Establishing stable, organic growth for your business: What entrepreneurs need to know before you’re funded and importing products from China.

The debate over manufacturing in China versus manufacturing in the United States is one that continually generates interest amongst entrepreneurs, and for good reason. This decision, whether to manufacture a made in the USA product or one built abroad, is best approached mindfully as it is critical for the future of your business.

Today we’re going to share a few of the key insights we’ve discovered over the last decade of building original products both overseas as well as in the USA.

To any entrepreneur, great ideas are like fuel. They keep us feeling alive and excited to work on new projects, facilitating presence and passion as we work. However, the difference between a pro and amateur entrepreneur is understanding which tasks are the most impactful and efficient for the future growth of the business. This only comes from experience. It’s inevitable you’ll make mistakes along the way. They key is learning from these ‘mini failures’ quickly and not letting your enthusiasm drop through every step of the process. The key is to keep building momentum.

So we’ll skip the typical entrepreneurial guidance found online about making generic products. We’re talking about original, physical products.

We’ll highlight a few of the important decisions to cover before the funding, sourcing and development of your product. This will save you time, money, and hopefully help you execute a better plan to sustainable growth in the future of your company.

First, we’d like to highlight a few of the common misconceptions about manufacturing in China as opposed to in the United States. Squashing these misconceptions will help avoid some of the common entrepreneurial pitfalls and expedite your path to success.

Does manufacturing in China mean I’ll get poor quality?

We’d like to blow up the misconception that all Chinese manufacturing is low quality. This is just not true. In fact, for some products the quality is actually better in China than in any other part of the world. The simple fact is, bad factories exist in China just like in the USA. There’s just a larger quantity of 💩 factories that exist in China. To add to this, it is often necessary to manufacture high volume products in China because the factories and infrastructure simply does not exist in the United States as global trade develops and shifts around the world. As wages and the cost of living rise in Asia, mass produced and more labor intensive products get pushed inland towards other lower wage countries. Finding countries with the right mixture of lower wages and better manufacturing is difficult because it’s a moving target.

Ok, So what type of quality can I expect out of China?

The overall quality of the product coming from China depends on the type of product you’re building and the volume of units you plan to make.

As expected, China has a much better track record for higher volume products requiring molded parts with minimal hand finishing or assembling. Minimums can be as low as in the 100s for each product but more often are in the 1000s. Manufacturing that requires a skilled assembly and finish (products like high end guitars, snowboards, wakeboards, or surfboards) will usually yield inconsistent quality at best. Many companies plan for this and have dedicated groups of workers handling warranty issues from poor quality materials and a much higher faulty assembly rate [defects].

OK, So how do I get high quality in China?

One way to combat inconsistent quality from the start is to hire an experienced, full-time manufacturing agent to keep a watchful eye over the factory’s development, prototyping, and production processes. Most of the time you’ll have very minimal contact with the factory managers. Your communication is through a factory agent. Sometimes the factory outsources this to a group of English speaking locals or they retain a factory rep in-house. We’ve learned it’s best to hire your own local agent not one provided directly by the factory. Be prepared though that this can be expensive but it is necessary if you want the designs to match the outcome.

Wherever you choose to manufacture, one of the most important aspects if you choose to go through a third party or use an  in-house agent is to have a very detailed technical manufacturing guide detailing specifications and guidelines. The outline or specifications factories use to understand and build your product are called tech packs in industry lingo.. This makes a world of difference. So invest time and money into your tech packs. Not being detailed enough will kill your project.

We suggest hiring an experienced product designer to review your tech packs before you send them off to the factory. In the future we’ll be sharing how we create tech packs.

Where can I find a factory to manufacture my product?

No doubt, it is difficult to find reliable factories in any part of the world. Most factories are just not that progressive on the advertising and digital front to bring in more business. Contributing to this, established brands like to keep their manufacturing resources private. This is usually due to competitiveness in a crowded market. The cost and effort associated with the capacity to produce a product is another reason why they are kept private. We like to pay it forward by being very open with referrals, processes, and resources.

Although obvious, the most economical way to find a reliable factory is to simply ask for a trade referral. Referrals are a quick way to ‘vet’ factories. Industry friends, websites like Alibaba or Sourcify, industry trade shows, and their related websites are all solid places to gather a list of factory referrals. Sometimes you can uncover a factory reference on the product label.

Once you’ve sourced a couple factory contacts [it’s important to have more than one], ask the manager or rep who they’ve built products for outside of your direct referral. We find most factories will openly share as the rep learns more about your product or business [sometimes factories will have exclusives and non-disclosure agreements].

The important part of a reference is to actually follow up on the factory’s brand reference. That means approaching the brand. This seems scary at first but most will give you a solid yes or no to verify a factory reference if they are approached in a thoughtful and disarming way. We’ve found working in the reverse order by approaching the brand with no manufacturer reference will get you no answers. So, If you like the brand and the product, you’ve got a solid bet the factory will do good work.

Is manufacturing in the USA expensive?

On paper, as a simple unit cost, it usually is. However, when you dig a little deeper into the operations of a company there’s hidden financial burdens typically overlooked by entrepreneurs.

Manufacturing in China can actually be more costly in the long run. You’ll need more capital upfront, you may lose a larger percentage of ownership, and if mistakes are made, there usually costly which can significantly impact profitability. Remember, many entrepreneurs lose sight that a bigger business doesn’t always equal more profitability, just more headaches.

How long does it take to make a product in China?

Again, this depends on the product but know that larger production quantities are usually required in China and the product development process is significantly longer. At the very least, we recommend product development and prototyping take place as close to home as possible.

On top of this, actual production time frames can vary from 30 days up to 90 days at a minimum. You also have to factor in shipping time frames which can be as few as 30 days but could run up to 60 days or longer depending on customs processing. If everything goes smoothly, depending on what you’re producing, you can expect to have a finished product in your hands in about 6 months, not including lead time without development hiccups. The language barrier and time zone in China is often another determining factor in how quickly a product goes through each stage of production.

If you have a seasonal product, time constraints and cash flow from longer lead times are not easy to manage in a new business.

What’s the deal with Shipping, Customs & Duties Taxes [tariffs]?

Another major line item that gets overlooked and can significantly add to your cost from China is shipping, customs, & duties. Again, this is completely dependent on the type of product you’re shipping. The most overlooked aspect of design is the packaging of the product. This can have major implications on your overall transport costs for products made in China. If you design the packaging when the product is designed, then you can get a good estimate on the shipping cost of the product.

The rise Of independent, direct-to-consumer, made in the USA brands. The best path to profitability.

The Real Hidden Costs Of Manufacturing In China

Cashflow is king

Okay, now we get into the nitty gritty. So listen up if you’ve read this far. Cashflow is the life blood of a startup because time equals money. Most companies go out business by running out of cash. The cash you’re spending on development and production in China over the course of six months has a rather large opportunity cost. With money tied up for periods of six months [at minimum], you’re not able to fund other important parts of your business that could build sales and generate cash in shorter sales cycles.

The Importance Of Sales Cycles

Let’s examine our sales and cashflow cycles for a minute.  Understanding how quickly the business can convert a product back into cash from a complete sales cycle is vital to the health of a business. The quicker the production and sales cycle, the easier it is to achieve sustainable growth in your business, burning much less cash up front. [We’ll save our opinion of burning money to capture market share for another post].

Reviewing sales cycles leads us to an entirely different set of questions related to the business model for generating sales. Does your business model involved manufacturing and shipping products to retailers [at wholesale pricing] or do you sell direct to an end consumer through the web or a branded brick and mortar store?

The Financing Of ‘Lead and Shelf Time’

If you’re shipping to a retailer in a competitive market, retailers will expect financing terms. Meaning, they won’t pay you cash for your products. In a competitive seasonal market like wakeboarding or snowboarding, standard terms could be as much as 120 – 180 days! There are ways around this called factoring [also expensive] but at a minimum this means your business needs a cash runway for up to two full years of production cycles in the traditional manufacturing operation of building in China and selling to other retailers. This is going to cost a lot more than you project it will.

The aversion to the hidden costs above form the founding principles in the quick rise of profitable, direct-to-consumer, made in the USA brands.

The direct to consumer brands we’re talking about are competitively priced in a broad market yet are highly targeted in a niche segment the industry. They sell a small range of products to happy customers, and have lower return rates. This savvy way of growing a business eliminates many of the headaches and hidden costs associated with manufacturing products in China. Generating quicker sales cycles and engaging a more active audience will yield a sustainable, high growth business.

Another major benefit is your brand’s story get spread much quicker with a happy user base. You’ll also have to spend significantly less capital investment to get your message out [which comes with way less headaches] and effort. You can then drive those results to expand the business into other product niches quickly.

If money, expertise and product fit are dialed, China has benefits. However, entrepreneurs should be aware of the hidden costs and alternative paths to brand success, whatever that means to you.

So we discovered where you choose to manufacture your product is a decision that will have a major impact on your business strategy, and vice versa. The ultimate answer depends on the funding you have, type of product you produce, and your sales channels. Having a basic set of questions to ask yourself is helpful for choosing the right path to profitability. 

  1. What type of product are you making and how long does it take to develop? — what’s your development timeline until you can create revenue from sales of your product?
  2. Do you have funding / financing coming in to build and how far does that get you? —  project a simple but accurate weekly 12 month cashflow estimate
  3. Can the factory give you production time frames? – is your time frames in 1 & 2 above realistic?
  4. Which sales channels are you planning on selling into? - how does this affect your cashflow cycles above to reinvest in new products?

Have you had any big wins or tough losses lately? We would love to hear about them. Comment below.