A new year means new possibilities, strategies, goals, and risks for your business. This blog is for product companies entering retail soon, or thinking about launching a product into the market for the first time.
Crowdfunding and manufacturing innovations have made it vastly easier to create a product business from a unique idea. If that is exactly what you’ve done or you’re a part of, you’ll be wanting to look into accounting for startups so you can truly maximize the margin for success. Ecommerce is a quickly growing space which has allows product startups to generate cost-effective revenue fairly early-on in the life of their business. The ultimate goal for many product startups is to be placed AND remain competitive with larger retailers. Startups have the blessing of being able to lease property as their offices, making payments affordable and giving the startup a greater degree of flexibility compared to having to purchase a location outright, click here if you’d like to find out more about leasing office space for your startup.
In my experience, many startups go through the following stages prior to getting involved in retail:
- Product is successfully funded via crowdfunding or investors (i.e. Indiegogo/ Kickstarter or AngelList)
- Startup continues to generate pre-orders through social media and online promotions while finalizing tooling and overcoming other manufacturers hurdles.
- During or after backer fulfillment, startup begins planning out future market plans while gathering backer feedback and making (hopefully minor) product improvements. Startup might contact potential buyer leads that contacted them during crowdfunding phase.
- Many startups seek further investors to fund future purchase orders and production to meet demand.
- Startup contemplates ways to use/build-out internal resources to prepare for and establish a retail presence without overspending or taking too many risks. Ultimately the goal is to move from “startup mode” to “scaling mode”.
Going into “scaling mode”:
There have been many books written about how to effectively scale a company. For simplicity, we’re narrowing our focus on the retail side as a consumer product startup.
Every company is different and every product needs a unique strategy. Below is a broad list of potential options or pathways to take. Some startups focus on one area, while some utilize all of these:
- Hiring a sales agency/reps – Often the first consideration, sales agencies can play a vital role in getting your product in front of the right buyers or connections. While great at “getting your foot in the door”, sales agents need to be equipped with the right materials and motivation (not always about commission). Prior to sales agents, you should already have a well-defined retail strategy and back-end (i.e. logistics, return policies, etc) developed.
- Hiring in-house employees – In the long-run, in-house employees often produce the most value because of their motivation to work at your startup, belief in the product, and greater time commitment. The caveat for many startups is the increased cost and runway to achieve ROI with any new employee. As a startup, new employees should be hired based on a more strict priority basis with direct ROI in mind. A Channel Manager position is typically the best option to cover all aspects of retail; however, the median Sales Channel Manager salary in the US is about $111,000. That kind of salary is far beyond the budget of most startups.
- Hiring/outsourcing an experienced contractor – Due diligence is the name-of-the-game when it comes to hiring outside experience. Many established contractors/outsourcing agencies will have past clients and a track record that you can research with a couple of reference calls. If they don’t, then you’re taking a shot in the dark unless you know the contractor/agency personally. The options also vary depending on what you need outsourcing. It could be that you’re looking into accounting outsourcing, or into ways to fill gaps when staff call off sick. The advantage with contractors tends to revolve around flexible costs and tailored solutions based on your size and situation. For example, here at Retailbound we serve as our product startups’ Retail Channel Manager for $65,000+ less a year than an in-house employee (with a stunning track record I might add).
- Doing it yourself – Not all startups consist of strictly product engineers or developers. If you’re familiar with bringing a product to market, perhaps doing a majority of the work yourself is the most cost-effective option to bring your startup into “scaling mode”. At some point you’ll have to build out your team, but when it comes to establishing a retail presence nobody knows your skills better than yourself.
Avoiding risk means being informed
Knowledge is power. You can’t avoid risk if you’re not aware of the risks involved in entering and sustaining a position in retail. I’ve included a few popular questions I get asked by product manufacturers, and perhaps it will help you assess your readiness:
- What expectations do retail buyers have for new vendors?
- How do retail buyers make their decisions?
- How do I target the right sales channels and allocate my resources strategically?
- How do I plan ahead for the costs of retail, and avoid unnecessary costs?
If questions like these are easy for you, then you’re already doing better than most product startups. That being said, we can’t forget about the execution required for a well-formulated retail strategy.
It’s not enough to only have salespeople, or at least not for the long-term . You need to have the capacity to execute on the sell-in (i.e. reps/direct sales), sell-through (i.e. channel marketing), and back-end development/management (i.e. logistics, post-sales process, forecasting).
Fully understanding these three topics and their significance to you and your potential buyers is incredibly important, and it will set you apart from competitors seeking the same shelf or website space.
What should you do next?
Whether you’re launching a product or trying to expand your retail presence I hope this blog has helped. If you’d like to learn more about avoiding risk in retail while maximizing revenue opportunities – feel free to contact me >> email@example.com
This article was written by Benjamin Ertl who works at Retailbound – a company partnered with startup organizations like HAX, Amazon Launchpad, Indiegogo, Brinc, and others – dedicated to up-and-coming product manufacturers who need an affordable way to develop & execute proven retail strategies.