Make a profit.
You would think this would go without saying, but one of the first mistakes Makers, well, make when they start to sell their product is not charging enough. It’s easy to see why, for all sorts of reasons.
They want the product to be popular and the lower the price the more it will sell. They’re generous and they don’t feel right charging more than is absolutely necessary. Maybe they even feel that if the product was created with community volunteer help it would be immoral to charge more than it costs.
Understandable, but wrong. You’ve got to charge a reasonable profit, and the reason is simply because it’s the only way to build a sustainable business.
Consider what happens if you make 100 units of your delightful laser-cut handcrank toy drummer kit. You do the math, and between the wood, the laser cutting, the hardware, the box and the instructions, it costs you $20 to make each one. You pack the kits in your spare time, price them at $25 just to cover any costs you may have missed, and start selling.
Since it’s a fun kit and pretty cheap, it sells quickly. You suddenly realize that you’ve got to do it all again, this time in a batch of 1,000. Rather than putting up a couple thousand dollars to buy the materials, you’ve got to put up a couple tens of thousand dollars. Instead of packing the kits in your spare time, you’ve got to hire someone to do it. You need to rent space to store all the boxes, and you’ve got to make daily trips to FedEx.
It takes lots of cash to stay in stock.
One of the surprising prices of success is how much it costs! Obviously you’ve got to buy your parts and pay for the manufacturing before you can sell your product and make the money back, and the time between those two can be measured in many months if not years.
Likewise, if your product has many components, you’ve got to have a healthy inventory of all of them, with a large buffer in case any one of them become hard to find or there is a delay in shipping them to you.
One of the first hard lessons Makers learn when they go into business is that their supply chain is only as strong as the weakest link.
If you’re out of one component, you can’t ship your product. For the want of one chip or bolt, your entire business can grind to halt.
“Out of stock” is the curse of the Maker industry. Because most of us are new to manufacturing, we don’t get our supply chains and component inventory right.
The real difference between a hobby and a business is that businesses don’t buy retail. Just as you’ll be selling wholesale to other stores, you’ll need to buy your components wholesale to keep your products affordable. That means buying in volume, and the discounts typically get a lot better in units of thousands than in hundreds.
In the case of electronics components, that means buying reels or at least long tape strips rather than bags. Fortunately, there’s a pretty good secondary market for unused electronics parts, so if you really get your forecasting wrong, you can recoup a fair bit of the money by reselling them.
Likewise for laser cut products, where you can sometimes buy material in bulk or negotiate a volume discount with the service bureau. But for those, you can’t resell what you don’t use, so don’t bankrupt yourself shaving a few cents off a part and ending up with boxes of parts you don’t need.
As for your other components, almost everything you can find retail, you can trace back to the manufacturer or wholesaler. It’s worth the search—the price savings can be be astounding (we pay less than twenty cents for motors that sell retail for $3).
Basic business rules still apply.
If you’re selling products under your own company name, you’re a real business and you have to act like one. That means doing it legally.
In the US, that means that you should incorporate. There are services that can help you with this, such as IncFile.com, or you can do it yourself by filling out online forms at state and federal agency websites.
For example, our company, 3D Robotics, is incorporated as a Limited Liability Corporation in the State of California. It will probably cost you a few hundred dollars to cover the paperwork and is required if you’re going to open a business bank account, have employees or otherwise operate anything larger than a lemonade stand.
Even if you’re just selling online, you need to charge sales tax in your home state. Note that it may differ from county to county within the state, so use ecommerce software that can handle this and look up the tax rates on your state’s government website. You’ll probably need to register for a “seller’s certificate” at your state’s government website, too, so you can pass on the sales tax to the state.
You get no leeway for being a Maker.
I know. You’re a good person, running a small business, maybe even giving away your intellectual property to the world.
It doesn’t matter. People are going to complain. They’re going to want more features and changes. They’re going to moan about your website and documentation. As open as your product is, people will want it be more open, and they want you to help them endlessly.
And the moment you charge a penny, it gets worse. People will expect Amazon-level service the moment you take your first order.
Be as open as you can.
Why not release your designs, free for all to use? I realize that for many people this seems insane, but we’re seeing more and more examples of such Open Source Hardware business models working brilliantly.
It’s what we do at DIY Drones, and here’s why: when you release your designs on the web, licensed so that others can use them, you build trust, community, and potentially a source of free development advice and labor.
We release our electronics PCB designs in their native form (Cadsofts’ Eagle format), under a Creative Commons Attribution + Share and Share Alike license (“by-sa”), which allows commercial reuse.
Our software and firmware, meanwhile, is all released under a LGPL license, which also allows for commercial reuse as long as attribution is maintained and the code stays open. The result: hundreds of people have now contributed code, bug fixes, design ideas and made complimentary products to enhance our own.
The simple act of going open source has provided us with a free R&D operation that would have cost hundreds of thousands of dollars if we’d been closed source and had to hire our own engineers to do the work, to say nothing of the quality of that work.
Create a community to support and enhance your products.
A community of users and co-creators can be your greatest asset. Of course not all products need or deserve to have a community, but you’d be surprised how many can.
For example, one of my projects is an Arduino-based sprinker system (this is more about my family history than my garden: my grandfather invented the automatic sprinkler system in the 1940s). Can you build a community around a sprinkler system? It turns out that people already have.
Design for manufacturability.
Making one of something is easy. Making 500 is not. The differences between prototypes and production models is the difference between hobbyists and manufacturers. Here are some quick tips, especially for electronics:
• Remember that every electronic product must be designed twice: first the product itself and second the test jig that you put it on after manufacturing to ensure that it’s working.
The test jig must not only be able to check all the electronic elements, which means special software to run through a series of diagnostics, but it must also make electrical contact with all of your product’s connections with a simple press.
That means using special spring-loaded connectors called “pogo pins” and creating PCBs that guide your product into the right position so that the pins make contact and the test software can be run by non-engineers in seconds.
Marketing is your job.
As the inventor of your product, you’re the best marketer for it, too. That doesn’t mean that you have to start doing infomercials or even taking out ads. Because you’re a Maker, you’re part of the larger community of Makers, and people want to hear about you and your product.
You should be blogging about your progress, and tweeting, too. Take pictures and videos of every milestone, and post those. Use every opportunity to talk about your work in progress and get people excited about it, which will not only start to form a community around it but will also build demand for it.
That’s all marketing. Community management is marketing. Tutorial posts are marketing. Facebook updates are marketing. Emailing other Makers in related fields is marketing. I suppose what I’m doing right now, writing this list, is marketing.
Your second most important relationship is with your package carrier.
Real businesses don’t pay retail. If you don’t get business discounts on your shipping, the prices will be as much as twice that of your competitors. And since it’s the one thing customers can compare across retailers, they’re super sensitive to shipping rates.
They’re so used to getting ripped off on shipping from eBay merchants that they suspect that high shipping rates are really part of your profit strategy. And when it come to international shipping, if you don’t get this right shipping costs can add up to more than the price of your goods, effectively closing off much of your international market.