How to start a product business

The giant vessel en route from Asia or China to a port in the UK, Europe or North America has become one of the iconic images of the 21^st century.

Laden from bow to stern with huge containers, the progress of these ships is a reminder that much of the world’s manufacturing now takes place in factories in the east.

And this has been good news for entrepreneurs. Crack open one of those containers and you might well find televisions on their way to John Lewis or laptops bound for shelves of PC World, but that’s not the whole story.

From novelty mugs to the highest of high-tech gadgetry, the manufacturing powerhouses of Asia and China supply a vast range of goods to relatively small entrepreneurial businesses here in the UK.

Some of these businesses simply import goods that have already been made direct from the manufacturer. For instance, an importer might buy 500 laptops for resale via a website or through a network of small retailers. Buying from the manufacturer keeps the cost low and allows the units to be offered at keen prices in the home market.

Business opportunity

Equally, the lower costs associated with overseas manufacture mean UK entrepreneurs have an opportunity to turn innovative designs into marketable products. And as Anna Lee Keeley, founder of children’s clothing company Baby Moo, explains, overseas factories not only tend to charge less than their UK counterparts, they will also agree to short production runs.

“I started the business with £230,” she says. “And when I placed my first order I only required 300 items. In the UK I probably wouldn’t have been able to find a manufacturer who would supply anything less than a £1,000 order with pattern cutting on top of that.”

Thus Keeley sourced her first order from China and has since gone on to use factories in India, Turkey and more recently Leicester, generating revenues of £70,000 last year via a number of sites, such as eBay.

Finding a manufacturer

Of course, finding an overseas supplier is not necessarily simple. In Asia alone there are literally thousands of small and large factories and there isn’t an obvious way to draw up a potential shortlist of manufacturing partner, particularly as many don’t have websites.

To address to this problem, some businesses use agents to source suppliers on their behalf. However, a simpler approach is to use an e-commerce platform such as Alibaba.com which is designed to put suppliers in touch with buyers.

That was the approach taken by Sheridan Simove, founder of novelty goods company Ideasman.co.uk and video-based selling app Sellervision. Coming from an entrepreneurial family and with a background in television production, Simove was looking for an opportunity to harness his creative ideas in the service of a viable business plan.

While working on the Big Brother television programme he came up with the plan of designing and marketing novelty items, starting with an adult themed sweet.

Simove ran a search on Alibaba.com based on the product specifications. “Alibaba.com enabled me to find a manufacturer very quickly,” he says.

Sheridan Simove

As Simove acknowledges any search of this kind involves a certain amount of filtering. Once the Alibaba.com search has generated a list of potential suppliers the next step is to draw up a shortlist based on the quotes they provide before making a final decision.

“I do a certain amount of due diligence,” he says. “I Google the companies and look for any references to scams or bad experiences. I would also recommend phoning them at an early stage and perhaps also talking to them via a video link on Skype. That helps you to see if you are dealing with a real factory or an operation running from someone’s home.”

Simove also tends to deal with suppliers who have achieved gold standard status on the Alibaba.com site, an indication that they have a good trading record.

Quality control

Once an order has been agreed, the next challenge is to ensure that the goods, when they arrive, are exactly what you ordered. “Everything has to be specified in exact detail,” says Simove. “You need to send a comprehensive technical drawing and from the product to the packaging you need to say exactly what you want.”

And as Anna Lee Keeley points out, it’s important to see samples before placing the full order. Even then mistakes are made. Keeley cites the example of a recent consignment of baby trousers in which the printing of a pattern on one of the legs was upside down. “I had to sell those items at a discount.”

Fortunately for Keeley, the supplier in question does not require her to pay until the goods have arrived and been checked, so the mistake did not leave her out of pocket and chasing a refund. However, as she points out, this is not always the case. Most suppliers do expect to be paid at least 50% upfront. “What you can do is pay someone to check the goods before they leave the factory, but I haven’t had to do that yet.”

Added protection

The Alibaba.com platform offers additional protection in the form of ‘Trade Assurance’, essentially a guarantee that the buyer costs will be covered if the supplier fails to deliver on time or makes and sends goods that do not match the specification.

As Kiran Tawadey, founder of Hampstead Tea and an Alibaba user observes, this additional level of assurance provides peace of mind. “We know we are going to receive the goods, we know when we are going to receive them and we know when we are going pay,” she says.

Managing cashflow

Importing for resale can create cashflow problems, particularly for small businesses. If payment is upfront, then there can be a long gap (perhaps many months) between the money leaving the buyers account to pay the supplier and the first income from sales coming in.

There are various financial solutions available from banks. These include trade finance deals under which the bank agrees to pay the supplier with the buyer repaying at a later date, once the goods have arrived. These in turn can be linked to invoice discounting or factoring when the goods are sold in the UK market, essentially ensuring the importer receives money as soon as the goods are sold on and the invoice raised.

On the Alibaba.com platform, there are finance options provided by finance providers Ezbob and Iwoca. Embedded in the Alibaba.com platform both solutions allow businesses to access credit to fund their purchases. For instance, as Tomer Guriel, CEO of Ezbob explains those applying for loans go through a quick application process. “Once accepted, we handle the transfer of money to the supplier account,” he says.

There are of course a range of financial factors to be taken into account, such as shipping and tariffs and Sheridan Simove notes, any importer must research the total cost ahead of any deal to avoid unpleasant surprises.

Importing goods – especially made to order – is never totally straightforward and businesses must take care when vetting and choosing suppliers, monitoring quality and managing cash. But the facilities offered by overseas factories provide an opportunity to turn ideas into reality. Increasingly, e-commerce is making the process much easier.