This post is part 2 of 3 on our primer on how to get started with your own health supplement company.
Previously we covered the basics of choosing your own product idea. Today we’re going to touch on the topic of how to choose your manufacturer.
Your Manufacturer: The Fox in the Hen House
Of all the decisions you make with your supplement company, none is going to be as mission critical as the manufacturer you choose to make your supplement. It’s an incredible important choice and to a beginner you’ll have the disadvantage of a variety of information asymmetries.
In many ways it’s the very apex of your business because if something goes wrong with your manufacturer it can bring the entire house down.
Most of the issues that could come up will be out of your direct control. A failed FDA inspection, ingredient shortage or a delayed production schedule can leave you empty handed with nothing you can do about it. So it’s really important to do your homework before you begin.
Of course it’s important to realize that manufacturers are also wonderful. They allow you to build your product with little to no effort and are almost certainly much better at it than you’d be. Their machines, supply chains, ingredient pricing and product development knowledge allow you to tap into an incredibly diverse array of expertise with the stroke of a pen.
To a novice the task of locating reputable suppliers, negotiating low prices, and bottling a product according to FDA standards would be crippling. There’s no way I could’ve done it on my own. So a service that does most of the heavy hitting for you is a gift to be cherished, not a fly to be swatted. When I’ve talked to my friends about Health Kismet and the development of Incredible Greens most of them are very unclear about how I went from conception to production so quickly. The answer is that I leaned heavily on the expertise of my manufacturer….and it’s paid off in spades.
The Important Points
So choosing a manufacturer is a double edged sword, and the stakes are fairly high. In general, these are the most important points to consider before signing off on the dotted line:
- Are they compliant with the necessary regulations?
- Do they offer any peripheral business services that you’ll need?
- Are their order minimums and turnaround times appropriate for your product?
- Do they have stock recipes that are similar to what you want to develop?
- Did they allow you to tour their facilities and meet with an associate face-to-face?
There are more to consider, but for most people answering these questions will get you on the right track.
cGMP: The 900 Lb Gorilla of Regulatory Compliance
There are certain inaccurate percpetions of supplement regulation that regularly come up.
What are they?
- That supplements are regulated like drugs. A drug has to undergo about 7 years of testing through the FDA before it’s “deemed safe” for the general public. It costs about a billion dollars. This isn’t true for supplements. To be a supplement a product has to be made with certain ingredients that are considered acceptable for the general public. As long as the product is made according to certain guidelines then the supplement itself is also considered safe and able to be sold.
- That supplement regulation is the wild wild west and therefore dangerous to consume. To the surprise of many, the supplement industry is heavily regulated. From the way ingredients are sourced, to the way they’re stored, to the way the machines are cleaned and maintained, to the way they’re labeled, to the way the language about the product is phrased, to the way they’re shipped and inspected upon arrival at warehouses…..it all has to be done a certain way. And a supplement manufacturer receives a quarterly audit from the FDA to make sure they’re on the up and up. And if they don’t pass…..then it’s curtains. They’ll either get slapped with some serious fines, have to do product recalls, or just get an order to close their doors. This is a very serious business risk and something you must pay very close attention to!
The Types of Services You Can Expect
Besides making your product, most manufacturers usually offer other business services that are relevant to owning a supplement company.
- Labeling and packaging – Most manufacturers will print your labels and put them on the bottle for you. You’ll typically have a wide variety of bottling options to choose from.
- Product Development – If you’re not sure exactly what you want to make, a lot of manufacturers have product development specialists who’ll develop something for you. These people are typically well trained Ph. D’s and typically don’t come cheap. Expect a wait time of about 1-3 months and at least a few thousand dollars to have them do this.
- Order Fulfillment – After they make and label your product, sometimes they’ll have a warehouse where you can store your product and they’ll ship it after orders come in. In my experience this is a good option for well established players but not so much of an option for people who are starting out. Because order fulfillment isn’t their specialty they’ll typically have higher order minimums to get started.
- Graphic Design – Make your label and/or package art if you can’t think of it yourself.
Tieing the Knot: Order Minimums and Stock Recipes
The other shoe of choosing a supplement manufacturer is working out the details of how they’ll make your product, and not just their services offered in general.
For most businesses these issues will be:
- What are order minimums?
- What are order turnaround times?
- How much experience do they have with your product? Do they have stock recipes that are similar to what you want to make?
Most of the time order minimums will be somewhere between 500 to 1,000 bottles. Sometimes it’ll be determined by the pill or by the pound. It usually comes out to about the same, but there can be a lot of variance depending on the specialty of the manufacturer.
For example, when I first started Health Kismet I considered developing a liquid product. Sort of like the juice version of Incredible Greens. In general order minimums were around 50,000 bottles or so, but I found one manufacturer who was able to start with as little as 400 gallons….almost 50x less! They did liquids almost exclusively and had very expensive equipment that allowed them to produce GMP compliant products at much smaller quantities than most other companies.
I’d surmise that this sort of scenario is possible for just about any sort of product. If you search hard you can find a few manufacturers that’ll deviate pretty far from the norm for a particular specialty. It’s kind of like shopping for airline tickets.
Typically these same manufacturers will be more likely to have shorter turn around times. All else being equal, shorter turn around times are better. It’ll give you greater control over your inventory and allow you to react to sudden swings in consumer sentiment. Most good manufacturers will be able to give you pretty specific estimates about how long it’ll take them to make a product. Most of the time it’ll be somewhere between 2-4 weeks.
The Originality Dilemma: To Private Label or Not?
Most manufacturers have a collection of stock recipes in their files that they make regularly and put other people’s labels on. If you think to your typical experience at the grocery store you’ll realize how common this practice is. It’s the whole basis for store brands. Exact same stuff, just a different label and less middlemen, hence a lower price.
When you’re choosing your own manufacturer you’ll almost certainly want to work with a manufacturer who has a stock formulation similar to what you want to make, and you may even want to go all the way and just use their product.
This idea might make give you the jitters, but I was surprised about just how ignorant most people are about the details of different products when I started Health Kismet. The most prominent example for me was when I was at a Venture Capital seminar in NYC and I was talking to an investor about Health Kismet. He recently sold a company for $100 million and was a large equity holder in several other prominent household companies. No dummy.
When I was talking to him about Health Kismet I was surprised how rudimentary his questions were about Incredible Greens. He knew little about the type of product I was making and frankly, would’ve had no clue whether or not it was designed by me or the manufacturer. (It is designed by me, but this conversation set my expectations about what sorts of details consumers are and aren’t aware of).
In any event it’s a good idea to work with a manufacturer who frequently makes something that’s close to whatever it is you want to formulate. They’re likely to have lower order minimums and turnaround times, and a more detailed knowledge of the intricacies of making your product. What ingredients contribute mightily to taste? texture? color? Which ones are important for determining product cost?
These are all important questions to be answered, and a manufacturer who works with your type of product frequently will be able to work with you on them more competently than someone who does not.
In my article about choosing your product idea I talked about the importance of originality in developing a product. Originality is important but it’s very easy to get ahead of yourself. The “blocking and tacking” of making a product is just as important as the novelty of your idea. Being cute is a good idea if you want your 15 minutes of fame in Whole Foods, but longevity requires sustained excellence throughout the business process.
So differentiate, but don’t re-invent the wheel.
If you’re new to this game then I hope this post helped clear the fog on getting started with choosing a manufacturer to make the product.
To wrap up, here are some very useful resources for locating the moving parts involved in bring a supplement to market.
ThomasNet – Comprehensive database for just about any manufacturer available in the United States.
AliBaba – Directory of suppliers for different ingredients you can use in your supplements. In general I’d be leary of working with Ali baba directly for sourcing ingredients due to quality control and GMP compliance issues. But if you’re looking for pricing and availibility of different ingredients it’s a good place to start.
Natural Products Association – The industry’s main association for all things supplement related. It includes businesses at all stages of the supply chain. It’s a good resource for keeping up with important industry news, locating a manufacturer and finding different distribution outlets for your product, among other things.
cGMP – The source documentation for Good Manufacturing Practices. Even though you’ll outsource the majority of this to your manufacturer, it’ll always pay to be fluent in the seminal piece of industry legislation that you’ll have to abide by.
FTC Advertising Laws – If you make a supplement you have to play by certain rules with regards to what you can say about the product. This is jointly handled by the FTC and the FDA. The line between the two can get a little blurry, but the bulk of your compliance responsibilities will likely lie with labeling and product claims, so knowing the ins and outs of what you can and cannot say is mandatory.
Greg Doherty’s Blog – Greg is a supplement insurance broker and his blog is a very good resource for different legal and insurance issues surrounding the insurance industry. He deals exclusively with the supplement industry so his knowledge is extremely specific and relevant. I personally don’t get insurance from him but have spoken with him on the phone and have found him to be very knowledgeable and useful.
Food, Beverage, Nutrition and Law Blog – Written by lawyers who work in the health and wellness industry, it’s a very good industry specific source of different legal and business issues that companies have tot deal with.
Nutrition Business Journal – They organize a lot of different conferences and workshops on the nuts and bolts of increasing sales and mastering different elements of the supplement business process. Want to know how to pitch Whole Foods about your product? Get in touch with nutrition venture capitalists to fund your startup? The Nutrition Business Journal should be your first portal to achieve these ends.
If you peruse through this material you’ll get a good idea of the ins and outs of running a supplement company and the different dimensions you’ll have to transact in to keep things running.
Good luck, happy reading, and go get started!