Running a business around a lifestyle which allows you to choose your own hours and live where you want – not where you have to – is the dream arrangement for many entrepreneurs.
One way to do this is build a company around a product which can be sold while you sleep – a business that doesn’t rely on billing hours to clients, because that’s when your earnings can be limited by the amount of hours you work.
One company which has managed to achieve this is Bondi Chai, a pre-mix drinks powder company. Founders Martin Buggy and Melissa Edyvean started the company in 2005 and this month won Telstra’s NSW Micro Business of The Year Award for its outsourced business model.
The model, which involves contracting out most of the core operations, has enabled the couple to build a lifestyle business with annual sales of $2 million a year. The pair is expecting to move about 65 tonnes of chai powder in 2014. They estimate it’s the equivalent of one chai latte being sold every three seconds in Australia.
“We were very focussed on building a lifestyle and finding a business that would fit our lifestyle – no the other way around,” Buggy told Business Insider.
Outsourcing activities takes the pressure off – it allows them to travel, keep debt levels low, and live where they want. Both founders are based on the north coast of New South Wales in Port Stephens.
“We didn’t want to live in the big metropolitan areas,” Buggy said. “We die every minute we’re away from this place.”
The idea of outsourcing grew from a desire not to become involved in the manufacturing and distribution of a product.
“We didn’t know how to make the product and nor did we want to learn. We came from a marketing background,” Buggy said.
The founders enlisted contractors to manufacture Bondi Chai, a third party logistics company to take care of its warehousing requirements and distributors to sell the product into cafes around Australia.
“The model works so well for us we’ve kept it the whole time – for the last seven or eight years,” Buggy said.
“We own the brand, the recipe for the product and have built a distribution network.”
Running an outsourced business model keeps entry and running costs down but contracting out tasks does lift the chai powder’s unit cost slightly.
“On a unit cost basis it’s cheaper to manufacture it yourself but if you’re starting in a new business with a new product which you’re convinced is going to work but the cafe industry is telling you that it was silly, we wanted to get in at the lowest entry cost,” Buggy said. He added not having to invest in a plant, equipment, hire staff, and navigate regulations and food safety audits was a less stressful way to run a business.
“Once we built sufficient stock that we had to have it warehoused and then sent around the country to distributors we obviously then needed a warehouse. So you’d think, obviously, you’d lease a warehouse, we’ll do our own stock inventory but it’s fairly tricky business keeping track of your stock and warehousing it and you’ve got to employ people again,” Buggy said.
“By now we were used to dealing with third party providers so we went looking for a 3PL so that’s where we ended up in the hands of a third party logistics company.”
Using an outsourcing model from the start, Buggy said they worked backwards to develop a product which has enough margin for each contractor and ensure its viability.
“The standard industry conventional wisdom is that if you can make it for a third, keep a third and give other people a third,” he said.
What the company found was even though it was using contractors and paying a little bit extra per unit it was still able to develop a product which fit into the model of three parties involved.