Are Manufacturing Startups Just Doomed To Fail?

How to make a success of manufacturing

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According to Forbes, 9 out of 10 startups fail. It seems like a ridiculous statistic. And it is because there’s a lot new businesses could be doing to prevent it. The problem is especially severe in the manufacturing sector. Here competition doesn’t depend so much on personality as it does raw product. And that’s where things can get a little tough. Now products have become so international, manufacturing startups feel that they have to undercut. But they don’t have the scale or the resources to do it. It’s clear that if manufacturing startups continue to behave how they have been, they’re going nowhere fast.

So what can be done about this sorry state of affairs? And how can manufacturing startups actually make some money? Let’s find out.

The Problem With Competitors

Your competitors have probably been in business for a long time. And, as a result, they’ve grown and refined their processes. Right now, you haven’t. And that means you’re automatically at a significant cost disadvantage. The trick here is to find a way that your product adds value, above and beyond what’s already out there. If you can’t charge a little more than the going rate for your widget, it’s probably best to go back to the drawing board.

The Problem of Material Costs

Most businesses spend a lot of time focusing on their direct input costs. And this is understandable. If you’re ordering in sheet after sheet of steel to make your product, you care about the price of steel. But many businesses fail to take account of the inputs that don’t comprise the product yet are essential for operations. And these costs account for some 20 percent of total expenditure on inputs.

Now savvy businesses are turning to outsourced procurement to solve the problem. The idea here is that specialists take over the management of indirect materials and look for ways to save costs. But it’s not something that many startups are doing right now. And it costs them a small fortune.

Setting Up A Factory Is Expensive
According to blogger Travis Levell, it’s not unusual for a hardware startup to spend $1 million on tooling and DFM. And, in the context of a recent startup, that’s a lot of money. So why is it so expensive? Well, for one, products are often a lot more complicated to manufacture than startups realize. Sure, you made a prototype in your workshop. But producing at scale is an entirely different problem.

Your product may also be more complicated than you realize. And you may have to get multiple manufacturers working together to supply parts. Then you’ve got to figure out some way of putting them all together. Let’s say that you want to build your own model of electric bicycle. You’ll have to buy batteries from a manufacturer, probably in the Far East. You’ll  have to get another to make the wheels, which will likely be non-standard. And you’ll require yet another to make the onboard computer. All this, plus various compatibility problems, makes life hard for manufacturing startups.

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