Ah, the excitement of creating something that people actually are willing to pay for! But before getting caught up in the exhilaration of unexpected growth and glowing compliments, there are three important tips for starting a product based business. My quick overview and advice comes from having owned and currently owning a business that I started from scratch. While some of these insights can apply to a service based business, they are tailored for product based businesses.
Tip # 1: Get Your Ducks In A Row
There are many people who have a great idea, a great product and even a great following already. However, when you actually try to do “real” business with them as a fellow business owner, you find out that this other business has no true leg to stand on. Just raking in the big bucks does not make someone or an entity an official, legit or bona fide business.
Some “businesses” found this out the hard way when they tried to get a PPP loan or the Disaster Relief loan for small businesses. Without the correct documents, an EIN, and more, you are not truly an official business. Yes, it is true that you can run a sole proprietorship with just your social security number. But there is so much more involved with becoming a properly operating business.
Can you imagine you are at a vending event (I know, super rare these days) and someone approaches you and would like to discuss purchasing wholesale from you, but then you find out you need an EIN for tax purposes? That’s right. When businesses want to purchase wholesale from another business to resell, especially a taxable item, they need your EIN, not a social security number or just your business name, in order to be tax exempt on the purchase or purchase order. Or maybe you have dreams of having your products on the shelf of a major retailer. Often major retailers want to see that you have business and/or product insurance. The minimum coverage major retailers like Whole Foods like to see is two million. You read that figure correctly. And I am not even going to dive into the specific types of insurances and additional insurances needed based on the type of product you sell. The point is, insurance alone can get expensive, especially for a start-up. But it is often necessary if you plan to scale your business or sell your products at certain events and venues. One of the last things you want is to be sued directly, rather than your business being sued. Those pots of money are two totally different ball games.
Here are some general things to definitely do or consider for starting your product based business. Register your business with your state and the federal government. That means get your state tax ID and federal EIN number. Open a business checking account. Determine if you need legal services: this can be business coverage, having a trademark lawyer, and et cetera. Research CPAs so you know what you need to do in advance for filing taxes and keeping good books. Track the true cost of making your product from the beginning, especially before setting your sale price. Develop a website. Establish a professional email address.
Tip #2: Know Your Product
Seems like a no-brainer, right? Well, it is far from for many businesses. I cannot tell you how many times I have asked a merchant about his or her product and the information is basically non-existent or fraught with a lot of hesitation. If you say your product is handmade, your potential customer hopes that means handmade by you. And if it is, then you should know your baby inside and out. If your product is made by someone else, then you need to obtain as much information as you can about the product from him or her.
Knowing your product goes beyond knowing the ingredients and suppliers. This also includes items like, is your product taxable? Are you allowed to sell it at particular events and venues? Does it carry additional insurance to cover for liability?
Here are some questions you should be able to answer without batting an eye. Why should I buy your product? How long does it take you to make it? Who are your suppliers? Is it organic/gluten free/vegan? Is it free from phthalates, parabens, SLS, BPA, and so on? Is it good for …? How long have you been in business? Do you customize? Do you wholesale? Do you offer product parties? Do you offer discounts? Where else do you sell your products? Can I return it if I don’t like it? Do you have a sample?
Tip #3: Make What You Love
I am sure you have heard and read much about needing to be passionate about what you do so you will never work a day in your life. This is true to an extent. But when it comes to running a product based business, especially if you personally make the items, you need passion, love and true grit and determination in healthy doses. There are countless stories of crafters and hobbyist turned entrepreneurs who quickly sank or gave it all up because what they loved turned into a monster. How did this happen? Often it is because the minute people start mentioning “scaling up”, “going big”, “profit/loss”, “share holders”, “margin”, “SKUs” and so on, you’re heading down a slippery and rocky slope.
Imagine you like making cakes. You first bake them for yourself or immediate family (significant other and/or children). Then your family starts doing potluck style get-togethers (imagine before COVID). You contribute your cake, and it is a smash hit. Now your cake is requested for dessert once a week and for every family gathering. Let’s say you work outside the house. Your job has a gathering (again, back in the days) and everyone contributes something for the office party. Here you come with your family famous cake, and your colleagues love it! Now you are getting requests for making cakes, but now you are asked if you can bake one for so-and-so’s birthday and if you can customize it for this-and-that. You are happy to oblige because now you have a little side hustle and people are praising you. Soon that extra money starts getting eaten up (no pun intended) on supply costs, gas, time to take orders and bake, and so on. Then comes other costs, like time away from your family; balancing your other job(s) with your hobby turned side hustle; trying to keep your cool as your kids demand your attention, your significant says, “what about me”, and the dog keeps barking; and the energy and attention it takes to keep orders straight and maintain the quality of your product as demand grows.
In order to avoid resentment for something you once were passionate about and loved, always keep it simple. While everyone will have an opinion, advice and try to offer his or her input, remember it is your business—literally. The pressure of wanting to turn a profit might weigh on you at times, and this leads to feeling the need to meet customer requests and demands that you normally would not. But often these “customers” end up not even buying what they suggest you make. So it is always better to just stick to what you love making, eating, or using yourself.
About The Author
Stephanie is a freelance writer and editor, educator and consultant. To learn more, visit stephaniebradberry.com