Anatomy of a Startup: Part 1 – The Teddy Bear Chronicles

My companies are involved in a lot of different things. Most of my business dealings are internet related. In this series of articles I will write about my attempt at a brand new startup from Day 1. I will chronicle all the successes and failures with hopes you get something out of it that you can take to the bank. Perhaps we can inspire someone out there to make a life changing leap.

Plush Teddy Bears – A Crazy Idea In A Saturated Market

I decided this time around I want to do something a bit more creative. As one with some graphic design skills, I thought it would be neat to design a cool-looking teddy bear and market it as this new fangled hip hop-style lovable plush with a rude sense of humor. Sounds like a decent idea, doesn’t it? I thought so too until I realized how many people in the world sell teddy bears.

There’s a term in business that can make or break you. It’s a basic economic term that sounds much simpler when spoken than its underlying meaning implies. The term is “barriers to entry“. A barrier to entry is an obstacle of some sort that can be your best friend or worst enemy depending on which side of the barrier you lie. Fundamentally the term describes how difficult or how easy it is to compete or enter a new market. I mention this term because as I continue to pursue the teddy bear venture, I learned it was WAY too easy for me to source my product and have a demo in my hands. If I had no trouble finding the product, my competitors will have no trouble as well. From what I’ve found to be true in business is that the more difficult a product is to develop and source, the better off you are once the sourcing is complete. This is a teddy bear. Ten billion Chinese factory workers are standing in line waiting to create these plush little darlings for the American market. No significant barrier to entry there. I could be in trouble before I even begin.

Pushing forward regardless, we hope our creative spin and marketing skills give us the upper hand and allow us to compete. A barrier to entry could be as simple as “I’m better than you at marketing so I will win” or “I have God given skills as a Fine Artist that allow me to produce teddy bears that you just don’t have the talent to create”. All superiority complexes aside, there is ALWAYS someone bigger, better and more talented than you who could easily hurt your business if they wanted to. You must weigh your talents and weaknesses seriously when entering a new venture particularly when there are no barriers to entry.

The Plan: Find Your Source

We have located what we believe to be a reliable supplier overseas who will create the teddy bears for us. We are learning as we go since the plush toy market is not our primary concern. We found out that the US has recently introduced pretty strict testing and safety requirements for the plush market as a result of the lead paint in toys problem we had a few months back. It’s not as easy to bring toys into this country from China as it once was but it’s not overly difficult either. The unexpected specialized testing requirements are going to cost us a few extra dollars to our bottom line. We should still be able to hit the retail price we were looking to achieve and have enough profit to stay in business but that number just shrunk a bit. Ok, still undeterred, we learned a bit along the way. Back to the bear.

We spoke with quite a few suppliers (via email and Skype mostly) and emailed photos of samples back and forth. We compared many different quotes and nearly settled on one manufacturer in particular. We were amazed at the wide price range we were quoted. Some quotes were TRIPLE others. I still don’t understand that but I think I have my supplier nailed down. The supplier we are in the process of choosing appears reputable and answers all of our questions in a timely fashion.

If you are new to doing business overseas, you MUST deal with someone who is willing to answer all of your questions. If they are in a rush to get your money, walk away. Be aware of people that source, charge a markup and sell someone else’s product to you. If you are going to use an overseas manufacturer, do your homework and be sure the people you are dealing with are the people that are going to actually manufacture your product.

When Sourcing Your Product, Don’t Deal With Overseas Middlemen

In most cases, you don’t want to deal with a middle man who is going to charge a markup. If that’s the case, you don’t need to go to China for that. There are PLENTY of companies here in the US with reputable contacts in China and many have been established for years. These companies have done the homework for you. You can save yourself a lot of aggravation if you use such a service but it’s going to cost you on the bottom line. The guy in the US is going to mark up the product he gets from China and then resell it to you. In some cases this might not be a bad thing and could be worth the additional markup if you are receiving services in exchange. If you go with a service such as this you may find comfort in having someone nearby to scream at in case the project starts falling apart or the merchandise is not up to snuff. If the company you are dealing with is reputable, they will handle all the problems and make good on any botched orders or defective merchandise. If nothing else, you will have someone here in the US who speaks English well and will completely understand your concerns. Another potential bonus is that sometimes these middle men companies will perform warehousing duties for you at a deeply discounted rate if you buy through them. Others will go as far as allowing you to ship and pay for your merchandise as its needed which could be a very nice feature if you are starting out with a limited budget. China manufacturers like to deal in large numbers – 20,000 of this, 50,000 of that. That’s the way they make money. If and when you come to them to produce 500 units of a $3 teddy bear, they are going to do all they can to give you the run around. Be persistent and promise the big score:

“If you take this order for just 500 units, I understand I will have to pay a fair amount more per piece than when I buy 25,000. I will tell you that my loyalty is strong and if you are willing to work with me on this project, I know have the ability to send you significantly larger, recurring orders in the future.”

Tell them what they want to hear.

As of today, we eagerly await the physical prototype of our teddy bear to arrive from overseas. We started building our e-commerce site through which the bears will be sold and we’ve even found a local artist we are going to hire to come up with some slick graphics to put on the teddy’s clothes. We were sent photos via email but the actual sample is going to be nice to see so we can squish it and play with it and show it around. We would like to get some market feedback before we move forward with mass production and having a sample to show around will help significantly. We will keep you posted on our progress each step of the way. Until next time, we’ll see you hangin’ around the edge of normal.