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The Synth Business

These comments were made by various known figures in the modular synth and electronics projects world on the synth-diy mailing list. I think they are both entertaining reading but also carry important points.

Paul Schreiber (Synthesis Technology)

Rule #1: you must value your time at either $0.00/hr or $75/hr. There is *nothing* in-between that makes sense.

$0.00/hr is if you have no children, and your wife/girlfriend has a job, or you live alone. $75/hr if married with kids. If you have a 'day job', the rate is $100/hr.

Point: if married, you have to very carefully balance the time factor. Expect to do the *majority* of the work late at night (say 9PM-1AM, like me!). Time is what you have the least of: you have to *plan in advance* exactly what you will do every day to generate $$$. You can't afford to dwadle on the internet. You have to go-go-go with a purpose.

Rule #2: Electronics is NOT A CHEAP HOBBY/BUSINESS.

In order to do it "right", you have to have decent stuff, a large workspace (seems to be difficult in EU) and inventory. You need bench test equipment that HP or Tek made, not you :) You need parts storage, record storage, book-keeping. You need boxes, tape, puffy folders, stamps, labels and customs forms.

For pcb: this issue is minimum buys. I have to buy 50pcs at a time or more. There is a big price drop over 150pcs (not *total*, for each module) but then that's more total $$$. You can panelize so that 1 large panel has 6 *different* pc boards, but then you have no control over inventory levels if 1 is a big seller and 2 are not.

Rule #3: Cash flow is *KING*.

Cash flow is what kills off most "hobby-to-business" ventures. Your suppliers want to be paid *before you can ship*. If you then try to get money up front (like "pay me 1/2 now"), expect many hostile emails because human nature is that once you have *some* money, you are under more pressure (and all of it negative) to ship. Even though you've been in business 8 years (cough), people act *COMPLETELY DIFFERENTLY* if you have more than $10 of their $$$ versus just a order in hand. The attitude is: You have MY money, I want MY STUFF!!! Ask Brice about PSIM and Cynthia at Cyndustries about this. Personally, I'll never do this again.

If you have no money to begin with, *DON'T EVEN TRY*. You are better off *saving up for 6 months first*, get a few $1000 in the bank, THEN start. NEVER use credit cards to buy stuff unless you pay 100% of the bill when due.

Rule #4: do not be afraid to charge what is needed.

Don't try to offer Moog 960 clone pc boards for $10/set. Charge at LEAST 3X what stuff costs you. I remember talking to Dave Rossum of EMu in 1977 about this thing: he said they charged 6X the parts cost and made just enough money to support 2 full-time people.

Rule #5: the market is big, but not THAT big.

Understand that selling 100 of *anything* in this market is A LOT. Focus on doing a good job selling 25 at a time.

Paul added the following further points:

  1. Don't talk about it, don't mention it and don't announce it until you have a website with shopping cart set up (I use the free ZenCart) and have *inventory* you can ship one *Day 1*.
  2. Spend as much time on documentation as design. Documentation is as boring a thing to do as humanly possible. But if the docs are not through and *correct*, you are killing yourself.
  3. Do not build 1 perf board and assume you can go into production. You can always get *1* of anything to work. Go to www.4pcb.com and order 5 pc boards. Use a real CAD system and layout boards with decent power/grounds. Use LPI solder mask so the silkscreen looks decent. Do NOT cut cost on the pc board. MOTM pc boards are about $8/ea in 100pcs. Big deal :)
  4. Build *5* of every protype, give 4 to away to 4 different people to test.
  5. Use 2mm 6061T6 aluminum for front panels. Best compromise of cost/weight/flexing/ease of finishing
  6. Buy decent pots and jacks as this is what people actually "use".
  7. Use TL072ACP for general purpose op amps, LT1013 for summing amps and OP275GPs for best audio. For transistors, use higher gain NPN/PNP and stay away from crap-ola 2N3904/6 unless you are turning LEDs on and off.
  8. Think of a fair and decent price to sell your widget. Then *double it*.

Limor (Adafruit)

Following Paul's comments Limor added her own thoughts on the matter:

"Rule #3: Cash flow is *KING*.

I'll amend this by saying "Never take money unless you're going to ship it within a week & you have the stock" And never take a promise for payment." Virtually nobody who 'promises to pay you in a month or two so just hold onto it' will do so. If they're pulling it on you, they're pulling it on their landlord.

Rule #6: Deduct your life

Read a Nolo book for more details on how you can make your life not suck by deducting just about everything you buy.

Rule #7: If you're planning a business you're probably screwed. Start out in your spare time, and let the business grow as your customer base increases.

Peter Grenader (Plan B, Electro Acoustic Research)

  1. For those who are abundantly responsible, don't like to take risks, or who do not happen to be protected by a trust fund, any small business venture -- ESPECIALLY analog synth manufacturing -- may not be for you.
  2. If you're the type who's perfectly willing to jump into a bog and figure out how deep it is once you're in there, what are you waiting for...start building synth modules asap.
  3. If you do do this, I strongly recommend that you arrange payment terms with your major suppliers and that you make it a point to pay them back on time, every time.
  4. While the temptation to purchase parts from the humungus one-stop outfits such as Mouser, Digikey, Allied, etc is great, a little web browsing can and will land you some incredible deals on the same high quality component parts you would have bought from the 'big boys'. If you knew the deals we've landed by doing this you'd be flabbergasted. You've got to buy more than you may need this way, but in our case anyway those quantities were pretty much free due to the per piece savings.
  5. Avoid the temptation to purchase off the wall, wack, or otherwise bizarre surplus parts which *may* work, just because they are cheap. If you're not absolutely sure of the long term reliability of everything you stuff into your assemblies it's going to bite you in the ass one of these days.
  6. Whenever and as soon as possible, arrange for outside manufacturing if your outfit is not self-equipped with individuals to do this. The only thing worse than your life becoming tied to a soldering iron is having to feel guilty to design new products because it takes you away from those shackles. The $15 your gonna give up paying for this service is well worth the increase in productivity and in a lot of cases, the outside assemblers are going to do a superior job than you would anyway.
  7. Remember - a built assembly is a module, but it's not a product until it's packed in a box and ready to ship. Do not overlook packing and NEVER takes risks in this regard. Design your packaging as well as you design your circuits. There's nothing worse than getting the call or letter that this thing you toiled on for days arrived at your customer's place in three pieces.
  8. Don't overlook the mechanics of electronic product design. You're not just producing an electrical circuit, you're making an electro-mechanical devise that will hopefully last years and years. More times than I would like to comment on I've seen very wacky mechanical conventions in place to mount boards to faceplates or make interconnects.
    That's the ying. The yang of this scenario is don't overdue it. Do all of your connections require heat shrink just because it looks cool? Does your cabling really need to be twisted pair? Do your service loops have to be quite that big? Do these add to reliability or performance, the structural integrity -or- do they actually just introduce another part which will add long term reliability risks? If you've spent time as a reliabilty engineer (I have), you know that the less parts, the better. There's a long standing misconception that heat shrink will improve the strength of a solder joint. Dude, if you're relying on heat shrink to make a bad solder joint good, you're in the wrong bid'ness.
  9. Design servicability into your products. Nothing lasts forever and no matter what you do as a safeguard, your customers are going to blow your shit up once they get it. That ain't the problem, the problem is designing something that cannot be easily serviced. Always take this into account. Are the trim pots located so that they may be accessed easily when power is applied? Can all parts of the assembly be removed or replaced with a minimum of de-contsruction? I recently repaired a module (not of my design) which required that a 17 wire cable harness be de-soldered in order to change one cap on the PCB. There were also three switches soldered via solid core busswire that I had to yank to get to the problem area as well. At very least, it's going to cost your customer more to repair the unit if it's out of warranty. The worse case, it's going to take you more time to repair it (at no charge) if it IS in warranty.

James Patchell

Paul is real brave...I would have never said any of that for fear of being called a "nay-sayer"....but it is all true.

The 6x parts cost for a selling prices is a rule of thumb I have known for a long time. When you tell people that...however...they become really upset and seem to think you are some kind of a highway robber...but that is one of the first things I do...and I look at the resulting price and ask .... "would anybody in their right mind pay that much?"....generally, the answer I come up with is NO!.

It doesn't stop me from trying...

Also, several years ago, I was wondering if I could supplement my income selling bare PC boards...I figured $50,000/yr would make it worth while...then I did the math...I figured a PC board would cost me about $3 each in quantity....and if I sold them for $15 each, that would be $12/board....that is 4200 boards per year...about...my market research showed me that even at $15/ board, it was going to be close to impossible to move 4200 boards per year....I suspect that even if every single person on SDIY was buying boards from me...I still would not be able to move that many boards....and I would say that in all likely hood...the market is close to saturation anyway...

So....I just continue to do it as a hobby...if I make something people are interested in, I make it available...I keep hoping, however...maybe someday...I will come up with a better DIY mousetrap...

Also...even though many of you may think that hey.....$50,000/yr is a lot of money...don't forget...a large portion of that will go to my Uncle Sam....30% in income taxes...and another huge chunk for "self employment taxes"....

Ray Wilson (MFOS)

I only sell PCBs but if I did kits this is what I would do:

  1. Use PayPal for payment. They have mechanisms for refunds, they keep track of everything and they are very secure. It is available to anyone with a bank account or credit card.
  2. Make the instructions as clear as possible down to placing each component and dressing each wire. Have good illustrations and then get the documentation printed professionally.
  3. Provide the instructions on-line as well.
  4. Come up with a clear return policy that you can live with.
  5. Don't get upset when you have customers act like you purposely sent them bad parts or ICs. And plan to ship them replacement parts.
  6. Send orders to customers promptly. Come up with a shipping cost you can live with (packing, labeling, driving to the post office, etc.).
  7. Find a good provider of shipping materials and order them in bulk.
  8. Order the electronic parts in bulk.
  9. Use good pots and switches (let us all know where you finally find them).
  10. Use prototype PC boards and test the finished product.
  11. Have a schedule for days that you kit and days that you ship. Come up with a process for kitting that reduces the kitting time to a minimum.
  12. Believe in your products and visualize success.
  13. Take the amount of time you imagine spending on the business and QUADRUPLE it.

Copyright © 2001-2017 Neil Johnson