These five pieces of advice are some of the take-aways of the live video AMA I conducted with Ken Stephens, VP of Operations at Prynt, for the Hardware Club’s community.
1. GET YOUR PRICING RIGHT
Crowdfunding is a good way to launch a company, but don’t forget that at some point you’ll actually have to deliver a product into backers’ hands. One of the most common mistakes is to base your product pricing only on your bill of materials (BOM).
Most people think to price their product on the BOM as that what it costs to make a product. But they often forget what it costs to package and ship a product. For example, let’s say your BOM price is $15. You’ll instinctively want to offer your product for $99 to finance the manufacturing process (tooling, packaging, labor etc.). But $15 isn’t your real cost of goods (COGs) as it doesn’t capture your logistics, freight, fulfillments, duties and VAT costs. Be sure to get your Excel spreadsheet right or you could be in a world of hurt when it comes to fulfilling.
2. BUILD A SUSTAINABLE GO-TO-MARKET STRATEGY
When you’re planning your crowdfunding campaign, you ideally want to raise as much money as you can and accept cash from any corner of the world. Yet, most founders don’t realize this choice may become a nightmare when managing their logistics and shipping around the globe. Nearly every country has a different process for accepting taxes, VAT and packaging, which can severely complicate bringing your product to new markets. On top of that, choosing your carriers and finding fulfilment centres abroad is no easy feat. As you plan, be careful when identifying and selecting which countries to ship product and take these elements into account.
Same thing goes for your retail and distribution strategy: start with a few countries (USA, UK, France, Germany for example) and then expand your market towards other countries and regions (Italy, Spain, China, Japan etc). Don’t be greedy from the start!
3. CAREFULLY MANAGE YOUR CASH FLOWS
Let’s say you raise $1Mm and produce 10K units at a COG of around $100/unit. Manufacturing this whole batch will leave you without much cash to spare, and you still need to choose your shipping path. There’re then two possible scenarios, one is sea freight ($90 total COG), one is air freight ($100 total COG).
Most founders will want to save money and pick the cheapest option (sea). But, if you pick sea freight, you’ll have to wait for about 28 days before getting your cash back, which is extremely long for a startup. This choice can easily lead you to bankruptcy if you were in a cash strapped situation.
On the other hand, if you pick air freight, you’ll get your products shipped and delivered within 3 or 4 days. You’ll therefore get your cash back in less than a week. With that cash, you’ll be able to produce more, hire more and build a solid and recurrent stream of revenue.
So even if choosing sea freight seems something more financially reasonable, keep in mind that you’ll have no cash flows until your products get to the port, and that can take weeks.
4. BUILD A COSTS IMPROVEMENT STRATEGY
During the first six months of your adventure, focus on stabilizing your logistics process. To do this, first determine where you want to ship your products and how, and then find the best partners to make it happen. You’ll also want to keep your supply chain and manufacturing process as simple as possible, so choosing to offer multiple SKUs with different product colors and accessories may not be the best choice. Remember Ford and his Model T: it’s preferable to give less choices to your customers to avoid production and stock management complications.
During the following six to twelve months, identify areas for improvement. For your second year, implement your costs improvement strategy to help your startup scale smoother. Remember, don’t always go for the cheapest option. If you go low cost, there’s a high probability that you have to pay more in the long run: saving a few dollars at the beginning could be very costly in the long run. Cheap services can be synonymous of poor responsiveness, experience and professionalism. Picking a good 3PL from the start may save you a lot of time and cash, while also helping avoid some cold sweats.
5. DON’T FORGET RETURNS
As a startup you’ll certainly have returns from your customers. Make sure your customers have a way to contact you if they have a problem (phone number, email address, return label etc.).
Some questions you should think about: should you externalize or internalize your repair service? Should the products be shipped back to your HQs or to a repair center? Should you hire customer service support?
At the beginning it’s sometimes better to get to internally know your product issues for two reasons. First, you’ll be able to continuously make improvements on both your device and manufacturing process. Second, it will enable you to better build your customer care processes and documentation. This will help you build out a strong product success team, which can implement a return strategy should you ever want to outsource repairs in the future.
- Pénélope Romand-Monnier
Special thanks to Ken Stephens for his precious advice.
Special thanks to Evan for his help.
Hardware Club is the first community-based venture firm for hardware startups.
We select startups worldwide building game-changing products or technologies and help them scale globally. We provide resources to our community through a private network of partners in manufacturing and distribution, an online platform and private events. We also invest at early stage in some of our member startups. For more information go to our website.
You want to join Hardware Club ? Apply here!
