Business is a lot like dating.
To get good at either you have to earn the cooperation of people who have no obligation to work with you.
When you start it seems like there’s a lot of rules and byzantine processes you have to learn in order to do it successfully, but the usefulness of formal learning is a mirage for endeavors in either domain.
You can read countless romance columns, rehearse pickup lines, and devour countless amounts of literature on female psychology if you wanted to, but you’ll still stink at dating unless you start asking people out and generating an intuition for how to deal with them.
Business works in the exact same way. Product development, marketing, legal work, sales and customer service seem like impossibly complex tasks until you pick up the ball and start rolling with it yourself.
Learning almost never happens consciously. Most successful business people I’ve met are much better at making good decisions than explaining how they came to their conclusions. Trial and error just has a way of adding wrinkles to your subconscious until you find you know what to do despite not knowing why.
It’s in this way that I’ve come to learn most of the answers I give to people who have questions about the natural products industry.
Nothing I’m going to answer here is the result of an article I’ve read or industry statistics I can quote from a trade journal.
It’s me using a finger to gag my subconscious into throwing up all the bits and pieces it’s swallowed up since beginning my own company.
1). What’s the least amount of money I could possibly use to start a supplement company?
The absolute least you could get started with is probably $1,000-$2,000. You could accomplish this by buying the ingredients yourself from suppliers and assembling the product yourself.
Of course going this route is limiting in ways that probably aren’t very hard to imagine.
2). Would that actually be a good idea?
Depends. If you really don’t have access to very much cash and/or don’t know what you’re doing yet…..yes it’s probably a good idea.
Or at least it’s better than spending money you can’t recoup while you go through your learning curve in the very beginning. Much better to start with the bare minimum necessary until you figure out your next step.
Of course once you do start to taste success you’ll need to produce your product through a manufacturer.
And chances are if you do break into retail and get a deal with a large distributor they’ll require certain types of quality verification that you won’t be able to do by making it yourself…..lab tests, certificates of analysis, etc.
3). What do I have to do to get into retail?
When I first started Health Kismet I spent the bulk of my days going door-to-door to local mom-and-pop health food stores in New York City.
It was tough work.
At the local level (as opposed to talking to a corporate buyer) you’ll need to be able to succinctly talk about how your product differentiates itself compared to others in the market and be able to offer terms that are favorable to the grocer. This is basically your elevator pitch in the health supplement industry. It shouldn’t take longer than 30 seconds or so.
You have to appreciate that in the very beginning, that first buyer will be taking a bit of a leap of faith in your product, and so it’ll probably be necessary to give him terms that are dove-ish.
This might be accomplished by giving them some free product to use on their shelves, or preferably seeing if you can setup time in your store to sample it to customers.
You’ll need patience. It’s important to remember that the biggest benefits of being in small grocery store isn’t the money you’ll make from it but the credibility you’ll have when you try and get your next chance to pitch a larger distributor.
4). What are retailers and distributors looking for?
In my experience when a grocer is deciding whether or not to stock a product they’ll consider the following items in their buying decision:
- Whether or not their distributor carries it. This is a big one. Lots of times grocers will buy exclusively from a few distributors, and so their product selection is limited to what they carry. Sometimes this is due to a contract they have and others its just because it’s easier.
- Whether or not their competitors carry it. This might sound a little silly, but a lot of the local store owners I’ve talked to tell me the most common way they discover new products is by walking down the aisles of their competitors and seeing what looks like it’s selling well. Selling into retail has some network effects.
- Whether or not you have previous sales. This one’s kind of a gimme. If people are already buying it (and you can demonstrate this) then resistance will probably prove futile.
- Whether or not you’re already famous. If you’re a social media superstar or visible authority in your field and have the attention of people then retail will probably be a lot more willing to take that leap of faith on your first products. This is how guys like Dr. McDougall get such quick traction in supermarkets.
5). Do I need to patent my product right away?
For one, lots of products can’t be patented anyway. A new recipe or blend of ingredients all by itself isn’t automatically eligible to be patented. In fact…..it probably isn’t unless it produces some outcome that’s very remarkable that you wouldn’t typically expect from the ingredients used to make it.
Patents serve two purposes in your business strategy – one for offense and one for defense.
The defensive purpose is to prevent people from stealing your special ingredient or formula. In practice this is very hard to do. Unless your product has some very unique ingredient it’s usually pretty easy to reverse engineer a product and get something that’s pretty similar and still be perfectly legal.
I have no doubt that someone could look at the label of Incredible Greens and Incredible Berries and have a manufacturer replicate it almost 100% and there’d be nothing I could do about it.
If you’re just starting out you’re not going to be important enough to have to worry about this happening.
A much better form of defense is to develop strong brand recognition and use good customer service to make sure customers like doing business with you. This is a much more useful way to build a competitive moat for your business, and it’ll save you lots of legal fees to boot.
You can also get a patent for the purpose of licensing it out to bigger companies. There’s a lot of money in this but it takes a long time and is expensive to engineer. Worry about this after you’ve figured out how to make money with your product.
6). How much can I realistically expect to make my first year if I’m using my own money?
If you start small with no inherent advantage and focus on month-to-month incremental growth then probably somewhere between $0,-$10,000 net.
Obviously this is subject to a lot of variation. I’m assuming you won’t have any windfalls (like breaking into Whole Foods) and build through local resources that don’t require a lot of up front investment. (Local markets, inbound internet marketing, etc).
Your first year should focus on getting the basics down, learning a lot, and hopefully making a little bit of money to reward you for your efforts.
7). What will my profit margins realistically be like?
If you sell direct to consumers probably somewhere in the neighborhood of 10%-$40%. If you’re selling in bulk to large distributors it’ll shrink drastically. Probably more like 5%-15%.
8). How do I get investors for my product?
See my question about what retailers look for. Investors aren’t too much different. You either need to already have a lot of sales, already have fame or have previous success in the industry.
9). Where do I find these investors?
The best way to find investors is to be so good that your company is hard to ignore.
Ie, already have lots of traction so investors don’t have to feel like they’re taking a lot of risk in giving you their money.
If you’re a good deal then the money isn’t usually too hard to find.
For most successful businesses money is not the limiting ingredient. That doesn’t mean that it’s always easy to get, but traction, a good team, and a breadth of industry contacts and knowledge are more important in the long run.
Your ability to attract money is usually a reflection of how much you have the latter three.
10). Is getting outside investment right away a good idea?
Product. Traction. Team. Money.
In that order.
I once met a guy who was looking to get an investor to give him $100,000 dollars to start a line of supplements he wanted to develop.
He didn’t have a formula, a sample product to give anyone, a website or sales numbers. He said he had spent $30,000 so far on his venture.
If you’re in that position pining for investment dollars is a waste of time. In fact it’s more an act of procrastination. It’s easier trying to play house by socializing with people thinking you’re getting yourself closer to the money than it is to hit the streets talking to local grocers or manning a table at a farmers market trying to explain to people why your product is useful.
But if you start off doing the latter you’ll be much closer to the money than this guy was.
11). Can I use alibaba to source my ingredients?
Yes. In the beginning stages at least. Once you get around to using an actual manufacturer they’ll probably have their own suppliers that they use and in my experience it’s usually best just to go with them unless you have a compelling reason not too.
Keep in mind any transaction done over an online marketplace like this introduces some element of transaction fraud and you’re responsible if things go wrong.
Best to start very cautiously and keep an eye on more qualified alternatives when you get the chance.
12). How do I get certifications on my label like the non-GMO project or Gluten-Free?
You can usually get those shiny certifications put on your label by allowing one of those agencies to independently analyze your product after each batch you make.
This increases the fixed costs you have to pay for each round of product which means you’ll have to charge a higher price and almost definitely have to a certain order volume to make it effective (usually somewhere around 5,000 bottles or so).
13). How do I make a product that’s officially organic?
There are different types of “organic” branding you can get on your product, but if you want to get the official seal you at least have to have 70% organic products that have been verified through a USDA approved organic certifier like Quality Assurance International
14). Should I use an MLM to market my product?
Unless you’re really well connected in the affiliate marketing industry. Then maybe.
But anytime you decide to go down the MLM rabbit hole you need to keep two things in mind:
- The productivity of your distributors will follow the 90/10 rule. The vast majority of your distributors will buy a batch or two of your product and then venture somewhere else once they don’t get anywhere selling it. This is inevitable so just get used to it. At least 80% of your distributors will fall into this category and it’ll probably be more like 90-95%. The lion’s share of your money will be made from a few movers and shakers who’ve got a huge downstream. If you don’t already know who these people are they’ll probably be hard to find and expensive to recruit.
- You’ll have to have an expensive product and a fully accelerated sales process to keep things afloat. An MLM product has to feed a lot of mouths by the time it’s sold. This necessitates a high price which necessitates a few other things as a result:
– Aggressive marketing to justify the high price to consumers.
– Strong margins.
If you add this up it means you’ll either have to venture into advertising that borders on scammy or find a product that’s to have a high value in spite of inexpensive starting ingredients.
Both are tricky.
This isn’t my thing but some people do it well.
15). Is it really true that you can get sued at any time?
Yes, but the chances of you being sued are proportional to the amount of product you’re selling. So assuming you’re not committing fraud it’s pretty small if you’re playing nice and your order volumes are low.
If you’re just starting out it’s important not to let a fear of being sued stop you from getting started.
The best way to protect yourself from lawsuits is by behaving yourself and being honest with your customers.
16). How much does insurance cost?
Hazard insurance is the same for up to $2 million in sales, which typically runs around $5,000-$10,000 these days. That’s the floor for getting this insurance.
17). Are you required to have it?
You can choose to skip it if you want, and if you’re starting with little money it’s probably best to forego it.
Just remember that most big retailers will require that you have it for them to buy from you, so eventually you’ll need it once you start swimming in the deep end.
18). How should I handle order fulfillment? Do it myself or outsource it?
Order handling is a huge pain in the ass by yourself and it’s hard to do it consistently without making mistakes. It’s also the easiest way to piss off customers who otherwise would be happy to re-order from you.
You can get every single step of the process right and still make people angry if you screw up delivery.
For this reason it’s a good idea to start using a fulfillment center right away. I recommend Fulfillment by Amazon for the following reasons:
- No minimums. You can send stuff there even if you only have a few dozen bottles, which is huge for small timers since you don’t have to otherwise getting eaten alive by fixed fees.
- Easy to sell on Amazon. Your products will be eligible for Amazon Prime and free ground shipping and you’ll have reduced fees for items sold on Amazon. This is one of the easiest ways to get quick and easy distribution.
The downsides are that FBA won’t do international shipments for nutritional supplements and selling on Amazon can be cannibalizing in the long run. You’re lined right up next to a bunch of competitors and it puts a lot of downward price pressure on your product.
But believe me, having someone order from you and not having to put it into a box and drop it off at the post office will seem like magic and you won’t regret having made the decision once it gets going.
19). Should I ship internationally right away?
Shipping internationally is a little bit tricky.
For new companies I think it’s best to self-fulfill and use a shipping aggregator like ShipStation to get discounted rates.
This does not scale well, but chances are international orders will make up a small percentage of your orders in the beginning. The other options are a lot more expensive and confusing.
You can find a customs broker if you want to setup distribution in another country, or you can find a separate warehouse to handle international orders.
Both of these are prohibitively expensive in the beginning and in my opinion an expense that’s avoided until you get your feet settled beneath you.
Shipping internationally introduces some additional complications into your shipping policies.
You should eat some costs on shipping you want to be competitive with domestic orders. People are used to getting good terms on shipping and high shipping rates are a strong deterrent for many customers.
But you probably can’t offer those same terms to international customers since often the shipping costs will be more than the product itself.
So it requires a good bit of re-arranging to get it right.
20). How much should I spend on my website?
Not too much. Wordpress can do everything you’ll need from your website. The internet is populated with low cost e-commerce solutions and they’re good enough to make your website look decent and function the way it should.
If you’re willing to put in some work yourself you shouldn’t need to spend more than a few hundred dollars (not including product photos).
The first version of Health Kismet cost a total of $180 to make, which was for the homepage illustration. I coded everything else myself.
It’s much easier to do that now because lots of website software is build-it-yourself.
The version of the website right now was made for about $3,000.
21). What are good shopping cart solutions to use?
I use FoxyCart.
My complete web stack looks like this:
Blog version of website – WordPress. Cost: $0.
WordPress PlugIns – OptimizePress – $97
Non Blog Portion: Straight html. Cost: $2,000 to develop
Shopping Cart: FoxyCart. Cost: $20-$300/month.
Blog Hosting: Pressable. Cost: $25/month
Non Blog Hosting: Amazon Web Services. Cost: $2/month
Payment Processing: Stripe. Cost: 2.5%/transaction + $0.25 (or something close to that)
Web Chat: LuckyOrange Cost: $10/month
This has worked fine for me and I have no reason to switch from any of these products.
22). What’s the best way to get a competitive quote for my formula?
I recently started a new endeavor that helps people with this exact problem. Go here, fill out the form and I’ll fish for bids for you from manufacturers that are the right fit for your product and away you go. We have a discussion after the submission to make sure we’re clear on your goals for the project and have a chance to go over any technical difficulties that might exist with your formula, and w/in a week you have competitive bids returned to you.