BY BILL VIRGIN
Editor/Publisher, Washington Manufacturing Alert
So you want to start a company? Great! All you need to do is write some code for a mobile-phone app or a social-networking site, find a venture capitalist to underwrite your hit and you?re in business.
Oh wait. You want to start a company that makes an actual physical product? For that you?re going to need models and prototypes, you?re going to need financing (when most venture funds have little interest in or understanding of manufacturing), you?ll need someone to actually make your product, you?ll want to find a distributor (good luck getting one to take on a brand new product), you?ve got marketing and administration to worry about, and then you?ll need customers.
It?s a wonder anyone tries to launch a manufacturing company at all.
But they do. While most of the discussion of entrepreneurial activity focuses on the tech sector, people are starting manufacturing companies. The Department of Revenue reports 2,344 new registrations of manufacturers in 2011 for tax reporting purposes, up from 2,060 in 2010.
There?s no better illustration of the challenges ? and opportunities ? for manufacturing entrepreneurship than Alexandra Abraham and her product/company, the DripCatch.
Abraham is a senior at Seattle University?s business school. Actually, she should have graduated by now, except that she?s taken some time off to actually start and run a business.
Abraham came by her inspiration for the product and the company first-hand. As the story goes, she slipped on water on a kitchen floor while helping to cater an event.
Water on floors and carpets is not an uncommon problem for restaurants and catering sites. It comes from the racks of glasses, often stacked in multiple layers on dollies, that move from dishwashers to dining areas. That water poses safety and cleanliness problems; as Abraham notes, it can spill over the lips of the racks and into the casters of movable racks, rusting the wheels.
Her solution: a tray designed to fit multiple types of glass racks, one that also fits onto dollies, catching water that drains from the glasses or the racks. The DripCatch also works as a cover for glasses when they?re being moved to an event, and to catch spills as servers are filling glasses with water and ice, making set up faster and neater.
?There was a niche there,? she says. People had known about the problem and had been mulling over potential solutions, but they ?kept missing it. It?s the easiest, most simple need.?
But if identifying the problem and a solution was simple, coming up with a way to market it wasn?t. The easiest course of action would have been to take the patented design and sell it to an existing manufacturer.
So why didn?t Abraham go that route?
?You could take it to a company and get $100,000 for it and be done,? she says. But knowing the size of the market for glass racks, Abraham and her backers and helpers had a sense of DripCatch?s potential. ?If it was a product with a lot of competition and wasn?t proprietary, we would have immediately gone? and sold it, she adds. ?You just want to chase that unicorn and see it through.?
So Abraham assembled, to borrow a term from the tech realm, a virtual company. She lined up financial backers ? family friends ? who came up with $81,000 in seed capital. Her father provided advice about venture capital and business, while a brother-in-law?s brother, an attorney, helped with legal matters. She tapped the business-school dean at Seattle U for business advice.
She got as far as having an injection-molding tool made in China, ?which was its own chapter of insanity,? and was figuring on actually producing the DripCatch there. Domestic manufacturers she had talked to had quoted too high a price for the tool and didn?t want to deal with the small production runs Abraham had in mind.
Then she saw a newspaper story mentioning Woodinville-based Cashmere Molding and called the company. ?They were able to do smaller batches and quote us at $3 cheaper than China and be in our backyard,? thus eliminating all the problems of language differences, currency exchange rates and shipping costs and delays. Says Abraham, ?That?s a no-brainer. That?s awesome.?
With production lined up, the next challenge was to get distribution. ?A lot of distributors didn?t want to run the risk? with an untried product from an unknown company, she says. ?They don?t want to create the demand themselves.?
Her solution: Get a celebrity endorsement, and the one she had in mind was Seattle restaurateur Tom Douglas. She got a meeting, and within minutes, she says, got a commitment to back the product.
?It was an intimidating meeting; the dude is very tall and very big and very serious at first,? Abraham says. But Douglas has not only provided the endorsement ? as he?s quoted on the website, ?It keeps our floors drier, our employees and customers safer, the restaurant cleaner and me happier?win win win!? ? he has continued to provide mentoring help.
Douglas also provided entr?e into distribution, starting with Seattle-based restaurant supply company Bar-green Ellingson. Recalls Abraham, ?He said, ?You are going to take this.?? Given his celebrity and the number of restaurants Douglas operates, ?They don?t say no to Tom.? The DripCatch is now listed on Bargreen Ellingson?s website at $49 each.
In May, Franklin Machine Products Inc., a national supplier of equipment to the foodservice industry, said it would begin carrying the DripCatch and display it at the National Restaurant Association?s convention.
With DripCatch established as a real product with real sales (the first were recorded in January of this year), now comes that dreaded question: What?s next?
?We?ve got new product ideas, but our exit strategy is probably licensing or a buyout option eventually,? Abraham says. ?We?re more of a product than a company. We?re not going to be making DripCatches by themselves for the next 30 years, everybody knows that. I want to go do other things as well, but we?ll see. If we?re killing it and we keep rolling and there?s no reason to license it, we?ll keep at it. We?ve got a couple of products not patented yet but are under the same umbrella we can roll out. The next 12 months will be really interesting.?
As for herself, Abraham, 23, is still a year away from her degree. While she?s considering going back to school this fall, she acknowledges, ?I can?t be sitting in classes and running a company at the same time.?
One might argue that she?s already accumulated considerable expertise in the field she?s supposed to be learning, and in fact she has done some speaking to students about business. As she does, one subject that may come up is whether there can or should be more manufacturing entrepreneurs.
Abraham, for one, thinks there could be. ?What?s cool about the U.S. and how we do things is it?s set up for companies like us,? she says. ?We don?t have to go spend $10 million on a warehouse. You can lease someone?s warehouse.
?The old way of doing things is so out of date. People don?t know the system, and they assume, ?I?ve got to go buy a manufacturing plant.? They don?t realize how accessible it is.?
More important, she says, is more people asking themselves, ?Why am I annoyed by that problem? (like standing water on kitchen floors) and ?how can it be fixed??
Yes, financing is a challenge, she adds, with venture capital having such a fixation on tech. But that?s changing. ?With all the manufacturing buzz, especially during the election, it?s starting to turn VCs? heads.?
Cashmere Molding President Greg Herlin says he is seeing more entrepreneurial activity in manufacturing. ?The current volume is not near what it was in the early Nineties but I?m hopeful that as the recovery continues we will see more activity,? he says. Abraham ?is a shining example of what is possible and is an inspiration to me and the team here at Cashmere as well.?
Lynette Claire, associate professor of business and leadership at the University of Puget Sound in Tacoma, has been leading an effort to establish an entrepreneurs? network among four colleges in Pierce County. ?From the student perspective, they are less interested in manufacturing,? she says, although the leader of UPS? Entrepreneurship Club has suggested holding a product event this fall (even though he?s involved in a social media venture).
?I do think barriers to entry are significant, and once you?ve entered, protecting from low cost imitators is also significant,? she adds.
Still, Abraham believes the potential is there: ?There?s a beautiful simplicity in manufacturing in the sense of bringing it back to its American roots and actually producing a product you can hold in your hands.?
DripCatch is a registered trademark of DripCatch, LLC
Article Source: Washington Manufacturing Alert, Vol. 4, Issue 17, Aug. 13, 2012
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