Upon starting your first business, as an entrepreneur you should shy away from the prospect of starting any product-based company regardless of how lucrative you may perceive it to be.
There are a few reasons behind this logic and they include, but are not limited to:
1. Product-based companies are risky. The business owner is not in as flexible of a position as if he or she owns a service-based company. Any slight change in the marketplace for the product-based owner can leave them with a vast amount of useless inventory and negligible or even no receivables to fund the warehousing and repayment on that inventory.
2. Opening up a product based company requires continuous management of myriad parties: the manufacturer, the logistics vendors controlling shipping and transportation or freight forwarding, as well as the distributor. For the first time entrepreneur, this could prove quite daunting, as young business professionals typically lack the finesse to juggle so many outside parties while focusing on growing their own business.
3. Another thing that the product-based company owner is going to run into is what’s likely to be a long, arduous hunt for a manufacturer that is willing to produce what the business owner is requesting. Manufacturers really only like to deal with companies that are established and that buy in enormous bulk. Getting these manufacturers to customise a product for a small, startup venture can be near impossible.
4. When selling a product, the entrepreneur does not have much leeway and can easily get beaten on price and, upon being underbid by competitors cannot do much about it.
5. Once the products does start to sell (if it does at all), you can rest assured that much of the time larger companies are going to begin mass production of the product, thus beating the small business owner at his or her own game.
The first time you start a business, to have a chance of surviving you must have every winning variable on your side. In the end opening a product-based company only complicates the already complicated and can prove an enormous hindrance when it comes to small business success.