What now seems like forever ago I owned a small and insignificant loudspeaker company. I loved what I did and the people I did it for. What I hated (and sucked at) was the business of the business. Let me explain.
Many people, such as myself, start businesses to support something we're passionate about. That is also a significant reason why most of us fail. We love what we do and don't treat it as a for-profit business. I had spent some 25-years learning my craft and another 11-years doing it professionally. However, I had no business acumen and it had no choice but to show. And it did. Business struggles, personal struggles, and an inability to properly manage those stresses contributed to several bad decisions that not only hurt the business but my reputation within the audio circles I traveled in at the time. Eventually, I closed the business, not because it wasn't viable but because I had nothing left to give it. I had taken on no debt, owed no money, and fulfilled every order. I left with my hands clean. Many others don't.
One of the early lessons I learned was what the relationship with dealers was actually like. They made it clear that if I wanted product placement I would have to give them at least 50% of retail. More of course is better. The more they make on a product, the more incentive there is to sell the product. The next thing is, they don't buy display samples and they don't stock inventory. I was expected to provide the demo product and stock my own inventory. Shipping, either to the store or to the customer was also my responsibility. One must have a place to hold such inventory which adds cost, and one also is taxed on the value of that inventory every year. The cost of placing a product in stores is born by the manufacturer and not insignificant.
But that's not all. The manufacturer is solely responsible for generating interest in their product. Marketing includes creating a perception of your products in the marketplace. Reviews are certainly part of that, and review samples, shipping, etc. are also paid by the manufacturer. Reviews are great, but they seldom translate directly into sales. You have to advertise. Customers need to be familiar with your name to seriously consider buying your product, regardless of a great review. Sure, there are a few who are willing to risk purchasing obscure products from little-known companies but not enough to offset the cost of generating those sales. Flyers, hand-outs, brochures, catalogs, all must be developed, printed, mailed, shipped, etc. to prospective buyers. Trade shows aren't cheap either but can be an important part of gaining exposure both in the industry as well as with the consumer. You have to generate interest and recognition, interest, and build a perception for your company and products, and that's not cheap. Oh, just because there's not as much demand for glossy product hand-outs as there once was doesn't mean those costs are gone. They shifted to being largely online. You still have to have product beauty pictures taken and ad copy developed. You might want a website built and unless you're a web developer you'll have to pay for that too.
Internally you will need a place to work, lights, heat, etc. Are you answering the phone? Are you the marketing manager? Do you answer emails? How about final assembly, packaging, and shipping? You will need help, and people don't work for free.
Let's say you begin to get a little traction and there are a few sales that start coming in. Unless you're independently wealthy and already have sufficient production and storage capacity you will likely need to find money to grow your lemon-aid stand. This is often where passion and business clash. Investors don't love you, your company, or your passion for what you do. What they love is the return on their investment. You may have started this to make the very best product you are able to and share it with the world, but this is business and it's about money. The pressure to decrease costs and increase profit is unrelenting. Labor is a major cost in manufacturing. Loudspeakers are labor-intensive at every step. Thus the pressure to move production overseas where costs are lower. Still, it must be profitable to do that which requires a certain volume. This brings us to the economics of scale.
In short, small volume production is always more expensive per unit than large scale. Buying 100 drivers at a time costs more per unit than buying 1,000, 5,000, or 10,000. That applies to everything required along the way to generate and fulfill every sale you make. I won't mention whatever personal financial risk you may have in your venture, but I will mention those who rely on you and your decisions to provide them the means to feed their families.
My apologies for being so long-winded.
