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Cash cow or crunch?

Jan 21 2013 14:28 Anton Ressel

(Photo: Chris Kirchhoff, MCSA)

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AS A business consultant with a special focus on the craft and small-scale manufacturing sectors, I have come to recognise a number of shared traits among entrepreneurs and business owners engaged in the design and manufacture of products.

Chief among these is a tendency to assume that when sales are down and things are tough, the product must be the problem. If this is the case, the solution becomes very simple – make more, and hopefully better, products.

Spurred on by creative passion we dive headlong into the development of new ranges and better mousetraps, but very seldom do these efforts result in the repeat business and economies of scale that all manufacturers need to sustain their business.

In fact the opposite is often true, and the costly and time-consuming process of product development leaves us with less money in the bank, a room full of redundant samples and no more customers than we had before we started.

In truth, when things are not going well it is very seldom the product that is the problem. Of course, it is a given that you need to have a marketable and viable product or product range to capture the interest of the market and find customers.

However, it is all the stuff that goes on around the product and its journey along the value chain that will determine how successful your business is in the long term.

Sometimes referred to as your critical success factors (CSFs), this includes areas like marketing, costing and pricing, administration, communication, customer relationship management and market access - in other words, the 360 degree business environment and how you manage it for maximum success.

Simply put, you can have a highly desirable and well thought-out product range, but if your marketing is non-existent or your business communication is poor, you will always struggle to find repeat customers.

Similarly, a good product that is incorrectly priced because of production challenges or a lack of the tools and knowledge to accurately cost and price it, is doomed to failure. Either it will be too expensive and nobody will buy it, or it will be sold too cheaply and you will make no profit, or even a loss.

Both scenarios have only one ending, and it is not a happy one for your business.

A twofold solution

The solution is twofold. Firstly, any creative industries business needs to pay as much attention to the other critical success factors as it does to the product and the product development process.

The craft sector is littered with examples of great products that never made it, and great product designers who can’t seem to build a sustainable business in spite of their undeniable talent.

This is partly because they do not pay enough attention to the other CSFs, and partly because they do not base their designs and products sufficiently on what the market wants or needs.

Secondly, you need to be circumspect and do some planning before embarking on a product development process. Speak to your customers; they are an invaluable source of feedback in terms of style, colour, price points, packaging... the list is endless.

Also, do some research and assess current and future trends and whether they complement your design ethos. Finally and most importantly, approach the development of new products in a holistic fashion.

Whatever you develop needs to be viable not just aesthetically but also from a manufacturing, costing and pricing, raw material availability, marketing and sales perspective.

The next time things are slow and the temptation arises to embark on a new round of product development, pause before jumping in to look at the big picture and you will greatly increase your chance of success.  

*Share your experience of setting up your own business, or simply ask a question. Our business panel can put you on the right path.


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