his cases on Amazon for $11.50 each. His total cost per unit came to roughly $5.75--well within the $8 price floor.
Selling through Amazon was part of Weiner's larger strategy. The online retailing giant handled his order fulfillment and payment processing, even with his relatively minuscule product inventory. And he used the site to focus his marketing efforts. He knew from his engagement with Android power users on product forums that Amazon was usually the first place people went to purchase a good-quality case online.
Through the forums, Weiner sold a few cases and asked the buyers to post reviews on Amazon. Because of his cases' high quality and value, the feedback was sterling. DBA Cases catapulted into Amazon's top 100 for the product category, in turn boosting exposure and sales.
By May, a month after launch, Weiner had the confidence to begin looking for a factory in China that could manufacture cases of his own design for the new Galaxy S III. Through a sourcing agent, he eventually found a few factories to produce and ship 8,250 units to follow the release of the new phone.
"Throughout this whole process, I learned that if you want to start a company that is going to be a brand-name company, you can't be greedy," Weiner says. "There are many companies out there that are not growing as fast [as mine] because they sell phone cases for $30 or $40. I'm selling a better-quality case for less, because I don't want torip people off."
30 Days to Profitability
Follow this timeline to achieve quick success
T minus 6 months
Research your market. Talk to the best customers in your business category. Try to test as many of the competition's products as possible. Do it again three months later to see if any new products, shops or competitors have emerged. Scott Weiner of DBA Cases went to Amazon for reviews, eBay for sales numbers and Alibaba to find manufacturers and wholesalers to contact.
T minus 3 months
Decide how big you need to be. Figure out a minimum number of units you need to sell that will prove your concept and make the process worth your while. Your number depends on your available investment and your product. In Weiner's case, the fact that many Chinese factories require minimum orders of several hundred units was the deciding factor.
T minus 1 month
Find a middleman for the heavy lifting. Use a fulfillment service or intermediary such as Amazon or a wholesale distributor to handle the operational side of inventory, shipping and payments. This way you can focus on marketing the current line and working on future products to fill the pipeline. Yes, these middlemen will take a healthy cut of your revenue, but if your concept works, they'll be ready to scale up quickly to keep the business growing. You can always renegotiate later.
T minus 3 weeks
Spread the word. Find out where the most valued customers in your business congregate (think online forums, review sites, trade shows, conferences, events and informal meetups where influential customers talk shop), and start publicizing and seeding your product on their home turf.
With any luck you'll build a backlog of good reviews and pre-orders before your full product line hits the market.