Building a factory with no guaranteed customers: the mistake that ruins companies
Setting up a factory without distribution agreements is a classic mistake. Tips for securing sales before investing in production.
English · Original discussion in Spanish · Published
A factory with no sales: why nobody buys your product
Setting up a factory, hiring staff and filling the warehouse with stock without a single guaranteed customer sounds like a textbook bad entrepreneur. Yet more than a few people start producing before closing deals with distributors, only to find that no retail chain wants their product. Is it possible? According to those who have been through the process, it is highly unlikely if the product has demand and proper market research has been done beforehand. But not impossible: distribution is as critical as production, and planning it poorly can lead to disaster.
The golden rule: agreements first, factory later
Those who know the industry are clear about it: there is always someone willing to buy if the product doesn't stink. The problem arises when the entrepreneur assumes that, simply by manufacturing, supermarkets will come knocking. The reality is that large chains like Mercadona require contracts and prior agreements. Most suppliers who manage to get into these channels are already selling in multiple places before depending on a single major customer. That's why, before investing millions, it's worth negotiating pre-contracts and even offering advantageous terms such as "consignment contracts": the distributor doesn't pay until the product sells, which reduces their risk and makes market entry easier.
Alternatives when nobody buys from you
If you've already manufactured and doors are closing, all is not lost. Options include selling online with campaigns on Instagram, Facebook or YouTube, or turning to liquidators who buy stock at clearance prices. You can also try placing the product in smaller stores or using influencers to generate demand. But the sensible thing is not to get into that situation in the first place: market research should be the first step.
The question that remains: how often is the mistake repeated of building without securing a commercial outlet? The myth of "if you build it, they will buy it" is still alive and well. But the data – and experience – say otherwise.
Setting up a factory, hiring staff and filling the warehouse with stock without a single guaranteed customer sounds like a textbook bad entrepreneur. Yet more than a few people start producing before closing deals with distributors, only to find that no retail chain wants their product. Is it possible? According to those who have been through the process, it is highly unlikely if the product has demand and proper market research has been done beforehand. But not impossible: distribution is as critical as production, and planning it poorly can lead to disaster.
The golden rule: agreements first, factory later
Those who know the industry are clear about it: there is always someone willing to buy if the product doesn't stink. The problem arises when the entrepreneur assumes that, simply by manufacturing, supermarkets will come knocking. The reality is that large chains like Mercadona require contracts and prior agreements. Most suppliers who manage to get into these channels are already selling in multiple places before depending on a single major customer. That's why, before investing millions, it's worth negotiating pre-contracts and even offering advantageous terms such as "consignment contracts": the distributor doesn't pay until the product sells, which reduces their risk and makes market entry easier.
Alternatives when nobody buys from you
If you've already manufactured and doors are closing, all is not lost. Options include selling online with campaigns on Instagram, Facebook or YouTube, or turning to liquidators who buy stock at clearance prices. You can also try placing the product in smaller stores or using influencers to generate demand. But the sensible thing is not to get into that situation in the first place: market research should be the first step.
The question that remains: how often is the mistake repeated of building without securing a commercial outlet? The myth of "if you build it, they will buy it" is still alive and well. But the data – and experience – say otherwise.
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (10 replies).
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