Printing golf balls and boxing them for sale is different than
building something that must be maintained. Small novelty sports
items are different than home applicances. A $20 item is different
than a $2000 item.
But there are similarities
I can't give advice, but if I had a kick ass idea for a w/d combo I'd
do the following;
Harvard types call this the TIMEX MODEL of manufacturing business,
since Timex built its business the same way;
You, your family and your buddies mortgage your homes and put together
a nest egg of about $2 million - and you plan to take two years off
work. Pay yourself what you are getting now, and put about $250,000
toward travel. Let everyone know what you are getting paid - and what
the T&E is - and the rest is put in a CD and left there for when you
need to arrange financing. You need to tell everyone what's up with
that, because you don't want arguments later if you lose your shirt.
Organize the WD Development Company LLC - and give them shares in a
limited liability partnership. This will grow as you do things.
Get a good accountant and law firm - and have them gen up NDA/NC
agreements and so forth. Also get a good patent attorney and get them
started. They can organize WDDC LLC for you.
PROTYPES - PRODUCT DESIGN
When did you build you washer/dryer combo?
When was your patent filed
How many beta units have you built?
Who has used them and for how long?
What are their comments, pluses and minuses?
Independent confirmation of energy and other claims?
Have you gotten safety and other applicable certifications?
If you don't have any of these, go to a nationally recognized
prototyping/product design firm that specializes in your field of
expertise and have them do all of this for you. Shop around - and
don't be too chatty - argue with them about price. Have them give you
a quotation for all the work based on your discussions drawings and so
forth. For this sort of thing I would suspect you'd spend about
$300,000 to $500,000 - if they want more, and you think its worth it -
then ask them to profit share - or loan you the money. Don't pay for
any of it until you've figured out how to pay for ALL of it with this
PROTECTION & PARTS PRODUCTION
Once you've gotten all of this, then you are ready to file for patent
protection, both domestic and foreign, and once you've gotten
confirmation of filing then you go to China and India (which is the
low cost builders of this type thing) to talk to someone about
manufacturing it. There are hundreds of high quality fabricators that
make consumer home products. Depending on your patent you likely
won't spend more than $15,000 on US and another $8,000 foreign PTC
You will need to make high quality brochures and DVDs of your product,
to excite the fabricators - a little package that also includes
dimensioned prints and so forth. This is pretty cheap - less than
$3,000 - if done yourself with photoshop and so forth. THIS IS NOT
Segment the packages as to type. Electrics, wiring harness, linkages,
housing, controls, gears, mechanics, and so forth. DONT PUT ALL YOUR
PRINTS IN ONE PACKAGE.
Arrange all to have them sign an NDA/NC agreement before scheduling a
What you are looking for is
Budget - price vs volume
Timing - ramp up
Terms - letters of credit
from all of them.
Once you've got firm contracts for all your parts fabricators time to
look for a place to assemble them.
If you're selling in the US, you want to assemble in the US. If
you're selling in Europe, you'll want to assemble there. If you're
selling in Japan, you'll want to assemble there.
There are people that do that sort of thing for a living. Put
together a different package with the same cover brochure and DVD, but
then have a summary sheet. A map of the world, showing different
fabricators (without names) just cities, and arrows flowing to the
continental US - for a US assembler. With NAFTA you might also check
out Mexico as an assembly point - then dimensioned prints of all the
parts and how they go together - but not where they come from
Ask them for a quotation with the same results.
TRW GE Services and other companies do contract servicing of third
party manufactured products. They will also ship and install products
for you and keep parts inventories and so forth. Put together a
package for them as well, and ask them for quotes for service.
They'll want to see one of your prototypes. Arrange them to come to a
local hotel where you will have the prototypes set up - be prepared to
spend two or three days with engineers discussing the details of the
device - and the service history of the parts and so forth. Have your
design firm there too if you didn't do all that work yourself.
Now that you've gotten firm quotes from reputable manufacturers,
assemblers and service folk, you're ready to organize legally to sell
all the shit you will be making - organize an import company (who will
hire your foreign fabricators)to import your parts and sell them to
your manufacturing company (who will hire your domestic assemblers)
and a marketing company (who will buy all the stuff and wholesale it
The WDDC LLC is a holding company that owns all of or part of these
subsidiaries - depending on how greedy you are. As inall business
don't be overly generous and kill yourself. Folks are generally happy
if they get 20% to 40% return per year - and paid off in 3 years or
The marketing company now that it has well defined relationships with
all the fabricators and whatnot is in a position to send out press
releases and show the product at trade shows and so forth. A good ad
agency will work something up for you - and rework the brochures and
DVD for you become powerful selling tools. Decide how you want to
market it. A good ad agency will help you here. They will estimate
how many you will likely sell with a given budget and effort. YOU go
back and look at your price and volume charts and figure out what an
optimal level of effort is. Be prepared to spend three to four weeks
with you ad agency team at their offices. In the end, you'll have
decided on all the things you'll need to get precise numbers for your
fabricators and whatnot
Now you are ready to finance major manufacturing. Once you know your
volume, price points, profit margins, servicing etc., etc., etc., then
you can take all this information, put it in a business plan, and shop
around to various investment banks. Another brochure,based on your ad
agency output, not the stuff you showed to the fabricators - along
with financial data - your accountant can help you prepare a solid
business plan. What you want to do is not get loans, but get a letter
of intent to get loans against orders.
Lets say that your ad agency marketing firm has worked out that you
could sell 20,000 of your machines the first year. Right? And that
they'll sell retail for $2,000 - and you'll sell them wholesale to
Sears and whatnot, for $1,200. You know that all the parts will cost
$300 per machine, and assembly will cost $150 per machine. Service
will cost $80, and spare parts and shipping and so forth will be $45
per machine. Insurance will be $25 per machine. I'm just pulling
these numbers out of my ass, but this is representative of the kind of
stuff you'll do. What's that ad up to? $600 - so, you'll make a $600
per machine margin.
So, you total sales will be; $1,200 x 20,000 = $24,000,000
Your total cost will be $600 x 20,000 = $12,000,000
Now, put the $2 million you got from your house and your buds, and
your family, in a CD and borrow money using it as collateral when you
need it. That way you have a $2 million balance see? You'll need to
borrow $12,000,000 to make $24,000,000 in sales. What you'll want to
ask the banks about is ... how much of the $24,000,000 will you need
to sell in order to borrow the $12,000,000?? See? And you'll want
this as a rotating line of credit, so as you pay it down, you can run
it up again to continue sales.
You'll meet with a number of bankers investment bankers, and they will
spend time looking over things. You'll have $2 million cash in the
bank, and $1.2 million in debt say, and a burn rate and so forth. You
will have been in business about 6 months about now. You'll have a
solid business plan built around real figures backed by reputable
fabricators and assemblers, you'll have letters from the governor's
office and whatnot, you'll have a kick ass law firm and accounting
firm that's associated with other major manufacturers.. and you'll
have an ad agency and design firm that's world class. SOME bank
somewhere will give you the numbers. If they're pricks, they'll say
you'll have to give them ALL the $24 million in paper you'll be
generating next step. If they're not - it will be somewhere between
12 and 24 million. Lets say Chase has said they'll loan you $12
million against 12,000 orders. Great, you get a letter of intent from
them, and add it to your files.
Go back to all the fabricators you have selected and tell them they
have one a contract to do an initial production run of 20,000 parts.
But first you want 200 parts to test - at the 20,000 part price, and
within 90 days you will have an LC for the other parts.
An LC - letter of credit - is something your bank shows to the bank
of the fabricator. The money is there, all that's needed is for the
parts to arrive at an agreed upon location and have the bank check the
documents. Then the funds go to the fabricator. No questions
If you left the guys with a good impression - you can finagle the 200
parts and not pay for them for 90 days or so. If they're hard, or
short on money, they'll need some sort of payment up front. If they
want to stick you up and charge you small volume prices - tell them
you have to go to your board and will be back to them in a few days -
and go to the next guy for that part on your list.
Don't burn the guys you didn't select. Call them and say, hey, the
next 20,000 parts have gone to someone else - but you were really
impressed with them, could they send a few dozen parts - maybe you can
get the next production cycle sent to them. See? Use those parts to
compare to the other guy's - and if everything checks out, use those
for your initial spares.
Do this for all the parts.. When you have firm delivery dates and
whatnot for the parts, go to the fabricator and do the same thing.
You will give them an order for 20,000 initially to try them out, and
will be sending a few hundred parts to them to learn the system..
your engineers and so forth will be down there to help them out.
You have 200 units in inventory on the way.
Your ad guys haven't been sleeping during all of this. You will have
scheduled trade shows and advertisements shoots and so forth - and you
will now have product to ship very shortly. The goal here is to get a
buyer for Sears or Pennys or whatever channel your ad agency has told
you - to place a big order for units. They are qualified
remarketers. And your ad agency will have put together a trade booth,
brochures, PR, you name it.. to get these guys to bite. There will
be articlesin the WSJ or so forth announcing this new inventor who has
revolutionized washer/driers etc.
If they've done their jobs right, people will seek you out at the
trade show and you will know the big time buyers - and give them a
personal walk through. If you've done things right, you will still
have about $200,000 of the original $2 million - but you are days
perhaps hours away from getting it all in motion.
In the end, some buyer somewhere will buy 2,000 machines and want
delivery next quarter - you've got it. Another will buy 3,000 - no
problem. In the end, you'll have all the negatives addressed, and be
writing orders. When you get to 12,000 - you go back to your bank and
give them copies of all the paper work, they issue you $12,000,000 in
credit, and you get 20,000 machines built. As you get additional
orders, 300 here, 600 there... for the additional 8,000 machines - you
do the same thing, and the bank will give you $8 million in loans -
writing off your $2 million loan first, and giving you $6 million in
cash. You still have your $2 million credit line - and if you were
smart you identified someone who was very good at this sort of thing
to hire, and you took them along with you - and put them in charge of
operations while you spend your profits.
This could all be done in 6 to 9 months. Say you shipped 22,000 the
first year and 25,000 the second. You've made $11 million and $12
million respectively. If you were smart you like Henry Ford will have
a buyout option on the LLC. If you're sneaky you'll dilute the
holding company. In any event, lets say you paid back your buds and
family $4 million - which you kept in a CD the whole time - and gave
them the interest on it - out of the first year's proceeds.
You still keep your design firm and ad agency - you talk with TRW say
and get feedback about issues facing the machines. Problems to be
resolved. Improvements you've come up with and so forth. You will
have a new model year - and be incorporating those improvements in
your production run.
But the important thing is that your accountants will show an EBITDA
of $7 million the first year, $12 million the second year - and your
ad agency will work with your accountants to look forward another 5
years... Say they project 20% growth per year and then it flattens
out after 5 years...
Annual sales millions
$7 $12 $14 $18 $21 $25 $30
Now, this revenue stream can be argued to be worth somewhere between
$300 million and $600 million - and you want to sell it today for
somewhere in this range. (unlike golfballs, they don't have a limited
longevity) Also, this is how much the company is worth to you. In
the hands of a GE or Westinghouse, this same product might be worth 3
or 4 x this amount. In that case, you have the classic win win
If the majors aren't interested that's okay, there's always the
public. By the end of the second year, you have sufficient cash and
history to become publicly listed on the stock exchange. You do an
IPO and your stock is now marketable. You might want to buy critical
fabricators and assemblers and make them company owned. You might
want to open a chain of retail stores that sell this product along
with others you have related to it. You might want to increase
production to 200,000 units per year you might want to do all these
things. So, you do an IPO - and suddenly you have marketable
securities that you can take to the bank. You'll be restricted for a
few years. But no matter, you can pay yourself handsomely, and borrow
against your stock value - and create a structured sell off so that
you can support whatever level of debt you care to carry - getting use
of the $600 million in value you've created.
But sell-off is a good option - especially since there are good people
out there who are very good at this sort of thing. And you take your
money buy a yacht and cruise the Carribean singing pirate shanties and