Wired editor-in-chief Chris Anderson has a knack for spotting and popularizing interesting business trends that are driven by the internet. He’s most famous, of course, for his book The Long Tail, which has inspired legions of internet entrepreneurs.
But at the Supernova conference in San Francisco, Anderson revealed that he’s thinking more about the physical than the virtual these days.
Stating “We are entering a new manufacturing age“, Anderson suggests that many of the things that have made the web such a game-changer are starting to apply to the world of manufacturing. To be sure, there’s some truth to what Anderson says. But like a lot of his work, he seems to take his idea to the point of exaggeration.
While it’s true that the ability to manufacture is something far more entrepreneurs and individuals have today, manufacturing as a business is still extremely challenging. After all, manufacturing and selling a handful of widgets is not the same as manufacturing and selling a million. Which is important because manufacturing physical product is often a low-margin business in which high volumes of sales are required for financial viability. Throw in legal issues (including warranties, product liability, international contracts and intellectual property), the ever-present threat of commoditization, the difficulty of finding distribution and logistical issues such as supply chain management, and it’s easy to see why building a successful business that manufactures something can be an uphill battle for even the most experienced entrepreneurs.
The challenges in executing on the web shouldn’t be underestimated, but they pale in comparison to the challenges of executing in the cut-throat world of manufacturing. A great example of that is the demise of the CrunchPad. Despite grassroots demand, a major retailer offering support, willing investors waiting in the wings and a former attorney at the helm, the CrunchPad is, for the time being at least, dead because of a dispute between partners. While this dispute could have been avoided, it does demonstrate some of the risks that are present in manufacturing-based businesses.
But Anderson apparently isn’t concerned with these risks. He points to Local Motors, and his own DIY Drones, as examples of how manufacturing is becoming more accessible and democratized. He claims that “Chinese factories will work with you, whoever you are” and that “You have access to the same factories Sony does. You can do what they do“.
The first quote may be true, but the last one, however, is a real stretch. The reason: when it comes to costs at all levels, from materials to labor to shipping, manufacturing overseas still isn’t always so cheap, especially when you’re a small company. Anderson notes that Chinese factories will work with smaller businesses because of higher margins, which hints at a fact he seems to ignore: unless you’re doing large enough volume (like a Sony), chances are you’re helping a factory owner boost his slim profit margins. Because a small business only has so much leverage when it comes to pricing, it’s the factory owner who will likely get the better end of the deal, making it even harder for the small business to manufacture at a profit.
While Anderson’s vision is unlikely to represent “the future of manufacturing and the future of the U.S. economy” as he suggests, he is correct about technological advances reducing many of the barriers to entry in the world of manufacturing. But lower barriers to entry don’t mean that we’ll see a flood of successful upstart manufacturing businesses, just as the low costs and barriers to entry on the internet haven’t meant that everybody who starts a web venture will realize Google-sized success.
That said, if you’re looking to make a billion dollars, chances are your odds are still greater trying to build the next Google than they are trying to build the next Apple.
Photo credit: ShashiBellamkonda via Flickr.