We all have our ups and downs; part of the entrepreneurial spirit is that we try our ideas, if they fail, we move on. That’s what happened to me recently with a business idea that started with great potential but finally flopped.
The ‘ah-ha!’ moment
At my work, we have little LED lights we give away just as an extra thank you. They’re really great in terms of business because they’re branded and people go absolutely crazy for them.
One weekend my friends and I planned to head out to a music festival so I had the bright idea to bring some of these LED lights. The lights are an almost exact replica of Photon LED’s which run about $8 a pop.
We get there and start getting into the party; I bust out my LEDs and start flailing like a madman. During a break I had a guy come over to me asking about the lights – he wanted to buy them.
Now, I have ethics when it comes to the things I love – especially electronic music and the party scene. So I refused to sell them to him and gave them up instead.
But it hit me, that ah-ha moment. If people are going crazy for these things, I bet I could start a little side business selling them online!
Hunting down suppliers
I know it gets a lot of bad wrap but I began checking out Alibaba for Chinese suppliers. Alibaba gets the thumbs down overall because you’re still dealing with wholesalers instead of manufacturers – either way, I don’t have those connects yet so it was great to be able to talk to people over there.
The first few quotes I had were around $0.50 a unit. I knew that I would only be able to get about $1 – $1.50 for each light I sold, minus shipping and work, I wouldn’t be at a very high profit.
One thing that finally hit me was this: haggle the shit out of every person you talk to.
I realized that I’m doing business with them, not the other way around – I had the power because I was the one expected to buy. So I began bogarting the pricing, I’d tell one person I was quoted for $0.45 per unit, they’d go lower. I kept doing this until I landed at roughly $0.32 a unit – down 18 cents but that adds up when you’re selling hundreds or thousands.
Eventually, I kept searching and finally went with DealExtreme – their prices were lower but because their shipping was free and I could place a bulk rate code.
I ordered up around 400 lights and my business was game.
The rise and fall of business
Although I had plans to start my own LED light store website (which I may still do in the future), I threw them all up on Amazon. I didn’t want to constantly have to keep up to date with them through eBay because I wasn’t worried about pushing them hard – it was a little passive income business.
For the first few months, profits were good – I had a handful of sales each week. At the top of the game I think I was earning about $150 extra each month just by throwing some lights into a bag and shipping them out. It wasn’t much but I’m not going to complain.
However, the tipping point hit not too long ago. A competitor came in and under bid everyone by $3. Three bucks doesn’t sound like a lot but the profit margins on each set of 10 weren’t much to begin with so I was screwed…dammit, dammit, dammit.
With about 150 LED flashlights still on me I decided to close up shop instead of wrestling with meager profits (quite literally $1.50 after that point before shipping and handling).
Funny enough, I took those lights and handed them out to people at the last music festival – they were thrilled. So I guess the business kind of came full circle in a lot of ways.
What I learned from this project
It’s not all doom and gloom from the business, I actually learned quite a few things (which I think you can take away as well):
- Never settle for list price; haggle and bogart your price
- Do your research, find a niche market that few were playing
- I found ways to find manufacturers for future business ideas
- Find something you’re passionate about; so it doesn’t feel like a job
- Don’t play the price war – you’ll just eat at your profits to the point that the business goes under.
I’m still a little burned that the business went under because it did have a lot of potential but ya know, we live, we learn, we get better.
Do you have any business ideas that’s flopped? Share your story below and maybe we can learn from it!