Starting out in the manufacturing business is a complex matter that has a couple of factors you need to adjust to. For instance, a service providing industry (especially if you specialize in offering advice), might not require a sizeable financial investment, to begin with. At best, you would be required to pay for a couple of license fees and get a subscription or two.
As expensive as this may be at times, it simply can’t be compared with the cost of outfitting a production unit. Here, you need capable employees, you need to cover the cost of their training, get the necessary equipment, satisfactory quantity and quality of supplies and much, much more. With that in mind, here are just several things you need to consider.
Is there a demand for your product?
The fact that people need your product doesn’t necessarily mean that there’s an active demand for it. This is one of the first things you need to determine when trying to validate your business idea. When manufacturing, you’ll have to undergo a certain overhead expense, which, in turn, means that you’ll have some initial expenses you’ll have to meet in order to reach the break-even point. If the demand for your products isn’t high enough, your company might be in business for a lot shorter than you expected.
The cost of a setup
Previously, we’ve mentioned the cost of supplies, but when it comes to manufacturing, you also need to count in the workforce and the setup (equipment, space, special conditions). This being said, the cost of your setup will determine the break-even point we mentioned. Keep in mind that you can lower expenses by using fewer resources in your recipe (if such a thing is possible in your industry) or buying equipment of a lower quality to further diminish your overhead. Still, this potentially means lowering the quality of the end product, which can harm your business in the long-run and prevent it from winning over customers in the first place.
Speaking of outsourcing, most small businesses outsource functions they can’t deal with on their own (at a satisfactory quality level), like customer services, HR or IT. Nevertheless, some of the world’s greatest conglomerates outsource production. As a small business, you’ll also have that option, especially if you lack the capacity to handle hazardous or delicate tasks on your premises. For instance, you can find a company that works as a contractor electronics manufacturer and use their services for tasks like high volume PCB assembly or even final product assembly where you produce most of the parts. In this way, you stand to lower your need for initial investment.
As your business expands, your profit doesn’t grow linearly, but exponentially. That being said, businesses operating a year longer or twice your size might be too powerful for you to handle. Think about a scenario where you set the lowest possible price for that particular quality of a product, only to find out that there is a competitor offering a better quality product at an even lower price. Sometimes, when they feel threatened, these businesses might decide to work at a loss for long enough to kick you out of the game. Needless to say, with a pre-established customer base and a more sizeable budget than yours, they might just be able to pull this off.
While some manufacturing businesses comprise of tasks that can be learned in a matter of days, sometimes, you will have to employ a number of experts. If there is a lack of people with adequate training in your region (or area), starting out might not be a good idea. Sure, training people to assume this position can be an alternative, but it is A) too expensive and B) too unreliable. There’s nothing preventing them from acquiring experience at your expense and then moving to a different company where they expect better pay or chance of advancement. In other words, even the local talent pool can be an indicator of the ripeness of a certain market.
Finally, the manufacturing business is a dynamic one, which means that you’ll have to keep up in every way possible. This ranges from constantly motivating your production experts to self-educate, to updating your equipment and adopting the latest business practices. In other words, the efficiency of your work depends on innovation, which means that you can’t allow your competitors to adopt these positive practices quicker than you do. By allowing this, you’ll sacrifice your competitiveness in order to temporarily reduce your overhead, which is definitely something you can’t allow.
While these six considerations may not be enough to dissuade or reassure you that your decision to start a manufacturing business is good or bad, it’s never smart to ignore them altogether. Some honorable mentions go to rules, regulations and the location of the business and if you want your business to be a resounding success, you’ll have to consider them all. For the time being, just keeping these six in mind should do.