If you want to bootstrap a business, beware of bootstrap busters – challenges that make bootstrapping more difficult. We already covered the issue of critical mass. Today, we’ll address two issues commonly faced in consumer packaged goods startups: Tooling, and minimum production runs.
Want to start a line of cosmetics? Iced tea? Household cleaning products? Here are two words that could be the bane of your existence: Tooling, minimums.
Packaging is a powerful way to make consumer products distinctive. Think of the POM juice bottle, or Method soap dispensers. They practically jump off the shelf. But in order to produce those fancy bottles, you’ve got to design your own machine tool dies – the molds that will be created once, and used over and over on the production line. That tooling can cost tens or even hundreds of thousands of dollars. Yikes. To avoid tooling costs, bootstrappers often use existing packaging to get started (notice the similarities between bottles next time you walk down the beverage aisle), and design their own later, once they’ve got significant cash flow from operations.
Another bootstrap buster for packaged goods entrepreneurs is minimum production runs. On the factory floor, it’s a big hassle to set up a production run. The production line has to shut down, and skilled operators have to set everything up to prepare to produce the products. That costs time and money. And a factory has the same setup costs whether they produce 1,000 units, or 100,000 units. So, they’ll always prefer to do longer runs, and will set their prices accordingly. But when you are just starting a business, you probably want to do shorter runs. After all, you have limited demand (maybe you are just servicing a few accounts at first), limited warehousing space (i.e. your garage), and of course, limited capital. That’s why bootstrappers tend to search for suppliers that are used to working with startups. Maybe they are smaller factories, with higher prices. If you only need a limited number of units, and your objective is to prove that customers want to buy your products, you are better off paying $5 per unit for 1,000 units ($5,000) than $2 per unit for 10,000 ($20,000).