Manufacturer invested over $100,000 in my new product! Here’s how I did it.
In my previous article and video I shared the story of how I got Blockbuster Video corporate to express written interest in selling my product.
Yes, that Blockbuster Video, but at this time they were still a huge successful company.
My product was a miniature lighting device that could be used among other things, to illuminate a remote control in the dark.
In this video I’m going to share how I leveraged this written interest from Blockbuster to land a manufacturing partner.
Most importantly, I wanted a manufacturer that believed in my product enough to invest in it.
So how did I find my manufacturing partner?
Well, it started just like with Blockbuster by simply sending the right cold email to the right people at the right time.
First, I did an online search for manufacturers that produced products with similar manufacturing requirements to my own.
Your manufacturer doesn’t need to be in the exact same market as you. They just need similar manufacturing processes.
For example, you don’t want to approach a tire manufacturer to make your electronic product.
I began by emailing my list of potential manufacturers that I had put together.
Just like I did with Blockbuster, I included a nice looking color sales flyer showing my product in use.
Of course, in my email I also mentioned having a written interest from Blockbuster.
I probably emailed several dozen manufacturers, and about 5-6 of them replied expressing some level of interest.
But, there was one manufacturer that really stood out.
They stood out to me because I could instantly tell they saw and understood the potential of my product.
They essentially told me:
“We get pitched products all the time by entrepreneurs. 99% of them we just ignore. But we feel that your product warrants an exception.”
If I didn’t already have the progress with Blockbuster I seriously doubt they would have been interested.
But what happened next exceeded all of my expectations on what was possible.
So what happened next?
Well…at this time we still lived in a small, beautiful town in Alaska named Homer.
I was shocked to discover that the general manager of their Chinese factory wanted to fly all the way to Alaska to meet with me.
Um. Yeah. Wow.
Needless to say I was thrilled they believed in my product enough to personally come and meet with me.
We met him at a park with views of the ocean, mountains, and lots of glaciers.
Shortly after that meeting we signed a formal agreement.
This agreement helped me in so many ways.
This was much more than just a contract manufacturing relationship. This was a real business partnership.
First of all, they let me use their engineering department to finalize my design and prepare it for mass manufacturing.
I had taken my product development pretty far, and I had all the main design requirements figured out.
But, there were a lot of small changes that needed to be done to get my product completely ready for mass manufacturing.
The second thing they agreed to do was to amortize the cost of my injection molds.
The injection molds for my product were going to cost a little over $100,000.
Nope. That’s not a typo!
Normally, I would never suggest you jump from a prototype directly to high-volume manufacturing requiring molds this expensive.
You can purchase lower volume molds for only a few thousand dollars each.
But in this case, the manufacturer felt so confident in my product that they wanted to finance the higher cost molds.
I was fine with this, since they were the ones taking the risk if my product ended up a failure.
They would pay the upfront cost of the molds.
Then, they would charge me $1 extra per unit for the first 100,000 units that I sold.
This is called amortization.
This is a great arrangement, since it’s basically an interest-free loan that was essentially risk-free for me.
Most importantly it didn’t require me to give away any equity in my company.
Yipee!
The third really beneficial thing they did was to fund all of my initial inventory!
This was tremendously helpful because it removed one of the biggest obstacles to scaling a hardware company – cash flow.
Cash flow for a hardware startup is one of the biggest obstacles to growth, and that’s because typically you have to pay your manufacturer upfront.
In my case they agreed to give me payment terms of 90 days.
This allowed me to get paid by my customers BEFORE I had to pay the manufacturer.
This. was. HUGE!
In return for all these benefits they gave me, they got an exclusive manufacturing agreement.
This meant that I couldn’t go to another manufacturer for the first two years, or for the first million units, whichever happened first.
All that was left now was for me to market and sell the product, which is never as easy as anyone thinks it will be.
But, that’s a story for another day…
This is just the story of my own journey to market, but there’s really nothing special about me:(
Your journey with your product will surely look different, but the fundamental lessons still apply.
The key is persistence and a good strategy, while always seeking feedback and advice, and then adapting as necessary.
If you set your mind to it, I know you can do it too!
Read the next part of my story about my product being on store shelves for the first time.
Other content you may like:
- My New Product on Store Shelves – How I Screwed Up!
- I pitched my product idea to a big company. It changed everything!
- The 4 Step Process I Followed to Get My Own Hardware Product to Market
- How long does it take to develop a new product and get it to market?
- Game-Changing New Technology for Product Prototyping [YouTube]
