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9

4

Rude Tech; Guitar Electronics

Lesson 1: Business Model

I design and manufacture boutique-quality music equipment (guitar pedals at first).  I'll sell wholesale to music stores, as well as directly to online customers.

Assets I will need to acquire include an inventory of merchandise, designs, a workshop for R&D (already owned), and a website.

The human resources I will need fall into two categories: self-provided (electrical engineering, assembly, customer service, sales/marketing), and outsourced (accounting, legal, graphic/industrial design).  Eventually, I will hire help for most of these activities.

I have two basic customers: the music store, and the musician.
The store wants to stock products that make their customers want to buy.  They also want the customer to leave with a better opinion of the store, whether or not they made a purchase on that particular visit.
The musician loves her art, and earns money and/or recognition for it.  The cost of the best tools is irrelevant if it has a great enough impact on her art.  She also likes the bragging rights, secretly wanting her friends' jaws to drop when they her awesome rig.

The hard parts: designing the products from scratch, doing research to find what products/features the market wants, building a loyal following and positive public image, selling a product to a store/customer when I have no brand-recognition.

Lesson 2: Freelancer or Entrepreneur?

This is a question I've thought about a lot, and I definitely want to be in the entrepreneur camp.  As much as I veiw my creations as art and love the process of buying parts for my design, soldering it all up, even shipping it, I want to scale my business up so that if I'm gone for weeks, the company is fine.

I want to not worry about my company if I want to go into hibernation while I work on a new design or find some other way to break my industry.

It's hard to imagine hiring someone, though.  It feels like "Wow, I need to make a lot of money to be even THINKING about hiring someone."  I guess it's important to have thought about that now so I know what the end-goal will look like.

Lesson 3: Funding

  • Do you need money for this business?

I'll need money for parts, a website, and personal necessities like gas and food.

  • Does more money increase the chances you will reach positive cash flow? Profitability?

No.

  • What are the assets the money will go to pay for?

Parts with which to build inventory, sales materials to give to shops (buyer's pack, wholeshale catalog, line sheet), and a site to sell the inventory online.

  • How long before the money invested starts turning into money returned?

It could be as short at 1 month.  In fact, that's how I want to conduct my first few months of sales--as direct sales, without a website, and for the minimum viable product.

  • Do you hope to sell this company?

It's possible a larger competitor would want to buy me, but no--I don't hope to sell the company.

  • What is the gross margin of what you'll be selling?

At first, 60%.  Down the road I hope to get it to 80% with economies of scale and better design.

  • How long will it take you to reach scale?

1000$ of sales per month.   Approximately 3 months.

  • Given all this, and what you learned in the video, what sort of funding are you seeking? Why would this investor choose your offering over all the others available?

I will fund it with savings and presales (reddit, kickstarter, local stores).  No need for a loan.

Lesson 4: Hiring

  • Who are the first employees you need?

Assemblers/Order Fillers once the volume of sales it too high to do alone

  • Where will you find them?

Friends and acquaintances, probably some that I've worked with at Zambooie who are familiar with order filling.

  • Why would they join you?

I'm doing something that helps the local music scene, and I can be flexible with their tour schedules.

  • How will you tell the good ones apart from the convenient ones?

The good ones will be able to manage themselves and streamline their own processes.

  • What's your funnel?

They will start with assembly, and I'll doublecheck their quality.  When someone is doing outstanding, they'll be the person to approve quality.  Same with order filling.  This would ideally be the same person, but not necessary.

  • After hiring people, how will you evaluate them?

I'll have a standard process laid out and documented for assembly.  If the person can make a number of units in a decent amount of time (without sacrificing quality), I'll know things are going well.  Numbers will be decided and shared with them so they can track their progress as well.

  • How long after starting will you give people a formal review?

A week in, then periodically every 3 months.  I also want to cultivate the feekubg that they can have a sit-down with me at ANY time... not just say "I have an open-door policy" and only half-way mean it like most of my previous bosses.

  • What's your approach for talking about the uncomfortable?

Direct communication.  It's much more uncomfortable to let things stew or be uncertain.

  • Are you asking people to do work that's been done before, or to explore the edges of a new universe?

Crap... work that's been done before.  Maybe something about my ideas for my process or culture needs to change, or maybe this should get outsourced and my first employees should be a different role.
I'll have to meditate on this one a bit.

Lesson 4: Name

I picked Rude Tech because I had a vision of R-U-D-E written on a guitar amp on a stage that hundreds of people are looking at.  I think it makes people go "huh, that's weird" since (1) most guitar equipment are emblazoned with the last name of the creator (think Marshall, Gibson, Fender, Charvel, etc), (2) it's a little shocking to see and that against-the-grain feeling is something I'd like to cultivate, and (3) it's easy to see/spell/remember.

Also the domain was available, haha.

Lesson 5: Partners

I don't think I want partners, but I may give away equity to some of my early employees.  After this lesson I'll very carefully consider if it's worth it to trade equity for what that particular employee produces.  If they are doing "the hard work"--not manual labor I can get anyone to do--then I'll consider it.

Lesson 6: Cashflow / Pricing

Answer these questions, in writing!

  • How much is your product or service going to cost?

Similar items cost between $99-200 (and more!).  The industry standard product is usually $99.  I'll have better value (graphics, quality, control/tonal options, a story, etc).  I'll price mine at $210.  (This is scary!  Lizard brain tells me "What right do you have to charge at the top tier?  No one will buy!")

  • How much does it cost you to make one additional unit?

Before economies of scale kick in, it costs $30ish /unit.

  • How much is your monthly overhead, all the expenses that aren't included in the cost of making one more unit.

Very little.  Internet, phone, no rent, no cable, etc.  Pennies per unit.

  • How many units are you going to sell every month?

At first: 4/mo.  6 mo projection: 20/mo.  12 mo projection: 100/mo.  After that, I'll try for national stores (the sky's the limit!)

  • Now you know what the monthly profit is (IF you sell all you make, ANDpeople pay on time).

6 mo projection: $3,600 /mo.

12 mo projection: $18,000 /mo.  No way.

Some questions, then:

  • What would happen to your numbers if you increase your retail price by 20%? 40% Lower it 10%?

20% increase: price=$231, sales would probably not be impacted much, 6mo projection increases by $400

40% increase: price=$294, sales impacted probably, but this price isn't unheard of, 6mo projection increases by $1680 to $5280 (assuming sales aren't impacted that much).

10% reduction: price=$180, sales might increase slightly since this is a run-of-the-mill price, 6mo projection decreases by $1200... WOAH!  Waffling on price has a big impact if you short change yourself.

  • What would you have to change about your business to get people to pay in advance? To subscribe? How much more could you charge if you gave them credit?

Kickstarter might be an option when I release new products.  That way, each next round of products funds the next manufacturing run.  When selling to wholesalers, I'd provide excellent service and follow-up to get repeat business (a sort of subscription?).  I know nothing about opening lines of credit, but this might be an option for really big stores.

  • For the first six months of your business, what if you committed to being much smaller but only had clients that paid upfront?

I could do that.  In fact I plan to be much smaller at first, not breaking the $4k/mo mark until mid-year.  Paying up-front would be easy for kickstarter and preorder clients, and maybe wholesalers who make small orders.  (An order limit on credit.)

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