Product-Based Small Business start-up: a conversation between Julie and Tyson on how to launch a small business start-up that is based on a new product design
Product-Based Small Business start-up: Let’s start the conversation now; here we go. Hello, and welcome to 2016 and the Google Small Business Community. My name is Ben Tyson. And it’s a new year, so that means it’s time to start that new business. So with that in mind, we’ve invited small business expert and author Julie Gordon White to give us her best tips and tricks for business planning. Julie, thanks so much for being here. JULIE GORDON WHITE: Hi, Ben. It’s great to be here.
BEN TYSON: Can you tell us a little about yourself? JULIE GORDON WHITE: Sure. Well, I’ve had the pleasure of working with thousands of small business owners over the last 12 years with my boutique mergers and acquisitions firm, through my book, “Exit! 12 Steps to Sell Your Business for the Price You Deserve,” and my company, The Well, for women entrepreneurs in the online training program called Accelerate. BEN TYSON: Fantastic. Well, today, we’re going to talk about starting a product-based business. And I wanted to share a statistic with you that I found very interesting.
Product-Based Small Business start-up: Launching a product
According to the Product Development and Management Association, for every seven product ideas, only four enter development, and then only one succeeds. So what are some special considerations people should keep in mind when they’re looking to launch a product? JULIE GORDON WHITE: Yeah. That’s a great question. That statistic is disturbing, though, isn’t it, right? So really right out of the gate, they should really consider what patents and licenses are required for this idea, this wonderful idea, and concept.
So you can go right to the patent and trademark website and poke around and see what other concepts are out there that are like yours. So you can add your own flavor and make sure you’re not going down kind of a path that might not be it. Another idea is to test, test, test, right? Get that little prototype developed and go out and talk to people. I think a lot of entrepreneurs get nervous about sharing their idea. You know, someone is going to steal it. But all that feedback from customers is just really golden. It’s just invaluable to get that feedback because you want to make sure you’re building something that people want.
You don’t want to go too far down the road. And then after all that feedback, once you get the go and the green light, that’s the time to go and secure funding because building a product company costs money. BEN TYSON: Absolutely. JULIE GORDON WHITE: It’s a little different than a service company where you can kind of grow organically. But product, you need capital. So that’s the time to make sure you really have investors or banks or wherever you’re going to get that capital from. You need to go out and secure that at that time because there’s nothing worse than having a big go with your new product, getting an order, and then you don’t have the funds to build and produce more. That’s the sad thing, right? BEN TYSON: Yeah. And what’s interesting is when you talk about getting capital investments, a lot of investment firms want to know what your profit margin is, right? JULIE GORDON WHITE: Right.
Product-Based Small Business start-up: So what is the ideal profit margin for a product?
JULIE GORDON WHITE: Right. So on the margin side, the important thing is to understand that you want to have as healthy a margin as you can, right? Because it’s different for every industry. But when you have a healthy margin, that makes up for any mistakes that you might make because, of course, you know, you’ve got to factor in the cost of production, the materials, and the labor. And so if you have other expenses in your company, if you can keep that margin healthy, then that’s going to protect you in case you have any unexpected expenses or you have to take back product or things like that. So a healthy margin is probably the most important piece.
BEN TYSON: OK. And how can I find and negotiate deals with vendors to help build my product? JULIE GORDON WHITE: Yeah. You know, the first thing is to ask, right? So go online, Google it. Search it and figure out where those people exist. BEN TYSON: Nice plug. JULIE GORDON WHITE: Do you like that?
Product-Based Small Business start-up: OK. Where are those manufacturers are for your product?
There’s also national associations for almost every industry. I think they’re golden. You must find the state or national association that usually has all of those types of players in them, from the vendors, suppliers. And go ask them, how can I negotiate special terms with you? Can you do a small run for me? You might pay extra for it, but it’s a great way to test out further and go take your product into the marketplace without going, again, too far down the road, end up with a garage full of stuff that didn’t sell. So just go out and ask.
BEN TYSON: Interesting. How would I manage the cash flow in that process?
JULIE GORDON WHITE: Yeah. That’s a really important piece. When you’ve got that cash flow, you want to make sure that, one, you’re paying your invoices quickly so you start to establish credit. And that way, in the future, they’re going to give you better terms, which is another thing to negotiate so you can take a little longer to pay. Because especially if you’re selling to a large company– a large department store, let’s say– it’s going to take a while to get paid.
So you want to make sure that you have enough cash flow to manage through that time where you have to produce it, then you have to ship it, and then you have to wait 90 days after that to get paid. So it’s really critical. It goes back to that whole capitalization thing. BEN TYSON: Absolutely.
And to sum all this up, what is one thing that you want every business owner to remember when they’re just starting out?
JULIE GORDON WHITE: Yeah. I love that. Well, I just want to add two. Don’t forget to stay lean, right? Especially when you’re managing your cash flow. So I’m going to throw that into my last statement here. Stay lean. But also think big. If you’re going to work that hard and have this great idea, think big. And then start right where you are, because when you do think big, then there’s that kind of feeling of paralysis that can sink in.
So just take the next best step. And then lastly, you’ve got to sell your way to success because sales covers up a lot of mistakes. So sell, sell, sell. BEN TYSON: Awesome. And if you want to learn more from Julie, you can attend her free webinar every Wednesday at AM Pacific called “The 21 Day Business Plan.” We’ll also post more details on how you can sign up in the community. Julie, thanks so much for being here. JULIE GORDON WHITE: Thanks for having me, Ben. BEN TYSON: And thank you for watching.
Product-Based Small Business start-up: As always, all of our content is available at g.co/gsbc. And please, follow us on Twitter, LinkedIn, Facebook, and of course, Google+. Until next time, I’m Ben Tyson. Thank you so much for joining us here in the Google Small Business Community, the place you go to get the help you need to succeed on the web..
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