If you want to take a larger share of the market, win clients and have higher margins, you'll need to develop your own product.
Buying and selling products has always been simple and straightforward. You figure out what kind of product you want to sell and source this product from a number of suppliers on Alibaba, Global Sources and other marketplaces. You add your margins and sell this product on your ecommerce store.
This process works for getting experience with trading products but you’ll never be able to be a leader in the market. The main reason why you can’t be a leader in the market with this strategy is because your products are open for anyone to sell. To overcome this and improve your margins while also stealing a larger piece of the market, you will need a product that only you can sell.
The good news is that you don’t need to start from scratch. If you're engaged with your clients, you will understand what they are looking for. By understanding your customers, you can minimize the risk of developing a product that the market is looking for.
Why should entrepreneurs develop their own products?
Developing a product is not a new concept. Many people have thought of developing their own product but ultimately they ran into many roadblocks and lacked the confidence to proceed. The main reason driving companies from trading to developing and selling your own product has to do with the limitations that product trading has. When you’re trading products, you have limitations and constraints that are out of your control.
Most entrepreneurs that have thought of developing their own products have been led in this direction by a few triggers from the trading business. These main triggers are
- Entrepreneurs are tired of being like the others. Anyone can sell a product they are selling. What makes them so special?
- It enables entrepreneurs to gain higher margins. For most offline and online retailers, it's a race to the bottom with prices.
- Entrepreneurs are unable to evolve their brand. Being able to provide customized products will improve your brand awareness. People would much rather have something unique rather than a product that is flooding the market and has many different sellers.
- Entrepreneurs' business has poor customer loyalty. When everyone has the same product, customers tend to look only at prices. Customers become much more loyal to companies if the product fully caters to their needs.
What are the limitations entrepreneurs face when creating their own products?
1. The sky is not the limit.
You can only sell a certain amount of products due to the competition. Factories are able to sell the same product to as many customers as they can find. This means that you have very little priority in the eyes of suppliers and buyers.
2. Non-product manufacturers face low margins.
When anyone can sell the same product, the buyers will make it a race to the bottom with prices.
3. Entrepreneurs lack control over the supply chain.
When you don't own the product you are buying, you have very little control of what can be added to the product. You receive what the supplier has made rather than something made for you and your customers.
4. Entrepreneurs' businesses have almost no brand awareness.
What makes you unique when you're selling something that anyone else can? Your brand will be forgotten because you're unable to provide a unique product. The reason why developing a product is great is because is gives you an opportunity to take those limitations and turn them into huge opportunities.
Everyone knows the headaches and pain that come with developing a product. However, if you understand your customers and your competitors, taking the time to develop and launch your own product holds huge potential. You want to take those limitations and turn them into opportunities.
What are the opportunities you open when developing your own products?
1. The sky's the limit.
When you successfully develop and launch your own product, there is no end in sight. By being the sole manufacturer of that product gives you the flexibility to go sell your products to anyone without the threat of too much competition.
2. Entrepreneurs enjoy higher margins.
Since you created a product based off the feedback from your customers, they will be willing to pay a higher premium for that product. No one is able to sell this product so you can have higher profits.
3. Product manufacturers enjoy more control.
With having the control over your product gives you the flexibility to make any changes needed in order to improve customer satisfaction.
4. Your brand generates awareness.
Listening to your customers and launching products that are catered towards them will automatically create loyal customers.
How should entrepreneurs start manufacturing their own products?
Before we proceed, it's important to understand that successful product development needs the fusion of two types of information: the need and solution.
This is a company or individual that knows exactly what the market is missing. They might not understand how to develop or build it, but they know what the market needs. The best way to gather this information will be to engage with your customers and listen to their feedback.
This company or individual knows how to digest the need information and bring it to life. These are usually engineers, designers, developers or a factory that has the capability to understand what the need is and turn it into something physical.
To develop the perfect product, the need solution needs to provide a perfect description of their envision to the solution party. Remember that the solution doesn't have a perfect understanding of your product so you need to be very thorough with your description and reasoning.
There is a myth that the development steps are long and demanding which often leaves you broke. However, if you follow the correct steps and have total transparency between the need and solution parties, the process will be smoother. When you get to the solution steps, you might not be the leader but you should understand the process.
Step 1: Product engineering and design
The first step the solution information needs to carry out will be engineering a product that is envisioned by the need information. This first step provided by the solution information is also the most critical step. If the engineering is done incorrectly, the product will never be functional and will have poor reviews.
In order to eliminate failures, design the most critical part first and test it. Make samples of it to ensure that the product works as it’s supposed to. If not, it’s back to the drawing board.
Step 2: Prototypes
The purpose of a prototype is to verify that the engineering works as it’s intended. It’s great that you have the idea engineered and drawn out on CAD but you also need to make sure that it works as intended.
When you have a prototype, it really opens up many doors because you can start to market the product, you can take preorders, seek investment, start a Kickstarter campaign, etc.
Step 3: Tooling
For this article, we are assuming that you have built a relationship with your factory that will be building this product. If you got lucky, your factory also provided you with the resources to develop this product.
One great part of product trading is that you never need to worry about opening up new tools. However, if you are the sole seller of this project then opening up a tool is well worth the investment and well worth the short amount of time needed to make that tool.
Remember when negotiating with your supplier that the tool is yours and that the supplier is not able to use that tool for any other customer.
Step 4: Production
This is the moment that you have been waiting for. This is the last step for you to receive your product. The good news is that if the above steps were followed correctly, there will be no major issues. Keep in mind that with production there are some minor issues that occur but stay calm and handle those as they come up.
If you can follow these steps, you'll see a healthy launch that will last for the life of the product.
There is a lot of talk about whether or not to patent your product. If this is your first product you might be overly excited to patent the product. However, the best way to keep the market share is by not patenting your product because those are simple to get around but by consistently developing and launching products. This is something that your competitors and factories looking to knock off products can’t keep up with because they are still selling products that are in the market already.
Product trading can be a great way to build experience to see whether or not it is a profession that you wish to pursue. However, developing your own product is the only way to the top of the line. While many people have failed to develop products efficiently, learn from their mistakes while going forward.