Finding the Answer in Cottage Industry

Cottage Industry, as defined for purposes of this post, includes any kind of home manufacturing – where materials of one kind are turned into a product of another kind. This includes making parts, assembling parts into another product, making crafts, doing needlework, etc. It can be as complex as machining, and as simple as crocheted dishcloths.

This article is long, but it does explain something very cool. Something that our Nation is really ready for.

I believe in the power of the individual to create something better than a monster corporation can create it. I have long believed that the solution in hard economic times, for people who need employment that is rewarding and lucrative, is in the home, not in the factory or city.  For the impatient, the fastest way to get predictable income, is to become an employee of someone else. But then you are also somewhat enslaved – you are subject to the rules, whims, and employment vagaries of someone else.

I love independence a bit too much to love employment. I’ve worked jobs, and done so well. But I don’t like it. I’d rather have ownership. I’d rather produce a homemade product that has character than work in a factory producing carefully calculated and electronically machined items that are stamped out at hundreds per second.

There is absolutely a place for the assembly line. But there is also a place and time to break free from it. I haven’t drawn any firm conclusions yet about the shape this will take with us. I’m still revolving the options around in my mind, but I have determined on a few things that I think are worth sharing.

I had always thought that if I invented something that I could make at home, eventually we’d reach the point where we had to contract with a manufacturing company for parts to be custom molded and milled, in order to keep costs affordable and in order to produce enough, fast enough. I’ve changed my mind on that. I think there may be a better way, and a better market to tap.

Most of our manufacturing has gone to China. This is a result of the mentality of having to reduce and reduce and reduce the costs of production to accommodate an ever increasing supply chain, and the costs attendant with it, coupled with increases in operational costs due to Unions and Taxes. The US is handicapped in the manufacturing sector, and is now dependent upon overseas suppliers, and the unpredictability that goes with it. That isn’t a good thing.

“Buy America” is NOT the answer.

“Build America” IS the answer.

So here is a potential business model – one we are working as I write this:

1. Design something unique. Find a way to make it yourself.
2. At first, you are going to spend quite a bit of time making each item, possibly using make-do equipment or tools. They can get better as you go, but be careful! Once you move to “commercial” production materials, costs increase exponentially. If you set a goal of NOT going into debt, you’ll be able to avoid that trap.
3. Perfect the process for making it.  Write down the steps. Get it worked out so that you can teach someone else how to do it.
4. Assemble a materials kit – everything you need to make the item you are making. Create a training kit as well. If it is simple, and based on common skills, you can skip the next step. If the processes or tools require special knowledge or skills, you’ll need the next step.
5. Hold a training camp. DON’T charge for it. DO pre-screen attendees for suitability. Train them in how to make the item you need, and train them in meeting your quality standards.
6. From the attendees, select one or two to do a pilot program. Rent equipment to them for a low fee (do NOT look at this as a moneymaking opportunity – sales of your product is where your money comes from!). Sign a contract with them that they ONLY manufacture the item for YOUR company. Have a deposit on any rented equipment so you get it back if they quit. Agree on a set output per week or month. Pay them well enough for them to make a nice income if they do it fast and accurately. THEY pay for materials – you may supply them, but they pay for them (this is also NOT a money-making opportunity for you, you sell them to them at cost, or tell them where to get approved materials). They are sub-contractors, NOT employees. They own their own business, and manufacture something for you.
7. Add more trained subcontractors as needed. Hold periodic training camps to train new prospects.

Now, there are people who will be terrified at this idea. They will feel that in doing this, they’ll be giving up their proprietary rights to someone else.

Don’t be so paranoid! Is there a risk that one of these hotshots will take the training and then go copycat? Of course! But they are going to do that anyway! Most people who are dishonest copycats don’t have the motivation to see it through – they think that having a hot product is enough. It is not! They are usually bad at marketing and actually competing with an established business. Most people whom you train will rather sell to you for a predictable income than to want to take on the marketing, additional costs, and additional time and hassle of direct selling the product, even if they can make more from each sale. That extra money is hard won!

If you watch, you’ll get a feel for those who are content with a predictable income stream, and those who have a more entrepreneurial spirit in them. They are usually easy to differentiate.

The potential here is that long term, you can be the means of not only keeping YOUR business in the country, but of helping dozens of small businesses get a firm foothold, while it benefits the growth of your own business. Your business stays comfortably small, but gains the income benefits of a much larger business.

So how can you do this affordably? There are a couple of keys to it:

1. Setting your pricing for YOUR production at the start – in other words, base your sale price on what it costs you to manufacture when you start out – don’t decrease and decrease it if your costs go down, you may go broke without realizing it, and you eliminate the room for paying someone else, and get into a trap. As you go along, your production costs will drop as you learn to work faster and as you refine your processes – this is good, it means that you will be able to “split the difference”, and pay someone else less than it cost you to start, but a bit more than it cost you doing it yourself at your fastest. Don’t get sucked in by greed either – having to have it all. Share your bounty, enough is enough.
2. Setting a fair price per hour for YOUR labor. Count that into your production costs, so you don’t run off feeling like you can’t subcontract because now your parts are going to cost twice as much (when all you are counting is the cost of materials).
3. Pay a fair price to your subcontractors. This is tricky. You pay them BY THE PART, not by the hour. The faster they work, the more they make. So work out how many you were making per hour when you were in about the middle of the speed range, and base what you pay them on that. If they can make $15 per hour working at a moderate pace, they can probably make twice that once they learn to work really fast. If they choose not to work fast, that is their choice, you are not responsible for that choice. Just make sure that you provide a reasonable opportunity for good earnings. If you do, you’ll never lack for subcontractors.

There is plenty of room for this kind of business model. This is how things were done traditionally, and it worked for thousands of years. Our society has NOT outgrown it with the advent of assembly line production. You can take advantage of that in your business, by batch processing at specific stages and contracting single stage production tasks out to different individuals.

Think of what you can accomplish this way:

You can have a home business without having to “move up” to a factory. You can retain all those wonderful advantages of a home business.

You can provide those advantages to other people, and enrich our society by doing so – keeping parents in the home with their young children, giving opportunities to people who have been dropped from the job market but who are still good workers, and by encouraging independence and true performance based compensation.

You can get the government out of your business more than you can if you have employees. It is far more economical to run a business without employees than with. EVERYBODY benefits more in this kind of scenario.

You eliminate the supply chain from the cost equation. Most items double the price at multiple points along the distribution chain – raw material, shipped, refined material, shipped, manufactured part, shipped, distribution center, shipped, wholesaler, shipped, retailer, shipped, you. When you manufacture your own parts, you eliminate a LOT of steps and shipping, and markups. Maybe you have to pay twice as much to your subcontractors for the part as you would from a manufacturer, but at the same time, you are direct selling to your customers, so you can afford to do that and still make good money, whereas if you sold to the distribution center, you’d be making far less from it. Of course you also have marketing and other tasks, but overall, it is a win-win situation. You and your subcontractors take the place of multiple steps along the way, so you and your subcontractors can share the profit that those steps would normally siphon off. This assumes that you are purchasing refined goods to manufacture yourself.

This concept was originally discussed with a friend of mine who makes hair bows. An alternative to Direct Sales Companies, for other people to own a business and really profit well. I believe that this is what many people really want. They really just want a job to do at home that they can get paid for.

From the customer perspective, I also see that there is a growing market of people who would rather purchase a hand manufactured item with imperfections and irregularities than a more perfect looking one that has been imported from China.

Bigger isn’t better. Smaller is the trend that will save our nation economically.

Our company is now offering Cottage Industry Consulting.