Why You Should Start a Manufacturing Business

If you work in manufacturing already you don’t need to be told of the advantages of owning a business that makes things (although maybe you think it’s impossible for you to get a business to the size of your employer – doesn’t matter, you have so start small).

If you’ve never worked in the industry, the chances are that when you try to find inspiration as to the types of business you should start, manufacturing doesn’t appear high on anyone’s list – not seriously at least.

There are easier businesses to start – businesses that don’t require much money up front and are profitable from early on (like brokerage businesses, where you sell someone else’s product and take a cut, or service businesses where you do a job and get paid, like maintenance). There are also businesses that are more obvious, for example public facing businesses like shops or cafes.

With manufacturing, things can be more complicated. You need a product (for this article, we’re assuming you’re designing and producing your own product, not acting as a subcontract manufacturer). You need machinery. You need a place to use that machinery. You need people to operate that machinery, and you need them to do it quickly enough and efficiently enough that it is worth your time and effort. So if there are easier businesses to start, why would you bother with manufacturing?

Will running a manufacturing business be enjoyable?

From a job satisfaction perspective, it can be very rewarding. It requires and develops creativity, problem solving abilities, and a whole host of other skills like book-keeping, marketing, customer service skills, which means there’s always something new to learn. You’re taking something from an idea to a physical object which people then buy and use and love – something you’ve created becomes a useful part of someone’s life. There aren’t too many jobs that can beat that. I’m guessing you’re reading this article because you enjoy making things and being inventive. Running a manufacturing business gives you endless opportunities for creation. Have a new idea for a product, or even a new manufacturing process? Build it.

Is there too much competition in manufacturing?

From a business sense perspective… there’s usually not a lot of competition (except maybe for some very trendy products). Yes, there’s usually a glut of products available in any product category. But let’s be real – more often than not these products are poor quality, China-made-and-designed approximations of the idealised product. There are an awful lot of people and companies looking for quality products and reliable suppliers.

Think you can’t compete with these made-in-China products? Maybe it’s true that you won’t be able to produce them for quite as low a price (though that’s changing…). But these cheap goods are rebranded and sold to many middleman dealers who then have to add their own margin in order to make a profit. So the consumer pays $200 dollars to a retailer who pays a wholesaler $100, who pays the manufacturer $50, who spends $25 on producing the goods. By cutting out the wholesaler, all of a sudden you have $75 to spend making a product when our Chinese friends only have $25 (assuming you need to make the same profit per item). Ok, so this business model doesn’t allow for you to use the same model as the Chinese factories (in that if you were to use a wholesaler you would have the same amount to spend as the Chinese), but not only is it enough to get started until your processes and business becomes more refined, but more and more manufacturers are cutting out the distributor and selling directly to retailers / customers (Nike, Dyson, or Apple, anyone?).

Maybe it’s a local company you’re competing with, not a Far Eastern one. There should still be room for you. Since manufacturing takes a lot of effort to start up, a lot of companies grow initially then stagnate. They have a product that works and since it works they don’t change it. Or they have products that work, and the staff are quite content just to do their jobs and go home in the evening. Eventually someone comes along who can make a better product, or the same product less expensively, or they’re just better at marketing their product. That can be you. It’s worth remembering that people (and businesses) spend their money to achieve their own best interests. So just because they’ve used a supplier for 20 years it doesn’t mean that they’ll never buy from you – you just need to make them think it’s better for them to buy from you. There’s always room in the market for competition.

Will my small manufacturing business be profitable?

In manufacturing, you most likely won’t be making a profit from day one. It takes time to get the processes in place where you’re producing a profitable product. But when those processes are in place? Your processes effectively come together to form a ‘machine’ that takes in low cost supplies and spits out things that people pay for, giving you a profit. You are almost literally printing money.

Manufacturing used to have a big disadvantage, in that it can be costly to scale. Even though you may have the machinery, suppliers, distribution channels, and know-how available so that releasing a new product seems relatively easy, you will likely need to train staff, purchase new stock and find a place to store it. This costs a lot of money, and a lot of waste (read: less profitable). A major headache is that of making sure you have just enough stock – too much and you’re wasting your valuable cash reserves on unneccessary stock, and too little means you’ll have shortages of components – your distributors aren’t going to be happy, especially if these components have long lead times. In olden times, companies erred on the side of caution – more stock, rather than less. This costs a lot of money, and has bankrupted countless companies – what if you’re storing all this stock and the market changes and you can’t sell it for a profit any more?

In the stock control example – let’s say you want to make a batch of 1000 products, each of which uses 10 subcomponents, which are each themselves composed of 4 subcomponents (so 40 subcomponents in total per single product), and some of these subcomponents have already been assembled. How many of each subcomponent do you need in stock? A few items are out of stock – how long before we get them in, then how long to produce? So you spend hours doing the calculation, then the next day a customer gets in touch to order another 5000. You need to do another calculation, but you have to use a different supplier for a few subcomponents, and how much warehouse space do we need? How much staff to complete on time..? It’s a tangled mess, which is why it’s expensive to scale.

Fortunately, there’s now a solution (shameless plug alert). Factory Superstar integrates sales, production, and stock control, and allows you to analyse the performance of all of these so you can make better decisions. Factory Superstar does these calculations for you – not just for production batches, but for made-to-order items (ideal for cash-flow) and for custom / bespoke items. So you can always have as much stock as you need – no more, no less. (These is other software that does kind-of similar things – search ‘MRP software’ for competitors, though to be perfectly honest they’re not very good).

So, with new software – once you have the systems in place it can be much easier than in other businesses to branch out. Need to produce more goods? Put on a nightshift. Want to sell more product? Export, or approach other distributors. Problems with your intitial product? Improve it (remember you’ve got just the right quantities of stock – you don’t need to write-off stock to improve a design), or design a new one using your existing machinery. This last part is important. If you have a cafe, for example, you spend money up front to fit it out. If you’ve made a mistake in your cafe design or location, for example it doesn’t fit with the neighbourhood, then there’s not much you can do except spend a lot more money. With manufacturing if your branding is wrong it can be as simple to change as editing a logo.

Do you need qualifications to start making things?

Another advantage – with manufacturing, you usually don’t need to have any qualifications. You can’t be an electrician, lawyer, accountant, plumber, or realistically start a business in these fields without spending years getting the necessary certification. With manufacturing, on the other hand, there’s nothing stopping you. You’ll find at the start of a small manufacturing business that you need to do bits of everything – you might be making products, keeping the books, fixing your machinery, designing things, marketing, speaking to customers – so not only do you not need any qualification, but a broad background can be an advantage.

How many hours do manufacturers work?

Compared to those other industries there’s another advantage – the electrician/lawyer/plumber/cafe/store needs to work to set hours. A shop needs to be open when the mall is open, and the electrician needs to go to his jobsite when scheduled. With manufacturing, you have more flexibility in what hours you do.

Where should I locate my manufacturing business?

Location is also one to consider. If you’re an electrician/plumber/lawyer/shopkeeper you need to be based near your customers. With manufacturing this is not the case – just look how much we buy from China, which is literally the other side of the world.

Who should NOT start a manufacturing business?

In this article, I’ve tried to come up with reasons you should take the leap and start a business making things. But there is one reason why you shouldn’t start a manufacturing business, and that’s if you’re just not interested in making things. If you’re not interested, go do something else. Like I mentioned, there are easier ways of making a quick buck.

Conclusion

Fortunately, since you’re reading this article I am quite confident that you are interested in making things. I would also guess that you’re reading this article because you’d like to have a business which makes things, but just don’t have the confidence or know-how to do it. Manufacturing businesses might not be as visible as cafes, or shops, or whatever other small businesses people start up these days but there are lots and lots of small manufacturers hidden in nondescript industrial estates and garages. I know this because Factory Superstar serves a large but spread-out community of small manufacturers, most of whom make a good living (in many cases a great living), and enjoy what they do. There’s no reason that you can’t be one of them. Start out small, go from there. You can do it.