Q: I created a new product (a cap). My problem is that if I hire a factory overseas to manufacture them, I can get them made for about a buck a piece, if I order 10,000 or more. If I do it here, I can order less, but they are $5 each. Which would you do?
A: Especially with a new venture, I say a little extra money spent up front outweighs the possible cost savings on diving in too big too soon.
Let me share a cautionary tale with you:
Some associates of mine once started a new business. These were some really smart guys, very enthusiastic about the business, and all pretty savvy in their own way. One guy was in charge of sales, another handled operations, one did marketing, one ran the business, and so on.
Once they got started and a few sales rolled in they decided that they were going to produce a TV ad and make a lot of money. Long story short: They spent tens of thousands producing the commercial and multiples of that buying air time.
The spot bombed. Flopped. Died on the vine.
Though the business lasted another two years, that very expensive mistake essentially doomed their venture: They were cash poor, wary, and continued to bicker over whose fault it was.
The morale of the story as I see it is this: In business, before you go long, start small, whether it be an ad campaign, launching a new product, venturing into social media, or what have you. Start small, test, see if it works, see what works, and then jump into the deep end.
Starting small has all sorts of advantages:
- It saves time: If the idea is a winner, great. But if it is not, then starting small and testing means that you will not waste a lot of your precious time on an idea that is not a winner.
- It saves money: The same idea applies here. Throwing a lot of money at a new, untested idea may potentially pay big dividends, but it may not. If it’s a good idea, then the little you spent up front testing will be money well spent, and if it turns out that the idea is a flop, it still is money well spent because it will have saved you a lot more.
- It reduces headaches: Just take it from my associates above – little headaches are easier to fix and recover from than big headaches. Had they started small and tested the television ad before buying too much air time, they would probably still be in business today.
And starting small can mean many things. For instance, in Los Angeles, Portland Oregon, and other foodie capitals, food carts and food trucks are all the rage. Kogi Korean BBQ in L.A. has five food trucks that travel all over the city and reportedly rake in millions of dollars a year. Compare the few thousands of dollars it costs to create a food cart or truck with the hundreds of thousands it costs to outfit a restaurant and you see again the power of small.
Now, it may be true that starting small can limit your upside potential, but for most small businesses, starting small is the better way to go because it also limits the downside losses.
In the end you will likely find that the lessons learned when testing the waters far outweigh any potential big payday that may be gained from jumping in too soon.