Establishing a consumer product-based business versus a service-based or tech-based startup creates some very specific challenges. With service and tech, most of the initial cost during proof of concept comes from time and labor, but with consumer products, your startup costs involve product development, sample production, marketing and sales efforts — and, once your company is off the ground, you then have to find sufficient capital for scaling production and distribution. This cash requirement usually involves some type of purchase order financing as well as the cost of distribution, warehousing and fulfillment, notes Joe Huff is the co-founder and director of positivity at LSTN Headphones.
In 2010, Huff left his position as co-founder and CEO of Ramp Logistics to start a new social cause: “This Shirt Helps.” Both LSTN and This Shirt Helps were designed to harness the power of consumer purchases and make a positive difference while engaging and empowering people.
Huff discovered that the key to succeeding is to set up key factors that minimize out-of-pocket expenses and maximize growth potential from the start with the means you have. The first place to start is to have a solid business plan, which doesn’t mean you need to have a 50 plus page document. But you should have a document that spells out at least three critical projections: Sales strategy/projections, which contain all of your best-guess market penetration figures including sources, quantities and dollars sold by quarter; P&L projection, which pulls all of the sales data and then adds in your cost of goods, plus all of your projected operating expenses by category based on anticipated percentage of revenue; and, Monthly cash flow, which is based on the requirements and assumptions in the P&L projections.
When bootstrapping a consumer product company, Huff says that this exercise will quickly reveal your biggest costs are your cost of goods and your fulfillment costs; plus, the more successful you are at growing your business, the bigger the cash requirements become. Here he offers the three ways you can successfully bootstrap your business: