Before Starting that Manufacturing Business, Know this…..

As a contracted CFO I see many businesses and many business situations.  If you are starting or thinking about starting a manufacturing business I would like to share with you one of the main reasons why manufacturing businesses fail.  In my view the main reason why a new manufacturing business fails is the business owner does not understand that they have to sell their product 3 times in order to succeed.  Yes, that is right.  The manufacturer must sell their product 3 times.  They must first sell it to a distributor, then they must sell it to the retailer and then they must sell it to the consumer.  Start up companies very rarely understand this concept and as a result dollars must be allocated for selling expenses, marketing expenses, travel expenses etc.. for each of those three selling transactions.  Very rarely does the start up manufacturer of a consumer product understand and budget money for these things and as a result always runs out of money.  In my view there is a misconception that all you have to do is sell it to the distributor and your job is done as the business owner thinks that the distributor will take it from there.  Unless it is perceived by the distributor as one of the hottest products on earth, nothing could be further from the truth.   So after you sold it to the distributor you must go to the retailer and sell your product to them and of course they are going to ask for all types of incentives in addition to pricing incentives they will look for advertising and marketing money and they will want to know how you are going to promote your brand to the general consumer as you are now needing to sell the product to the consumer.   If the product stalls and does not sell at any part of the 3 points of sale your product will be returned.  So the theme of this post is be prepared to sell that one widget 3 times!

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