Keep It Simple
The Inventor: Andrew Dewberry, 43, founder of Vancouver Tool Corp. in Vancouver, British Columbia. He runs the business with his wife, Jayne Seagrave, 42.
Product Description: Dewberry's company specializes in home-renovation products, such as the Caulk-Rite, a tool launched in 1996 that allows users to create a perfect bead of caulk. Subsequent inventions include the Caulk-Away, the Caulk-Injector, Grout-Out and Grout-In.
Start-Up: $14,000, which paid for prototypes, a two-cavity mold, patents, and a run of 3,000 units of Caulk-Rite
Sales: Approximately $1.4 million in 2003
The Challenge: Achieving million-dollar sales despite a minimal investment and a staff of only himself and his wife
When you dream of running a million-dollar business, chances are you envision employees, cubicles, an HR department and so on. But what if you could have that dream business, without any of the personnel headaches? Andrew Dewberry lives that dream-today, he and his wife, Jayne Seagrave, run a busi-ness that sells the home-improvement products he's invented, and they do almost everything themselves. By taking advantage of outsourcing and keeping costs down, this husband-and-wife team is able to focus on running the business without being sidetracked by personnel issues. Here's how they made it happen:
Steps to Success
1.Do the early steps yourself. Dewberry's first product was made out of an acrylic plastic, and he made all the prototypes himself. According to Dewberry, money-saving measures have always been part of the mix: "I've taught myself how to do the 3-D drawings manufacturers and machinists need, and I can make a model of a steel part out of aluminum first to keep the costs down."
2.Partner with someone who complements your talents. Dewberry is an inventor, not a marketer or salesperson. So when it came to selling the Caulk-Rite, he turned to his wife for help. Although she was a criminologist, not a salesperson, she was willing to make those first sales calls. "Jayne started out selling six to 12 Caulk-Rites to a local hardware chain," says Dewberry. "Her big break occurred a few months into the project at a local hardware show, where she sold our entire production [run] to four hardware store chains."
3.Outsource as much as you can. According to Dewberry, Vancouver Tool saves money by outsourcing "the production, the blister-pack manufacturing and the assembly. We outsource everything but the paperwork and billing."
4.Have multiple supply sources. "We have three vendors that make the product, two that assemble it, two that do the shipping, and one that makes the blister pack," Dewberry says. Having several vendors keeps prices down and protects you if one vendor goes out of business or has production or quality problems. Dewberry uses Canadian vendors: "[They] might not be as inexpensive as overseas manufacturers, but they allow me more control over my business."
5.Consolidate distribution. The cost and effort involved in selling to an independent retailer can be every bit as big as selling to a large company. You'll have far fewer headaches and costs if you sell direct only to big customers and sell to everyone else through distributors. Dewberry made this move in 2002. "There was a lot of consolidation going on in the industry, so [our] customers were not upset," says Dewberry. "This move significantly cut both our number of shipments and our paperwork."
Most inventors don't have the time or experience to market their product, so they hope to find a marketing firm to take over sales. How do you find a firm that will work for you?
The best approach is to attend one or two key trade shows in your target industry. You can find shows at www.tsnn.com or www.tradegroup.com. When you get to the show, you'll find booths selling products from many companies. They are either distributors or marketing agents, and you can talk to them about carrying your product.
If you can't attend, call the show's promoter, and request a directory that lists the exhibitors. Contact the firms with "marketing" or "distribution" in their names, and call those that carry products sold to the kind of retailers or distributors that might carry your product.
1.Outsourcing allows you to do what you do best. Dewberry is an inventor, and what he does best is create new products for his target market. Outsourcing allows him to focus on new products, rather than spending most of his time hiring new workers, putting quality control systems in place, or worrying about the day's shipments.
2.When you outsource, you almost always have a lower margin. Businesses make a profit from every unit they sell-generally called margin. From that margin, they must subtract their administrative overhead and selling costs, also referred to as SGA (Selling, General and Administrative) expenses, to generate their EBIT (Earnings Before Interest and Taxes). Outsourcing usually leads to a lower margin, because your outsourced vendor makes a profit. But at the same time, you should have much lower SGA expenses, as you can probably run your business from home or a small office. So there's a good chance you'll have a similar EBIT whether you outsource or make the product yourself.
3.Keep your office expenses low. The benefit of outsourcing your production is that you don't need a big staff. But because you'll have a lower margin, you also need to keep your office expenses low, or those expenses might wipe out all your profits. The best situation is to set up an office at home if you can. If that doesn't work for you, be sure to go with low-rent office space.
4.Keep your marketing and sales expenses low. Sales and marketing expenses can run 10 to 20 percent for many manufacturers. That's probably too much of a burden if you're outsourcing all your production, packaging and shipping. To keep costs down, focus on just a few customers and a few marketing activities. Trade shows are typically the most cost-effective marketing activity.
5. Patent protection is crucial. When you outsource production, you also give your vendors all the information they need to go into production and compete with you. You can minimize this problem by not letting your vendors know who your customers are. This can be done by handling the shipping yourself or by having the production and shipping done by different vendors. The best protection, though, is to obtain patents strong enough to protect you from the competition. Be sure to check with your patent attorney before proceeding with an outsourcing strategy. It's vital you are protected either by a patent or by a noncompete clause in the contracts with your vendor.
Don Debelak is author of Entrepreneur magazine's Start-Up Guide #1813, Bringing Your Product to Market. Send questions to firstname.lastname@example.org.