Am I Crazy: Chronicles of an Entrepreneur Part 5

Submitted by Kevin Royes on Thu, 06/07/2007 - 16:37.

Am I Crazy: Chronicles of an Entrepreneur Part 5

There is more than one way to skin a cat...who the hell came up with that saying anyway...what kind of sicko...and then there's us, the other sickos that toss around the cliche without a second thought. Well, the point being, there is more than one way to go into business and more than one thing to consider. Until recently I have been focusing on "The Deal"...a licensing deal. But when I open the spread sheet and study the numbers, the margins are much stronger if I go into business on my own...that is, if I manage my own marketing, sales and distribution from here.

For example, in terms of a licensing deal, I (OpusCreo) stand to make 15% to 20%...but let's say 15% worse case scenario. On sales of $1 million dollars that is $150,000 earned royalties.

However, if I purchase the inventory from the factory and re-sell the margins are 44% or $440,000. Even if I deduct 20% ($200,000) for sales, marketing and overhead costs, that leaves $240,000 remaining profit...$90,000 more than the licensing scenario.

A licensing deal has its advantages...

  • the factory already has its production capabilities in place
  • they already have established sales channels
  • they would finance production

However, taking on a partner here and building the brand from Vancouver also has its draw:

  • significantly higher profit margin
  • more hunger for success (because it is all that we are working on, vs a factory in China that has other food on their plates)
  • more control over the direction of the brand
Over the past week I have opened discussions up locally with potential investors/partners. And while I am aware of the age old advice handed down to me from an accountant way back...the worst kind of ship is a partnership...I find myself considering the possibility, and, surprisingly, I am liking it. I like the vibe of creating a cool, cutting edge tool brand out of Vancouver, Canada.

Factory 2 in China is not budging on their counter offer to me...I asked for 15% royalty with $150k minimum royalty guarantee. They countered with 15% and $50k guarantee. I countered with 20% and $75k. They didn't move. I countered again with 20% and $50k thinking they don't want to commit too much upfront, but would be willing to share more in the profit...again, no movement. It seems they are assuming I am in a corner and will take the offer because I am sooooooo low on cash, but little do they know that I am no stranger to a cash crunch...I am looking out for the best deal for kelvin and I will wait.

I think part of the problem is that the numbers portion of the talks have all been through email, whereas all the vision stuff was done by skype. Email has a way of taking so much of the magic out of black and white and hard to convey emotion. If this discussion has a future it has to be by phone/skype. Tonight will tell...this route is either moving forward or the train stops here.

Meanwhile I have three conversations on the go here with potential investors. All three would invest and also work within the company adding the value of their expertise. Two of the discussions are with high level sales execs who know how to get product placed in big retail chains. The other is with a friend who owns an industrial design company and who's talents are amazing for all design work coming down the path. All three talks will probably flow into next week as it separates the chalk from the cheese.

In any case, money is tight but not tight enough to force my hand. I am not going to enter into a relationship with a forced hand, it will taint the quality of our work together. So I move forward ...step by step...and see where my gut takes me next. Hmmmm.....

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