7 Misconceptions That Derail Supplement Entrepreneurs

wrong way

Photo courtesy of Daniel Oines

Colleagues, if you’re looking to start your own supplement company let me clue you in on an important secret you haven’t figured out yet:

You don’t know what you’re doing.

It’s sad, but true.

If you’re lucky you’re at least aware of the areas in which you have no competence.  But if you’re like most people you’re just flying blind in your little cockpit of ineptitude with no clue of the upcoming buildings you’re about to crash into.

You don’t know a good manufacturer from a bad one.

You don’t know the difference between magnesium oxide and magnesium citrate.

You don’t know if your formula is going to cost $2 or $20 to make.

You don’t know what insurance to buy, or if you need to buy any at all.

You don’t really know how your product is made, just that somehow it’ll end up in a bottle for you.

You don’t know why your product is able to do what it says it does, you’ve just read a bunch of articles online about this magical ingredient or that.

You don’t know who to buy your ingredients from.

You don’t know where your ingredients come from.

You don’t know a single distributor that you could sell your products to.

You don’t know how to reach the people who’d be interested in buying your product.

You don’t know how to verify if your product is what it says it is.

You don’t know what you’re legally allowed to say in your advertising.

You have no idea how many products you need to sell a month to break even.

You don’t know what you’d do for financing if your big break finally did come.  (If you have $100,000+ sitting in the bank kindly disregard this point).

You don’t know what you’re legally required to test for at the end of your batch.  Therefore you don’t even know if you’re breaking the law or not!

The horror!

But in spite of all this you still cling to a smug (desperate?) belief that everything’s going to be alright and that somehow you’re going to be able to make a bunch of money because you have this cool idea for a product.

You’ll be able to make this neat pill for $3, sell it for $60, and if you can just sell 6 per day you’ll be on your way to financial freedom.

If this sounds like you, bring your head in closer because I need to whisper an inconvenient truth in your ear:

Get real!

You need to shake the sand out of your head before you do permanent damage to yourself.

Just remember the axiom from 12 step programs:

Admitting you have a problem is the first step to recovery.

Okay, so now that I’ve disavowed you of your competence what are the biggest oversights you’re probably making?

Here are the dirty 7.

1).  You Don’t Realize The 4 Hour Work Week Is Outdated

A lot of people who come my way for business advice give off a lifestyle-entrepreneur vibe.

You know, “Boy, if I can just find some way to move stuff online then I’ll finally be free to move wherever I want and live the life I’ve always imagined.”

There are four problems with this idea:

  1. Good business ideas don’t want to stay small. Business ideas are boom-or-bust.  They either slink back to nothing or get blown up by the person bold enough to make them as big as they can be.  The lifestyle business is an unnatural in-between that has no staying power.
  2. You have to work with talented people to succeed.  Most businesses require more work than one person can do. That means you need smart and hardworking people to partner with.  Smart hardworking people don’t care about your lifestyle business because there’s not enough meat on the bone to make it worth their time.
  3. The supplement industry is capital intensive. You have to make big down payments to do something unique, which means you either have a loan to pay off or investors to satisfy.  Lifestyle businesses don’t do well with either condition.
  4. The tactics in the Four Hour Work Week are no longer relevant. Timothy Ferriss’s hacks were useful for the internet as it was in 2003.  They don’t hold water for the internet as it currently is.  It requires something much more sophisticated to get traction.

So if your end goal is to be a jet-setting webpreneur living on a hammock in Tahiti you need to find another domain to work in…….probably something purely digital.  Being a health supplement entrepreneur doesn’t fit.

2).  You Have An Irrational Faith in the Distribution Fairy

No matter what you make you need somewhere to sell your products.  Try and find a successful company that doesn’t have its distribution figured out.  You can’t because if they didn’t they would’ve gone out of business a long time ago.

You have to have somewhere to sell your products if you want to survive! 

The catch-22 with distribution is that most distributors only want to take you on if you’ve already proven your product will sell.  If you’re starting from scratch this means you have a chicken-and-egg problem.  Chicken-and-egg problems are a tough to crack (get it?  Har har har!)……most businesses who face them die before they figure them out.

Most newcomers focus on how their product is going to be made and figure they’ll take care of the marketing when the time comes.  The time for the marketing comes when you decide to make the product.   If you don’t there’ll be a chilling silence when it’s time to move it because it’s really hard to get the ball rolling. 

You have to think about what customers you’re going to reach and how you’re going to reach them at the very beginning of your business endeavors and allow your marketing efforts to co-evolve with your manufacturing efforts.  They cannot happen sequentially or you’re sunk.

Lots of people assume they’re going to blog or use social media to get the word out but they’re too optimistic about what social media is capable of.

All internet-centric processes follow a steep power law.  There are a few people who are outrageously successful and everyone else is eating breadcrumbs.

You don’t want to be eating breadcrumbs, do you?

There was a good article on Moz about what types of content is shared and linked to and the results are depressing for the lot of us:

graph courtesy of Steve Rayson

graph courtesy of Steve Rayson

See that big fat bar on the left?  That’s the amount of articles that go nowhere.  1 out of 10,000 pieces of content make it big and the rest go into a chamber of silence.  The pieces that do go somewhere break extremely rare information and leverage a network to give it huge amplification.  If you don’t already have a gathering of people interested in what you have to hear all the tweeting, facebooking and blogging in the world won’t amount to a hill of beans.

So hittin’ the streets on Twitter is not a winning business strategy.

Most small businesses are better suited to look at more traditional forms of advertising that don’t require strokes of brilliance to work and have results that are proportional to effort instead of needing once-in-a-lifetime breakthroughs to be effective.

So if you haven’t already, get that ball rollin’ folks.

3).  You Have An Irrational Fear of the Litigation Monster

The budgets of the business owners I encounter range from $500 to $100,000, but most are in the $5,000 – $10,000 range.

That’s a doable amount of money to get started with but it definitely means you’ll be stretched thin.

Of the people I talk to in this dollar range about half want to know if they should get a patent on their product or worry about their manufacturer stealing their idea.  This fear is misplaced.

The liberating and depressing thing about starting small is that no one cares about you.  When you’re dealing with problem #2 this is a curse but when it comes to litigation and competitors giving a hoot about what you’re doing it’s a blessing.

So few products actually make it and so many circumstances have to be aligned for a company to work means the chances of a larger competitor swooping in and stealing your thunder are remote.

If you have 10 grand in the bank don’t spend half of it on an IP lawyer.  Spend it on sales.  If sales pickup spend the profits on an IP lawyer if you’re still worried about it.

If no one cares enough about your product to buy it no one’s going to care enough to steal it.

4).  You Soothe Yourself By Believing Your Manufacturer is the Mighty Oz

The most common blind spots supplement entrepreneurs have are related to manufacturing:

  • How are my ingredients sourced?
  • How do I know what they’re putting into my bottles is legit?
  • How can I tell if they’re any good?
  • They said issue X can be taken care of, but I’d have no clue one way or the other.

This ignorance is forgivable since it’s not available outside industry corridors but most people take the ostrich approach to deal with the cognitive dissonance these questions create.

As a result lots of mission-critical aspects of a project wind up in the hands of the B-teamer sales rep that’s been assigned to you.

That’s not good, folks.   Chances are he’s been working in the industry as long as you.  I know from first-hand experience that the attrition rate in those positions is high and most people don’t come into it with a manufacturing or health/science background.

It’s the blind leading the blind.

Of course the majority of manufacturers are at least decent and the majority of sales peeps you talk with are honest and hardworking, but most people create a false sense of security with the soothing thoughts they whisper to themselves about what people are doing when they’re not looking.

This doesn’t mean anyone’s doing anything deliberately dishonest (that’s rare), but it probably does mean everyone’s using least-common-denominator approaches to get things done that you’d change if you knew better.

These include:

  • How ingredients are sourced and tested.
  • What forms of the ingredients are being used.
  • How much everyone values your project relative to the other stuff they’re doing.

If you want these issues to be handled properly you have to monitor them yourself.

5).  You Have Unrealistic Expectations About Your Profit Margins

Make it for $5, sell it for $50, and if you can just sell 5 a day then you’re set, right?

Sorry, you’re being naïve.

You don’t get by with cheap products and clever marketing strategies that allow you high margins on low volume.  It’s tempting, but a false hope.

You get by with unique products that have genuine comparative advantage and then riding your horse as far as it will take you.

Because remember…….if your idea is good enough to make money then someone will pursue it as far as it can go, leaving you in the dust if you’re complacent.

And here’s the thing:  comparative advantage is really hard to generate.   By definition it’s something no one else has done yet.  So it has to be unique.

Think of it like water:  at 33° it’s liquid, but if its energy level changes just one degree to 32° its internal state changes and takes on completely different properties because it’s frozen.

Comparative advantage works the same way.  You can have something that’s very good and makes sense as a product idea because an average person might be interested in it.  But if it’s not significantly differentiated from the next thing someone compares it to it’ll probably get swallowed up in the market ocean, not even making a mouse fart as it asphyxiates under its own weight.

The effect is bi-modal.  If you have separation you’ll do extremely well and create a self-sustaining chain reaction with your momentum but if you don’t you’ll go nowhere.  Water.  Ice.

So to do anything significant you have to make something very valuable at a price people can afford to pay (something that’s getting more difficult to do).   In practice this means you should plan on making something with lower margins than you’d like and trying to sell as much of it as possible because it’s really that good.

6).  You Have No Idea How Product Testing Works

Most people in the supplement industry have a crude understanding of how quality control works.  The product verification process often hums along on the assumption other people are taking care of it.

Nobody is more aware of this than the suppliers themselves, many of which have discovered clever ways to game the system.  It’s a safer way to ensure profits than growing good ingredients, which is very risky.

There’s a lifetime of nuance to learn in this area but here’s the abbreviated list of the details you ought to know about:

  • You’re legally required to test for microbes, heavy metals, and at least a few active ingredients after the product is made.
  • Manufacturers are legally required to test for ingredient purity every time something comes into their facilities.
  • Distributors are required to do the same thing before they re-sell something.
  • Often these details get passed along like a game of telephone as a substitute for doing the actual work. This means faulty ingredients occasionally make it all the way through the supply chain and no one notices.
  • The best ingredients are fragile and require extra attention to make sure they don’t get degraded.

If this dilemma is relevant to you make sure to read through the GMP questionnaire provided by the FDA to brush yourself up on the letter of the law.

7).  You’re Not Ambitious Enough

This is a logical consequence of misconception #1.  If lifestyle businesses are too small to attract good people then you need a company that has the potential to get big in order to convince them to work with you.

Ambition has a synergizing effect because ambitious people want to work with other ambitious people.  They have a natural tendency to cluster in the same places, so the more you have under your umbrella the easier it is to attract the next one, which raises your chances of success, which makes you more attractive to other ambitious people, and so on.

If you’re doing things right your most important task as CEO should eventually be as a recruiter of top-shelf talent for your organization while other people handle the day-to-day operations of your business.

But nobody’s going to take that first step unless they get a credible signal that what you’re up to is interesting and potentially lucrative.

So be aggressive.

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About Justin

Owner of Health Kismet, maker of Incredible Greens, a green superfood supplement that combines 35 different raw greens, herbs, probiotics, grasses and fruits into a sweet tasting powder.

Comments

  1. Thanks Jonathan. Excellent article!!! Do you have a book to help us?

    • Jonathan Bechtel says:

      Sorry Nelson, no book at this point in time. Just blog posts. I also have forums where I do a lot of Q and A about supplement related stuff if you have specific questions.

  2. Awesome and fascinating written work! A debt of gratitude is in order for the tips! don’t hesitate to send me your next blog entry. What you are expounding on is well done.
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  3. Love this post Jonathan – so true! Thought I’d read all your great suff then find this one. Spot on! It’s all about quality quality quality, dedication and hard work!

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