Cash Flow and the Product Cycle

If you are just getting started on a new product as an individual and planning on bootstrapping it, the most important decisions you will make will be about how you spend your money.  The great news is that new technologies are creating new avenues to the same results with vast savings.  There has never been a better time for an individual to take a new product idea to national distribution.  The bad news is that most small businesses still make the wrong decisions, which is often a result of not being acutely aware of their options.  In this article I’ll cover the different stages of costs from a manufacturing perspective, how those should fit into your marketing plan, and give some advice for how to make the most of every dollar that comes out of your account.


The manufacturing cycle, unlike marketing or other aspects of the business, can be neatly divided into different stages.  At each stage you should understand the cash investment and know what you plan to get out of that investment.  The stages, generally, are: prototyping, seeding run, first run, steady state manufacturing.

Cash Flow - Manufacturing Stages

Cash Flow - Manufacturing Stages


As discussed in our article on prototypes, the purpose of the prototyping phase is not really to make a prototype, but to establish the baseline understanding of what you actually plan to produce (from a manufacturing perspective) and to have a physical sample to assist you in marketing discussions and planning. 

You can save money by doing a lot of the research yourself and not leaving it to the engineers
With that in mind, spend some time thinking about exactly what you need in your prototype to reach that baseline understanding, what marketing questions do you need to address in order to pull the trigger on the next stage, the seeding run.  If you are sure about some of the aspects of product, you might not need to make them at all, or maybe you can save money by making them coarsely in your prototype, in order to focus the bulk of the investment into the parts of the prototype that you need to see, touch, use…to get your answers.

You can save money by doing a lot of the research yourself and not leaving it to the engineers.  Not sure which material is best?  Go to the store or online and buy products (or raw materials if you can get them) that have materials you think might work, test them out, and choose one before having a prototyping company make five prototypes with each kind of material.  For plastics, you can use 3D printing, silicone molds, or other technologies to get close to what you’ll see in production, but if none of them will get the surface finish or material integrity you need to answer your questions enough to pull the trigger on the next step, don’t bother…save your money to buy the tooling which will answer your questions.

Input: Generally, $500-5,000 (unless you have a technical product or you require a mold), general design specifications/drawings.
Output: market feedback and planning assistance, a thorough enough understanding of the details of your product (specifications, manufacturing processes to be used…) to start actual production

Seeding Run

One you know the details of what you want to make, you are ready to make the seeding run.  Your product may not benefit from a seeding run, or the minimum order quantity may not allow it, but I find that most of the time it’s a good idea if you can make it happen.  The idea of a seeding run is that you are going to make a small quantity, maybe 300 or so, to answer more questions about the manufacturing process, assure yourself that you are getting acceptable product made and are ready for mass production, and to use the output to seed your market and launch the idea.

The product you get from a short run with the actual manufacturing processes is going to be much closer (hopefully identical) to the product you will get from mass production.  This is the product you want to show magazine review writers, boutique buyers, market influencers, at trade shows, to potential investors, and to your website and social media followers.  The prototypes often won’t be high enough quality to get this done and you’ll lose a lot of time if you send your one prototype to someone and have to wait to get it back.  This period is typically heavily focused on the marketing side of the business, gathering feedback and making connections.  From the manufacturing perspective, if anything isn’t up to par, or you get feedback that makes you realize you need to change the design some, then at least you only made 300 unsellable units instead of 10,000.   Unlike the prototype, the seeding run should also include your packaging.

Input: Enough money to make 300 units (you may need to double the mass production price or pay set-up fees in order to talk the factory into making this small run and sometimes it just isn’t possible)
and if anything needs to change, at least you only spent the money to make 300 bad units instead of 10,000.
Output: A solid manufacturing base/experience, the seeding of the product idea in the market, feedback for potential design improvements, and, potentially, funding

I’ll follow up in the next article with the first manufacturing run and steady state stages as well as a summary of what it all means and general things to look out for.  Come back to learn how to become a cash flow expert!

(to be continued)

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