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 at home or 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 United States.

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 lies in an individual’s ability to take action and execute on the details. It’s inevitable you’ll make mistakes along the way. They key is learning from these ‘mini failures’ quickly and not letting your enthusiasm sink through every step of the process.

So we’ll skip the typical entrepreneurial BS we find online about making generic products. This post reveals what you should know before building your next badass product. We’re covering original, physical products here, not the latest fidget spinners. America chief export is creativity. ‘Merica.

We’ll highlight a few of the important decisions to cover before you start the search, sourcing and funding of your product. This will save you time and money, and hopefully help you execute a better plan of action. Maybe even helping you retain more control and ownership of your company in the process.

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 before kicking off your product development meeting.

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

First, 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 shitty 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 around the world. As wages and the cost of living rise in Asia, mass produced and labor intensive products get pushed inland towards other lower wage countries. So this is always a moving target you have to monitor.

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].

How do I get quality in China?

One way to combat inconsistent quality from the start however 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 provided directly by the factory. Be prepared that this can be expensive but it is necessary for most products if you want your 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 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’re not one of them. We like to pay it forward by being very open with referrals, processes, and resources.

This may be obvious, but an economical way to find a reliable factory is to simply ask for a trade referral. Referrals are a quick and economical way to vet factories. Industry ‘friends’, websites like Alibaba or Sourcify, industry trade shows and their related websites are all solid places to gather factory referrals. Sometimes you can uncover a factory reference on a 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. When approaching a brand, most will give you a solid yes or no to verify a factory reference if approached in an open and friendly way. We’ve found working in the reverse order by approaching the brand with no manufacturer reference will get you nowhere quickly. 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 final shipping dimensions of the product. From there you can get an accurate shipping quote ahead of time.

The Rise Of Consumer Focused, U.S. Made Brands. Why this is becoming popular…

The Real Hidden Costs Of Manufacturing In China

Cash flow is king

Cash flow is everything for a startup, 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 cash flow 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, 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 when manufacturing in China and selling to other retailers. Meaning, it’s 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 successful direct to consumer brands being built in the USA.

The brands we’re talking about are competitively priced, sell a small range of products to happy customers, and have lower return rates. This savvy way of doing 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 brand messaging can spread quickly among a happy user base with significantly less capital investment [which comes with way less headaches] and effort. You can then drive those results to expand the business into other product extensions 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, type of product, and your business model. Having a basic set of five questions to review is helpful before you decide what the best course of action is for your business.

  1. What type of product are you making?
  2. What type of funding / financing do you have to work with?
  3. What are production time frames?
  4. What is your sales cycle?
  5. How does your sales cycle affect cash flow?