Business model

[jinb2019]

Hello, I’m looking for some advice and comments on a business proposal that was born during my visit to the Autumn fair in NEC. Would really appreciate your time and all feed backs will be greatly received.

This is a furniture business that specialises in rubber wood products and have been producing them for the last three decades in Thailand. In the last 5 years the younger generation of the family has taken over and has modified the business in to a modern contemporary version. They are already exporting in to some south Asian countries, have an exclusive distributor for HongKong and are eager to enter the UK / Europe market. Initially my discussion revolved around an exclusive distributor style model but as they shared more of their background and what they want to do, I felt it would be better to have a collaborative model. With that in mind I scheduled a meeting with them post the fair in a different location with them to understand more about their business and discuss my thoughts about the business model.

We met two days ago before their departure, and spent most of the day exchanging information, this helped a bit of our understanding of each other as well as gave some confidence and credibility for both parties. I was very open about my “0” experience with business however have seen and heard quiet a few stories of businesses that were both successful and those that failed, so I can say I have some knowledge of the basics. My initial feelings were they needed someone to represent their brand here and promote it exclusively by way of attending trade fairs and where possible approach to dealers and private businesses to present the business and win some contracts or bulk orders. Given the market conditions it is going to take some time to even get recognised and be given a chance to meet the right people to market let alone getting orders. I have to agree that they have a pretty decent brand and their designs are quiet unique. They definitely have something that has potential and this is the reason I felt I should get involved but I don’t know how to go about the legal terms for such a partnership.

Personaly I like the fact that I will be part of a business myself than having to just stock up and try to sell products through dealers. Here is what I had in mind, I will negotiate with them to send me some physical samples which I will select (high potential items). Then I will bear the cost for its delivery here and storage cost for them. Then I will also need to have a website for the brand that can be used exclusively for UK and Europe, the present one is more aimed for the south Asian region. The new website will have my details as a contact but will include all the original story of the business in Thailand along with the designer details. They are already working with a branding consultant and a website development team who I felt are already doing a great job. So, I will request to extend their services for this region too. Once we have the sample and additional marketing resources like brochures and pamplets, combined with the new website I will work on the ground to get orders. Hopefully in few months even if we get some small orders, that will be a winner in terms of the recognition and we can slowly penetrate further with the market research / feed backs we get during this period. They understand that this is going to take some time before we can really start making some big money. If it works out will be a clear win / win for both parties, I don’t have to come up with a huge investment whilst still be a working business partner and they will have their brand established here too.

Thanks for your time and apologies for the long write up, now I would really appreciate your feedback and comments on this whole idea plus suggestions for a legal draft in terms of do’s and dont’s.

Thanks

 

[Mr D]

Sounds like you want to be either employed as their local agent managing things from this end or else be effectively a dropshipper, ordering products from the company for delivery to customer when you have an order.

The company in Asia will be offering credit to businesses or you will be offering credit?
If not, something to think on including who carries liability when customer goes under owing money. Businesses not always good at paying big bills.

As has been suggested many times before for new business starters, check out business for dummies book. General overview but useful in its own way.

Oh and make sure you know who is paying for what. Trade fairs are not cheap, Autumn fair is the smaller and shorter of the 2 main general fairs in the NEC, spring fair being the bigger.

 

[jinb2019]

Thanks Mr.D

Yes it does seem at the outset like a dropshipper model but this is why I'm seeking some advice here as to how I can build an agreement that would define me as a partner for their UK / Europe Entity.

I appreciate that there will be some numbers to crunch here but I feel they are prepared for a reasonable negotiation on that front. My effort and time here will be full time on this plus all the expenses related to forming the company here will also be born by me. I was hoping that I can convince them with these for a 60/40 or 70/30 partnership just for the Europe & UK company. Would this be a fair proposal.

And as you rightly pointed out, the liabilities will have to be carefully agreed, maybe not so much in the first years but certainly as we progress this would need addressing. Most often the furniture dealers here in uk although they take money from the customers upfront, I guess they don't pay their suppliers until the product is delivered. This time period needs to be negotiated / agreed and also for the returns. My plan is not to stock up anything but at the same time would like to give a prompt delivery time frame. Their products are covered for a minimum period of 5 years and free replacement of defective pieces of furniture.

From the initial research I have done, I can use low MOQ and offer a whole sale price that is a fraction of the retail price (this needs to be discussed and agreed) to attract dealers.
Agree trade fairs aren't cheap but I can't afford at least now for a shop floor to showcase the products. I will where possible take the products for a demo to buyers place if I see potential. Top Drawer is the other fair that is in the radar for us which could give us some good openings.

 

[MBE2017]

You might be better advised to try and secure sole import rights, exclusive distributor for a defined area. For that, the company would probably want a sales target commitment, stockholding figure etc.

Obviously it would take a healthy investment, but long term it would have many advantages.

Re your idea, having a share of their European company, I do not see the appeal to them, why not engage a manager or salesperson?

 

[jinb2019]

Yes Exclusivity would be a safe and simple model for them but as we know it has a financial bearing to it plus at this stage for the business, it is going to be not a wise option for me to stock when I know the market is tough and will take some time before I can get orders.

I feel they are well aware of the difference / importance of working for oneself and working for somebody, there is a significant difference in the results. What I am proposing is a combination of exclusivity plus ownership that will also bring benefits for them. Their investments for this end is going to be mainly their product, that too only when the order is placed. Even for that if I can manage some deposits from customers that would be good. And they will have someone constantly engaged with the business growth full time and with loads of dedication to make it work because that person is also has a stake in it the business. Of course the progress will be measured and monitored to carefully define the path at fixed period.

The proposal I feel would be a reasonable offer for somebody who is trying to make their mark in the region and I don't think they will get this confidence if they employ someone. I maybe wrong but certainly from what I see of the business and understanding them / their products this will be a good model for both parties given the circumstances.

Having said that, I really appreciate more views on both sides of this proposal, the good's and bad's. This will help me redefine the proposal and make it more realistic whilst we still can exchange our viewpoints.

Thanks

 

[QPLAST]

In my view, it's about sharing the financial risk and profit.

If you invest to introduce the brand in Europe (showroom cost, employee, sales team, exhibition etc) then you take the profit if the brand sales well. If not you will loose your investment. Also you have to do all the paperwork for forming the company and ongoing statuary payment/obligations.

If you bring experienced team on board to establish this brand, you will have share your profits. This will be less risky and less profitable.

Good luck
Deepak

 

[jinb2019]

Thanks Deepak for your comments.

Like I said my investment will be my time and network that I will use for the marketing of the products. They will have these efforts for their brand penetration without a penny of investment! Obviously depending on how the agreement fans out, the profits share will be decided.