{{ searchResult.published_at | date:'d MMMM yyyy' }}

Loading ...
Loading ...

Enter a search term such as “mobile analytics” or browse our content using the filters above.

No_results

That’s not only a poor Scrabble score but we also couldn’t find any results matching “”.
Check your spelling or try broadening your search.

Logo_distressed

Sorry about this, there is a problem with our search at the moment.
Please try again later.

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.

Patricio Robles

Published 3 December, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2377 more posts from this author

Comments (10)

Comment
No-profile-pic
Save or Cancel
Avatar-blank-50x50

Anders Online Marketing

I am working with marketing in Denmark and is searching for inspiration in the digital world.

Thanks for inspiration.

over 6 years ago

Avatar-blank-50x50

selina howells

I hope the Crunchpad doesn't become a case history. How can anyone know what the full story was. Manufacturing has great margins if you sell direct to the end user. Make something there is a demand for and your customers find you. Your expenditure on marketing is zero. You only manufacture what there is a demand for so you have no stock. You also have all the margin, not half of it shared with the retailer. Manufacturing locally ethically made niche products and selling to a global audience is a tremendous business model. Delivering a physical product means people expect to pay. You can charge money instead of having to give your product away and invent a way of making money on the side. Internets love buying off manufacturers. Build a digital element into your product that can be customised and you can supply products made only once for each customer. I agree with Anderson. His thinking really helps a lot of small entrepreneurs, or at least he's helped me.

over 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Selina,

Where to begin?

Manufacturing has great margins if you sell direct to the end user.

Very few new companies can do this in any volume, especially in the consumer space. In fact, I can't think of a single successful consumer electronics upstart, for instance, that hasn't had distribution through major retailers or established players with a distribution network. From TiVo to Ooma, distribution is everything.

Make something there is a demand for and your customers find you. Your expenditure on marketing is zero.

Do you really believe it's that simple? Frankly, the "if you build it, they will come" marketing 'strategy' is probably the most destructive marketing 'strategy' there is because it's not a strategy at all. Again, I'd challenge you to name a single successful hardware company that spends $0 on marketing.

You only manufacture what there is a demand for so you have no stock.

Just-in-time manufacturing is easy to talk about but much harder to implement, especially at scale. Sure, if you sell 20 widgets a year, it might be fine. But try doing what Dell has done if you're an entrepreneur working out of your garage.

The problem for serious upstarts is that JIT manufacturing increases materials and labor costs (since you're not buying raw materials in volume). It often reduces the ability to deliver product to the customer quickly (not only does the product have to be assembled and shipped after the fact, parts used in the product may come from different suppliers, creating obvious potential bottlenecks). And a poor JIT supply chain and logistics management can absolutely destroy a company that doesn't have the capacity to deal with a sudden spike in orders.

Manufacturing locally ethically made niche products and selling to a global audience is a tremendous business model.

That's sort of like saying selling online is a tremendous business model. It is for some, and it isn't for others. It depends on what you're selling and how well you sell.

For what you describe to be a tremendous business opportunity, you obviously need to manufacture and deliver a product to customers at a profit and be able to find willing buyers. If you can't manufacture at a profit and find customers, it doesn't matter what you're manufacturing or where you're selling to.

Frankly, I think there's a lot of confusion here between manufacturing as a business and manufacturing as a hobby. What you and Anderson describe is a hobbyist approach in my opinion.

over 6 years ago

Avatar-blank-50x50

selina howells

There is a scale inbetween hobby and Dell. It is so possible to spend zero on marketing. It is the only way to do business. Most people owning their own company are not Dell. On distribution, let the customer pull your product, forget pushing anything onto consumers. It is that simple. Think about this again. There's such a waste of engineering talent laid off from manufacturing. I hope they read Anderson, as I do.  I'm challenging you on this because I think you're wrong, enjoy a lot of what you write though.

over 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Selina,

Again, I'd ask you to list a single successful company that manufactures a physical consumer product that spends $0 on marketing. Even Apple, with all of its cachet and built-in base of passionate fans, spends half a billion dollars a year on advertising.

Again, I'd also ask you to name a single successful company that manufactures a physical consumer product that thrived without significant distribution channels because consumers somehow miraculously found its product on their own.

A great realistic example of all this is VOIP upstart Ooma. When the company launched, it was relying on a direct-to-consumers model to sell its VOIP device through its website. The company almost failed because of that and excessive pricing. What saved the company? More attractive pricing and distribution deals with major retailers like Best Buy, Radioshack and Fry's, as well as online distribution through Amazon.com, Walmart.com and Costco.com. The company actually has a shot at making it now.

Ooma is hardly alone. You can trace the success of TiVo, for instance, to early distribution partnerships with consumer electronics companies like Sony and Philips, as well as through distribution relationships with retailers including Best Buy and Sears.

You can also look at companies with slightly different models. VOIP company MagicJack, for instance, does have distribution through the Best Buys and Radioshacks of the world but has also relied heavily on direct sales through television ads and infomercials, both of which, of course, aren't free.

Bottom line: experienced internet entrepreneurs know that "if you build it, they will come" does not work online. Just as experienced manufacturing entrepreneurs know that physical products don't distribute and sell themselves.

over 6 years ago

Avatar-blank-50x50

selina howells

Don't agree. It is much easier to build a business using the internet to lower all your costs if you have manufactured an in demand physical product to sell than if your product is software. I'm not the journalist. I'm the manufacturer. It's for you to observe and see or not see what is happening. 

A spike in demand is not the killer you paint it to be. Customers find your product. That is how the internet works. People prefer to screen out what is being advertised to them and find what they want using search and word of mouth recommendation. You do not advertise to create sales therefore if demand exceeds supply you didn't create it. There is an understanding that the world has changed. Consumption is not king. If demand exceeds supply tough, there are more important things. The great margins of your business mean meeting every sale would make you richer, but is not essential. 

Where do you want to buy your next shirt or tableware or food? From a manufacturer that is making what you buy ethically, with a much reduced carbon footprint, and where none of your cash goes on soft marketing spend, or spend your money on mass manufactured brands that everyone else is buying from a retailer and where 80% of your cash is spent on marketing?

over 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Selina,

You have refused to:

1. Name a single successful company that manufactures a physical consumer product and that spends $0 on marketing.
2. Name a single successful company that manufactures a physical consumer product and that achieved success without significant distribution channels.

We can go back and forth talking "theories" but if I think the fact you can't point to a single company that would lend credence to yours says it all. Bottom line: no matter what you sell, if you build it, they will not come.

over 6 years ago

Avatar-blank-50x50

selina howells

So disagree, but that's ok. What you write is useful for anyone finding new business models that do all the important things like create jobs, create wealth, address the bigger problems we have from global warming, so thank you for challenging Anderson's ideas. 

We can watch Murdoch from our opposing sides. Murdoch sees the limitations of advertising as a business model. He's said 'advertising is broken'. So he wants to operate more like a manufacturer. He understands the folly of free for producers and wants to go back to selling what he makes direct to his customers, and for his customers to pay for what he makes. I will be paying. Of course his business is on a scale where he will use lots of middlemen to create sales, and he will go after every sale. But that's not the scale of manufacturer that most businesses are. 

over 6 years ago

Avatar-blank-50x50

Stephen

This blog is really good. After reading it made me think in a totaly different manner. I think it would change my life totaly and would help me in my carrer.

over 6 years ago

Avatar-blank-50x50

Ricky

A great realistic example of all this is VOIP upstart Ooma. When the company launched, it was relying on a direct-to-consumers model to sell its VOIP device through its website. The company almost failed because of that and excessive pricing.

over 6 years ago

Comment
No-profile-pic
Save or Cancel
Daily_pulse_signup_wide

Enjoying this article?

Get more just like this, delivered to your inbox.

Keep up to date with the latest analysis, inspiration and learning from the Econsultancy blog with our free Daily Pulse newsletter. Each weekday, you ll receive a hand-picked digest of the latest and greatest articles, as well as snippets of new market data, best practice guides and trends research.