19 replies to this topic

[arfink]

I have some ideas in my head that I need to run past my pham here. I have discussed this with my blood relations, who seem encouraging and enthusiastic about it, and now I think it's time I look at it more seriously. Talking with AnneLine over the phone today (for over 3 hours!!) has also given me some encouragement to explore this.

I have been contemplating starting a small business venture for a long time. Initially I thought it might be razzle dazzle to delve into custom electronics, but I'm not well trained or skilled enough to make that sort of thing work for me right now. However, I am reasonably computer and design savvy, and the bleeding edge of design and manufacturing has really caught my eye. Right now the bleeding edge in the United States is rapid prototyping and small-run manufacturing. Almost nobody can compete with China anymore for regular mass production, but nowadays, with the right tools and a skilled designer, you can compete in the US by providing the ability to do small prototype or production runs inexpensively. I'd like to do this myself, and put my design skills to good use.

First, the tools: I'd like to get hold of one or more of the most popular tools. These include small CNC mills, 3D printers, and laser cutting machines. They've been around for a long time, but in the last 2 years the prices on these extremely versatile machines has plummeted from the cost of a new car to under 3 grand.

Right now I have my eye on an American made laser cutting machine that's around $2.5 thousand. I have more than half the money saved. Some of the things I could design and make with a laser cutter include keychains, custom saint medals, engravings, boxes, project enclosures, circuit boards, stencils, stained glass, puzzles, and just about anything you can imagine being made by cutting or engraving flat materials. Lots of tchotchkes, to be sure, but plenty of useful and beautiful objects come to mind as well.

If I prove incapable of designing anything that someone would want to spend money on, there is always the possibility of allowing others to use the equipment for their own projects and designs, much like how screen printing operations frequently rely on others to bring their designs to them.

Finally, I'd eventually find a way to justify spending a couple grand on a laser cutter for myself regardless of whether I was to attempt to use it to make money. It'd be just too much fun to use for my countless hobby ideas and just noodling around with. People who know me well know this is true.

Assuming all this, does my idea come off as totally crazy? Unworkable? Or do you think it's a good idea? Do you have suggestions on how to make this sort of thing really work? Thanks in advance for the feedback.

[Nihil Obstat]

If you decide to pursue this farther, you'd have to develop a really, excessively detailed business plan. The kind of stuff you'd bring into a bank when asking for a loan (whether or not you need to do so). You'd need firm numbers, realistic ideas of demand, solid plans on payback period and net present value of your initial investments.
My initial thoughts would be to put all of that together, spend like a month or three really researching all your options, and then perhaps ask a financial advisor or management accountant or something if your business plan makes financial sense.

ETA: Not knowing anything about the electronics field I can't say whether or not your idea sounds good, but you do seem to have really thought it out, so you must have good reason for doing so.

Edited by Nihil Obstat, 22 March 2012 - 11:12 PM.

[arfink]

If you decide to pursue this farther, you'd have to develop a really, excessively detailed business plan. The kind of stuff you'd bring into a bank when asking for a loan (whether or not you need to do so). You'd need firm numbers, realistic ideas of demand, solid plans on payback period and net present value of your initial investments.
My initial thoughts would be to put all of that together, spend like a month or three really researching all your options, and then perhaps ask a financial advisor or management accountant or something if your business plan makes financial sense.

ETA: Not knowing anything about the electronics field I can't say whether or not your idea sounds good, but you do seem to have really thought it out, so you must have good reason for doing so.

That would work brilliantly... if I had a head for accounting. Which I don't. To which you will probably respond: don't start a business!

Lol. I understand where you are coming from though, and obviously I'll need to consider those things. It'll be a few months before I'll have the funds to really invest in any equipment, since I refuse to take out a loan for something that's only $2.5 grand when my IRS return has already covered half of that, and eating ramen and not buying any video games for a few months will cover the rest.

If you happen to know financial advisor who'll advise for free, that'd be great. Otherwise I think I'll have to just give this one the "old college try" method in the long run, assuming my own reasoning leads that way.

[Nihil Obstat]

That would work brilliantly... if I had a head for accounting. Which I don't. To which you will probably respond: don't start a business!

Lol. I understand where you are coming from though, and obviously I'll need to consider those things. It'll be a few months before I'll have the funds to really invest in any equipment, since I refuse to take out a loan for something that's only $2.5 grand when my IRS return has already covered half of that, and eating ramen and not buying any video games for a few months will cover the rest.

If you happen to know financial advisor who'll advise for free, that'd be great. Otherwise I think I'll have to just give this one the "old college try" method in the long run, assuming my own reasoning leads that way.

Unfortunately I do not. However, I would suggest that you go down to whatever local college offers commerce degrees, and see if they might be able to direct you to helpful programs.
I know at my school there is a club in which the members essentially run a financial planning business. They have a few different areas. I remember two more clearly than the others. In one they work with former professional athletes in running their own businesses, and in the other they provide free management and marketing advice to artists trying to make a living from their art.

The thing about a solid business plan is that without it you're liable to make bad decisions by mistake. You might look at sunk costs, assuming they're relevant (when they never are), or estimate too high a demand, or unrealistic materials costs for cost of goods sold. Or I'm assuming you wouldn't know how to amortize your equipment, keep track of revenue and production costs, all that. Seeing a pro would be a bit of an investment, more so if you aren't able to do much of the pre-work yourself, but in the long run it's potentially going to steer you away from a lot of really easy-to-make mistakes.

Anyway, in the end you know your circumstances better than I do, so my advice might be off-base here. But if anything I said helps, then my job here is done.

Edited by Nihil Obstat, 22 March 2012 - 11:26 PM.

[Nihil Obstat]

Would it be possible to lease the necessary equipment for a year or six months or something? That would give you a way to sort of limit your losses if it turned out not to be a profitable idea.

[arfink]

Unfortunately I do not. However, I would suggest that you go down to whatever local college offers commerce degrees, and see if they might be able to direct you to helpful programs.
I know at my school there is a club in which the members essentially run a financial planning business. They have a few different areas. I remember two more clearly than the others. In one they work with former professional athletes in running their own businesses, and in the other they provide free management and marketing advice to artists trying to make a living from their art.

The thing about a solid business plan is that without it you're liable to make bad decisions by mistake. You might look at sunk costs, assuming they're relevant (when they never are), or estimate too high a demand, or unrealistic materials costs for cost of goods sold. Or I'm assuming you wouldn't know how to amortize your equipment, keep track of revenue and production costs, all that. Seeing a pro would be a bit of an investment, more so if you aren't able to do much of the pre-work yourself, but in the long run it's potentially going to steer you away from a lot of really easy-to-make mistakes.

Anyway, in the end you know your circumstances better than I do, so my advice might be off-base here. But if anything I said helps, then my job here is done.

Thanks for the clarification. Yeah, I'd need to find somebody who is very affordable if I'm gonna do this before starting something up. I mean, I like to think I know most of the basics already: plan selling prices so as to include realistic (read, somewhat higher than anticipated) materials cost and labor costs and profit, plan operating costs to cover unusual things like parts, utilities (power bill with equipment like this can be a shocker, I'm told) and a host of other stuff to consider too.

Thanks again!

[arfink]

Would it be possible to lease the necessary equipment for a year or six months or something? That would give you a way to sort of limit your losses if it turned out not to be a profitable idea.

Sadly, no. The hardware is considered to be downright cheap at under 3 grand, and you can barely get financing, let alone a lease. Especially since the machines themselves rely on certain consumable parts, especially the laser tubes, which last anywhere from 3000 to 10000 hours each, and cost from $300 to $1000 to replace, depending on wattage.

At any rate, I know for sure and certain I can get at least 50% of my cost back selling it to my choice from a host of cheapskate hackers, even with a dead laser tube. That's assuming I want to get rid of it should my business falter.

Edited by arfink, 22 March 2012 - 11:43 PM.

[Nihil Obstat]

The best I can do for you is this: NPV (net present value) is king.
NPV is the cost of your initial investment added to the present value of future cashflows. So to calculate it you'd need a good idea of all your costs, including your own salary (that's very important), and a really realistic idea of the money you'd be able to make.
The present value of your cashflows is a function of the number of periods and the rate of return that is required on your investments.
So, after you've calculated all that, if NPV is zero that means you're indifferent and it is an acceptable decision to make. Positive NPV means it's better than what you'd get elsewhere. Negative NPV means you'd be better off finding other options.

Edited by Nihil Obstat, 22 March 2012 - 11:42 PM.

[arfink]

The best I can do for you is this: NPV (net present value) is king.
NPV is the cost of your initial investment added to the present value of future cashflows. So to calculate it you'd need a good idea of all your costs, including your own salary (that's very important), and a really realistic idea of the money you'd be able to make.
The present value of your cashflows is a function of the number of periods and the rate of return that is required on your investments.
So, after you've calculated all that, if NPV is zero that means you're indifferent and it is an acceptable decision to make. Positive NPV means it's better than what you'd get elsewhere. Negative NPV means you'd be better off finding other options.

Jiggity what now?

Some questions I have:

It's obvious to me how to compute the initial expenses of the equipment. It's obvious to be able to compute materials costs for an individual job- but right now I do not know exactly what it is I want to be making as a product (I would like to consider doing custom work), nor do I have a meaningful measure, in dollars or any other sense, of the sort of sales I can sustain.

Is it possible to work an NVP backwards? Like, plug in the stuff I do know, pick a desired final NVP value, and then compute how much I'd need to sell to make it work?

[Nihil Obstat]

Jiggity what now?

Some questions I have:

It's obvious to me how to compute the initial expenses of the equipment. It's obvious to be able to compute materials costs for an individual job- but right now I do not know exactly what it is I want to be making as a product (I would like to consider doing custom work), nor do I have a meaningful measure, in dollars or any other sense, of the sort of sales I can sustain.

Is it possible to work an NVP backwards? Like, plug in the stuff I do know, pick a desired final NVP value, and then compute how much I'd need to sell to make it work?

Yes, that is going to be possible. It takes more calculation, but as long as you have your desired NPV and your cost of capital (the required rate of return) then you should be able to calculate what your costs would be.
The only problem is that with that you wouldn't have any built-in way to separate what different costs are. Your salary is a big one, because it wouldn't do you much good to not pay yourself. The other issue is that I'm not quite clear as to whether or not you could have an acceptable idea of future cashflows if you're not going to be able to calculate costs. If you can, then yeah you should be able to run that calculation, but if you're missing costs and future cashflows then the problem becomes theoretically impossible.
From a financial perspective it's impossible to calculate NPV without a firm idea of costs. At best you'd need to make a lot of assumptions. But yes, in theory I know you can calculate maximum acceptable costs if you already have cost of capital and projected future cashflows.

Edit: I misread your question, but I think I can answer that too.

Basically, as long as you have everything but one variable, you can find the last variable. The problem is that even if you did calculate the minimum acceptable cashflows, you need a way to find out if it's realistic or not, which may not be possible if you already don't know what cashflows are reasonable to expect. Kind of a catch-22. That's a variable that is generally assumed to be available when calculating NPV.

Edited by Nihil Obstat, 22 March 2012 - 11:59 PM.

[arfink]

I think my complete lack of accounting knowledge is just snarling things up here.

Calculating NPV clearly requires expert knowledge of wayyy to many facets of accounting for me to grasp. For example, I have pretty firm ideas of the following things:

1. How much the equipment costs
2. How much it costs to buy sheets of kapton/delrin/whatever to put in the machine to cut
3. How many watts of power the machine consumes during a job
4. How many hours it takes to bring a design from concept to finished parts
5. How much I'd like to get paid

I do not have a clue how to compute or rather estimate the following (since it will happen in the future this can ONLY be an assumption, I don't give a beaver dam about the accounting mumbo jumbo...)
1. How many objects I will be able to sell
2. What people will be willing to pay for the objects
3. How many people will want these objects enough to pay for them

[Nihil Obstat]

I think my complete lack of accounting knowledge is just snarling things up here.

Calculating NPV clearly requires expert knowledge of wayyy to many facets of accounting for me to grasp. For example, I have pretty firm ideas of the following things:

1. How much the equipment costs
2. How much it costs to buy sheets of kapton/delrin/whatever to put in the machine to cut
3. How many watts of power the machine consumes during a job
4. How many hours it takes to bring a design from concept to finished parts
5. How much I'd like to get paid

I do not have a clue how to compute or rather estimate the following (since it will happen in the future this can ONLY be an assumption, I don't give a beaver dam about the accounting mumbo jumbo...)
1. How many objects I will be able to sell
2. What people will be willing to pay for the objects
3. How many people will want these objects enough to pay for them

Well in theory you can calculate exactly how many you'd have to sell at what price to make it worth your while, but without a way of knowing of those numbers are realistic, it's kind of useless numbers for you. Wish I could help you there, but that's more the marketing side of things, and then dealing with a market I don't know anything about.

Is there anyone already in the business you could talk to? (Going to bed now, but if I find anything in the morning I can respond to, I will. )

[arfink]

Well in theory you can calculate exactly how many you'd have to sell at what price to make it worth your while, but without a way of knowing of those numbers are realistic, it's kind of useless numbers for you. Wish I could help you there, but that's more the marketing side of things, and then dealing with a market I don't know anything about.

Is there anyone already in the business you could talk to? (Going to bed now, but if I find anything in the morning I can respond to, I will. )

Oh, I'm sure I could find somebody. But this stuff is bleeding edge. I don't know a single person doing this on their own. The only companies I know of that have been doing this for a while are all old-paradigm outfits, working with the old generation of machines that cost an order of magnitude more to own and operate, and using them to mass-produce kitsch. I really am looking to work with this in a much more artistic way, which would not easily compare to other business models...

[Hasan]

http://en.wikipedia....t_present_value

http://www.investope...x#axzz1puyeA4PU

I don't know much about this but just reading through this I would really recommend, for whatever it's worth, that you take Nihil's advice to heart. It would probably be better to take a half a year and go through the muddle of learning to understand the things he mentions and how they apply to you than to sink a few thousand dollars because you just rush to throw money at a ill-conceived business plan. Unless you have the kind of money whereby you can just lose a few thousand dollars and it's no big deal.

All the best with it. It seem like a neat idea. I'd just take the time to do it right if I were you.

[arfink]

http://en.wikipedia....t_present_value

http://www.investope...x#axzz1puyeA4PU

I don't know much about this but just reading through this I would really recommend, for whatever it's worth, that you take Nihil's advice to heart. It would probably be better to take a half a year and go through the muddle of learning to understand the things he mentions and how they apply to you than to sink a few thousand dollars because you just rush to throw money at a ill-conceived business plan. Unless you have the kind of money whereby you can just lose a few thousand dollars and it's no big deal.

All the best with it. It seem like a neat idea. I'd just take the time to do it right if I were you.

But then I'd have to compute an NPV of studying accounting...
DARN YOU CYCLIC MONEY PIT! mumblegrumbleaccountingmumble

EDIT: I don't mean to make light of this and ignore Nihil, of course you know that. I just am realizing I have WAY more to learn than I could have imagined.

Edited by arfink, 23 March 2012 - 12:27 AM.

[MIkolbe]

From what I have been reading, you may want to consider the promotional products industry...In capital terms, the barriers to entry are not incredibly high.

The ability to produce smaller runs and your design savvy can do you well in an industry such as that...

[Anomaly]

_{I've started a couple of businesses over the years, and am partners in my latest venture. I am friends with other business owners and currently have a real job with a smallish business (elctronic manufactureing / distibuter) that I've known the owner for 25 years. It is very possible to start up and run a business on a shoe string. It is probably better as it is very unlikely you can start up a business that will support you immediately, especially since you have little experience operating in you anticipated market.
If I were you, I'd look around for other small businesses that are doing something like what you want to do. I'd look to see if you can get a part-time job, or free lance work for them. This would expose you to the market industry. You would be amazed at how much you would learn of what sells, who buys, where materials can come from at whole sale prices, experience other peoples decisions and consequences, etc.
You significantly lack business experience in what you want to do, but there are ways to gain that knowledge and experience. I'm not saying you shouldn't do it, or it can't be done. It just takes longer, is slower, and takes more effort than most people anticipate.}

[Nihil Obstat]

Oh, I just remembered that Excel can do most, if not all of these calculations. Just be careful because the thing Excel labels as NPV isn't actually NPV.

[arfink]

I did some reading up on NPV and the actual calculation is easy enough, I could do that myself with a piece of graph paper and a pocket calculator. The hard part will be accurately predicting those "cash flows" that need to be put into the NPV calculation.

Something else I mentioned to someone about this project: I notice a few of you seem to think that I'll just be out a few thousand if my business project doesn't work out. I don't see it that way, here is why:

Imagine the teenager who really wants a car. He decides he will buy a car and use it to deliver pizza. He finds out he doesn't really like delivering pizza, but makes enough money at the job to pay for most of the cost of his car before he quits. A businessman would say he has taken a loss. The teenager says he got to eat free pizza while working there and got most of a car out of the deal.

I had mentioned earlier that eventually I'd be wanting to get one of these for myself anyways. If I fail this will probably just wind up being a grandiose way of paying for a new toy that I really really want, and it might turn into something more.

[Nihil Obstat]

I did some reading up on NPV and the actual calculation is easy enough, I could do that myself with a piece of graph paper and a pocket calculator. The hard part will be accurately predicting those "cash flows" that need to be put into the NPV calculation.

Something else I mentioned to someone about this project: I notice a few of you seem to think that I'll just be out a few thousand if my business project doesn't work out. I don't see it that way, here is why:

Imagine the teenager who really wants a car. He decides he will buy a car and use it to deliver pizza. He finds out he doesn't really like delivering pizza, but makes enough money at the job to pay for most of the cost of his car before he quits. A businessman would say he has taken a loss. The teenager says he got to eat free pizza while working there and got most of a car out of the deal.

I had mentioned earlier that eventually I'd be wanting to get one of these for myself anyways. If I fail this will probably just wind up being a grandiose way of paying for a new toy that I really really want, and it might turn into something more.

That's razzle dazzle, and that's a legitimate reason to do this if it's important to you.
Just remember to take into account money you could have made but didn't while working on this project. If you've looked at all the relevant issues and decide that all in all this is a project you want to try out, then I say more power to you.