Wednesday, December 07, 2016

Start-Up Pet Peeves

I work in the electronics supply chain and am consistently amazed at small customers who don't understand economics.  Company after company expects that if they buy 1,000 of a custom item, that it should be the same price that Apple gets when they buy by the tens of millions.  And when I explain to them that making 1,000 units requires the factory to set-up and do a run, and that the fixed costs have to be amortized over those 1,000 units bringing the costs way up, many customers lose it.  They get angry.  They call me names.  They threaten to go to my competition (which I them welcome them to do).  And it is not an act.  They really can't understand why their little robot which they are making 1,000 (soon to be millions of course) can't have component pricing like the iPhone.  They are totally clueless.
I think this is partly a carryover of their consumer mentality.  Whether it is blue jeans or electronics, most products today are made by the millions, making their incremental cost infinitesimal.  And those costs are passed to the consumer (and economics tells us that in the long run price ends up at incremental cost).  So they see the iPhone cost breakdown and figure their gadget should cost that much or cheaper, and are shocked when it is multiples more.  They don't get the whole volume/price thing.
Those that do ask about forward pricing.  They tell me "My product is going to be yuge volume once it launches!  Price me at a million now and I'll buy more when it takes off!".  Do you know how many times I have heard this and saw the company disappear off the face of the planet?  Literally dozens of times.  When a customer asks me to do this they are asking me to become an investor, and my job is not to invest in companies, but to make money for my own.
The other thing I get tired of hearing is small companies wanting to do a "joint development effort".  That is just a fancy way of saying "can I get free technology from your company?" or "I need more investment money and you look like someone I can sponge from."  I got so tired of hearing this I just started telling customers "We don't do joint development.  We sell and you buy."  That gets rid of most of them.
Now I have been in several start-up's myself, about a third of  my 27 years in business, so I do understand that you have to push to get as much as you can from vendors.  And I do know what it's like to see only a month left of cash left and having to do anything you can to get product out.  But these companies need to understand that I have to make money too, that I have my own company's interests to look out for.

1 comment:

Kyle said...

So glad to see you blogging again!