High-Growth Startups are Looking to Supply Chain to Keep Things Lean

July 21, 2015

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According to estimates, as many of 50% of new companies fail in the first 5 years of operation. Despite this (well-publicized) difficulty, the world of startups is still explosive, with thousands of new startups entering the game every year. We wrote several months ago about the importance of Supply Chain to scaling a startup and had some great feedback. Today, we want to drill down into the world of what Supply Chain offers hardware and consumer goods startups in particular who are at the high-growth stage, a crucial and fraught moment in the life of any new company.             

As a great article on CNET recently put it, “A common refrain within the tech industry is ‘hardware is hard’ — and for good reason. A few high-profile companies have failed in the past several years, in part because they weren’t able to navigate the complex world of manufacturing and supply chain management.”

Say your Hardware or Consumer Goods startup is at the high-growth stage: either you’ve secured venture capital funding, or you’ve launched a Kickstarter campaign that has blown expectations out of the water, or (shockingly!) you’ve brought your product to scalability the old fashioned way, by securing orders from major retailers on the strength of your business plan, product and initial sales and revenue. Now comes time to bring your product to market. How do you implement a solid plan to execute this scaling and ensure delivery to your backers or customers? 

There’s a whole cottage industry online dedicated to analyzing the reasons why startups fail: a lack of market research, lack of engagement with customers, lack of cashflow, lack of planning. But the failure of startups always comes down to the fundamental issue of excess costs in comparison to revenue. For hard goods startups, excess Supply Chain costs often represent the major unexpected roadblock to profitability. Unlike software, where founders can iterate and update, improving their product daily, hardware startup founders, whether they’re working with consumer goods or technology, deal with complex Supply Chains every time they seek to redesign or improve their products. And often hardware startup founders fail to cultivate an understanding of the Supply Chain complexity inherent in bringing a physical product to market at scale.

Often, in their desire to keep things as lean as possible (an often-espoused maxim of the startup world), founders hesitate to bring on a skilled Supply Chain professional at this stage of the process to navigate the treacherous waters of a new product launch, thinking they’ll be able to learn the ability to manage customs, shipping, distribution and all other aspects of the Supply Chain on their own, on the fly – after all, how important can Supply Chain be compared to marketing, PR, product design, and all the sexier parts of launching a startup? Next thing they know, their shipment’s tied up in customs as the holiday season approaches, or their reliance on one ill-vetted overseas supplier comes back to haunt them, and all of a sudden their startup is taking on water, fast.

Jim Franz, who helped deliver the successful product launch of Canary, a high-tech smart home security product, wrote a great post on this issue called “Supply Chain: The Biggest Factor Hardware Startups Forget.” He outlined a few key Supply Chain issues that hardware startup founders need to consider:

  • Have you decided whether you will try to handle warehousing and shipping on your own or partner with a 3pl (3rd party logistics provider)? Do you know how to assess a 3pl and whether they’ll meet your needs?
  • Is your product UPC-ready? If not, you might have big issues with retail.
  • Do you have someone who can make sure that customs documentation is in place for when your shipment from overseas manufacturers arrives? Have you calculated your duty rate and do you have a plan in place for if customs reassesses your duty classification?

In Franz’s eyes, failure to consider these and other Supply Chain issues can lead to unexpected cost overruns, product delays, and unhappy customers, threatening the viability of startups just as they’re almost ready to soar.

We’ve been hearing from lots of companies lately who are looking to bring on top Supply Chain talent to help them negotiate their scaling operations. For hard goods startups especially, adding a Supply Chain guru in the early stages just makes sense. While smaller, growing companies might be reticient to bring on employees, Supply Chain Professionals recoup their salaries many times over in cost savings. They specialize in lean growth and continuous improvement, which are key factors in the world of fast-scaling startups.

Finally, here’s one more consideration: for startup founders concerned about bringing on new permanent employees, there’s the possibility of hiring a Supply Chain guru for a 6 or 12 month contract – using a staffing provider and payrolling company like Argentus, with an existing base of skilled Supply Chain professionals looking for these contracts – to act as a temporary consultant for the duration of the product launch.

Chris Baskerville, a business reconstruction expert whose worked with quite a few startups struggling to scale, had some wise words on this topic:

“Planning your business forces you to seriously think about all areas of your business and not just the fluffy parts of your business like ‘sales’ and ‘profit.’ Meticulous details like: operations, employee ramp-up, funding, and forecast financials and logistics need to be considered.” We couldn’t agree more. logo_icon

 

 

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