How to transition from Etsy into wholesale pt.1

First a bit of chagrin. I’d intended to post a sewing tutorial today but I must have left the camera cord at home . Therefore, today’s entry is what I can come up with at the last minute. Heh. Seriously, we’ve been having a very interesting but perplexing discussion in our forum about migrating to wholesale I’d intended to mention anyway. There is a lot in this thread covering the gamut of issues so I must necessarily limit the discussion to this:

I sell on Etsy exclusively at the moment. I have a few styles in several colorways and I make each order as it comes in. I have been open for about 6 months and am turning a (small) profit, and am looking into transitioning into the wholesale market. The thing I have been most concerned about is I will need to raise my prices to do wholesale, but I have a pretty consistent customer base at my current price point on Etsy, and in this economy I am leery of raising my Etsy prices too much until I have some wholesale customers already lined up.

[Etsy is] a way to get started, to get your foot in the door, to actually start dealing with customers, and a way to generate revenue to get you started… You try to do both- hold onto what you are doing now, and try to do the wholesale thing too. And that’s where people are coming in saying “that won’t work”. But what else can you do? It would be nice to start out with this great, perfect plan, but most of us didn’t, heck, we didn’t even start out with Kathleen’s book, so we’re stuck with what we’ve already done as we try to move forward.

This was my response (edited):

I want to help people move forward but I don’t have all the answers. When in this position, it’s difficult to find the time to do what one presumes is twice the work (running the existing business and starting a wholesale business) but I think this is a false polemic in many respects because it’s perceived as matter of carving out more time to do it. Working on a wholesale line vs consumer direct on a site like Etsy is perceived to be a trade off but I don’t think it necessarily must be.

I think the first step is, while still doing onsies and custom, to professionalize your existing processes (better, not bigger) which will give you more time. You’ll also save some money which should be reinvested (your first industrial machine?, better tools? materials like pattern paper?). During this process, your products will improve meaning your value proposition increases and at less cost to you. As you evolve with marked improvements from professionalizing (better, not bigger), you must raise your prices to reflect increased value since many Etsy producers are underselling the retail market. Your first step is to get better margins.

Now, once you’ve increased value and your prices while simultaneously saving yourself money over what it once cost you, even on a tiny scale, there’s more wiggle room in your proceeds to attempt the transition into wholesale. I have no illusions, at the outset it is likely that with little economies of scale, you won’t be as competitive at wholesale. You may have to eke into your pricing structure to permit keystoning of your product to be attractive to buyers. Getting a toehold, you’ll gain greater economies of scale and thus cover the deficit.

There’s also some points I made in this previous entry that are appropriate in this discussion. Specifically the fallacy that increased quality requires an increase in costs.

In our (”western”) culture, there’s always the presumption that increased quality requires increased cost. In an absolute sense, increased quality can mean increased costs but not in a comparative sense. For example, if you look at the example provided by Toyota, it’s been definitively proven that increased quality does not mean a required increase of expenditure. Toyota produced the Lexus to compete with BMW and Mercedes. The Lexus was comparable in quality (if not better) but Lexus were half the price of the BMW/Mercedes. This is what I mean by quality not costing more in a comparative sense. You have to compare apples to apples. Quality costs less, not more. It’s been proven time and time again that producing quality consistently means doing things the right way the first time.

Again, lean does not mean doing with less. I am most frustrated by the vast majority of entrepreneurs who think they are lean because they’re running their operations on a shoe string. Lean does mean less in terms of resources needed and inventory but they think they’re naturally lean with operations pared to the bone but they still -tragically- find myriad ways to waste what few resources they can marshal.

Continuing with the fallacies of lean, value and quality:

The other problem with this fallacy that I see a lot with DEs is the presumption that the more labor is involved, the higher the quality. Again, you have to look at this in a comparative rather than absolute sense. For example, consider the results of the nameless tutorial series, or even the zipper tutorials. The way I illustrated was a lot less labor and the results were superior. Less is more! Less work doing the same operation means you’re smarter and more streamlined, it does not mean lower quality.

There’s a lot of pitfalls here. Some won’t make these distinctions and prioritize accordingly just trying to create an increase in perceived value by spending money on inappropriate items. The big problem with value creation in a product line is the disconnect between how you and your customers or buyers perceive value. I wrote about this ad nauseum in my book but suffice to say, entrepreneurs are often too new to be able to disengage themselves from the idea of something like a custom logo’ed button to mark their products with their “brand” but this is putting the cart before the horse. If you have the money to spend, then great (and some do), but it’s far more common to find boxes of logo’ed buttons of now defunct lines at auction. This isn’t lean. Buyers are known to resent misappropriated expenditures because these artificially inflate the cost of goods requiring stores to subsidize the establishment of your image in the market.

Anyway, questions would be helpful in guiding this discussion further.

How do you grow before you grow?
Lowering wholesale prices

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