Q and A:
Q: No inventory of Foam?? No inventory of
completed or partially completed products??
A: I have both a small inventory of foam, and
some finished and partially finished floats.
I was planning on just throwing that inventory in for free, as the idea
is to spend a few days cutting them up and getting the buyer on his/her feet w/
the operation. It would be under $300
worth of inventory/foam.
Q: Product descriptions and information on labor
needed. I really don't know if your
products are solid foam, built up sheet structures, or what ever. I see Plywood inventory, but do not know how
the plywood was used. Was it part of the
products or used to make jigs and forms for cutting or assembly? I need to understand what a Float Set, Hollow
float set, Float kit, and Foam Float set is and how they compare.
A: Here is the float set document, might answer
some of your questions. http://www.foamfloats.com/floatset.doc
The floats are solid blue Dow foam
(although I have also cut hollow floats).
Plywood is glued to the top of the float for the hardpoint
to mount the struts too. The
basswood/balsa is used for spars on the larger (30"+) floats. There are no jigs or cutting assemblies. There are just solid and hollow floats. The
hollows are harder to manufacture so I only did it on a limited basis that
eventually ended (not enough desire for the manufacturing cost). The different listings on the Float Sales spreadsheet
are still just solid floats (same kits) I just explored setting up assemblies
in Quickbooks, so they were tallied separately.
The labor needed for the products
are shown on the Manufacturing
Costs spreadsheet.
Q: Operating scheme: Please tell me how you ran the business. For example; Did you
build to order? Cut the foam for ten sets of each product and then re-cut when
stock was reduced to 2 sets?
A: I both built to order (75%) for direct orders
and off season, and cut in bulk (15%), and sometimes got ahead of the game and
cut small quantities of each size (10%).
Because of the 10 item product line, and the relative manufacturing
ease, cutting and packing to order for the direct market was the usual. The reason I am selling to business is to
find a buyer capable of finding the right market for the product, and adjust
the operations to match it. They are
capable of being produced in either method, but ultimately buying bulk foam and components, and producing in a run would be most
efficient. I should mention that I am
also a full time animator, so this business has been a part-time affair for
over 4 years.
Here is some text from a document
I'm preparing for the new owner. It
covers some suggested operation strategies:
----------------------------------------
“D: Future operations strategies
Obviously
FoamFloats has been woefully undersold and under
supported by its management. Seeking distribution with both volume and drop
shipping options should be paramount. Increasing direct sales through
advertising, reviews, and coupons mailed to prior customers will help increase FoamFloats' major profit source. Striking a balance between
both distribution and direct sales will maximize both the brands exposure and
the potential sales of this popular product.
Marketing
the floats as a direct, drop shipped and volume product should be pursued.
Direct would comprise of a regular ad campaign in the major RC magazines, and a
presence in the major online RC forums (such as RC Groups and RC Universe) with
banner ads. In addition all previous customers should be contacted with coupons
as a reasonable portion of FoamFloats customers have
been repeat or multiple float buyers. Drop ship marketing could comprise simple
catalogs, cardboard POS stands, and/or float samples to lure hobby shop
customers into purchasing a float set for their airplane. This is likely the
most important format for the FoamFloats to be
distributed under. It enables both Direct and Distribution networks to benefit
from a large product line -- something that large companies manufacturing their
products overseas cannot compete with. Drop shipping also reduces costs because
floats do not need to be "shelf ready" with labels and white boxes --
a major investment. Volume marketing would comprise working with the
distributor to get into their flyers, magazine ads, and annual brochures. This
would entail getting professional photography of models with the floats and
beautifully built popular aircraft exhibiting the float sets.
Once
the current product line of ten floats has achieved a steady profitable state,
expanding the line to include single pontoon floats, helicopter floats, a
possible "float plane", and float adhesive coverings should be
considered. This business' major edge in the RC industry is its fast turnaround
and broad product coverage. No one else provides a float set for every size
airplane, and none provide such a lightweight system. The drawbacks are a
product that, at least for gas and larger electric aircraft, must be finished
and are not ready to fly out of the box. This drawback is offset by the fact
that most float fliers are experienced pilots interested in doing a little work
to bring new life to their aircraft.
While
supporting the established FoamFloats product line
should be tantamount, the foam cutting system has many possibilities to provide
additional income to the owner. Expanding into cutting custom wings, fuselages,
and even branching out into the local sign making market are options. Ideally
the foam cutter should be running full time producing products, and expanding into
custom CNC work might help fill holes in the off-season."
----------------------------------------
Q: How much space is required to store inventory
and manufacture and ship the products? I
currently operate out of my basement, will I need to
lease space? Will odors be a problem?
A: The space required to store the inventory
depends on how much you have. The floats
ship in the size boxes shown on the fixed asset
spreadsheet. My current box stock stacks
in a 2'x10'x10'high stack. Obviously
building the floats ahead of time will occupy much more volume -- which is an
issue. Foam comes in 2"x8"
sheets 2",3" and 4" thick. The other components (hardware) dont take up more than a 5x5 footprint. Assembling and
shipping requires a table for box building.
The power tools (3) need enough room to operate. If you cut to order you likely wont have to lease a space. However it depends how you want
to approach the operations strategies. I
usually shipped 2 pallets stacked with floats 5' high to Horizon during the
bulk ordering portion of our contract.
Odors are vented by a 12" fan
and can be ducted 10' or more to a safe place.
The cutter is encased in a hood.
Mine is built of plywood, and they need not be airtight. Odors could be a problem in a residential
area, especially if your cutting in bulk and working
to expand the operation. However, given
enough room to dissipate (~30’ from vent outlet) the fumes shouldn’t bother
anyone.
Q: Expenses:
Your expenses seem very low.
Please help me understand the real costs of making and shipping a set of
floats. From the spread sheet I see
expenses of about $3000 and "advertising" was about 700 leaving about
2300 for all other. Dividing 2300 by
annual unit sales of 400 leaves only $5.75 per set sold. Postage and boxes could easily use that
up. Are all the shipping expenses such
as postage, boxes, packing materials, and labels included. And the product manufacturing costs such as
product materials (foam, ply, carbon, glue...), equipment maintenance, depreciation... are they accounted for? What is the cost of
making the products?
A: I have a cost of goods and manufacture spreadsheet that answers
these questions. This document is
essential in showing you what makes the float kits up, how much they cost, and
how much labor is involved in each (this can vary based on volume vs. cut to
order labor).
Shipping was paid by the direct
customer, however we paid shipping of the pallets to Horizons warehouse in IN. We renegotiated
our contract with Horizon to avoid this shipping expense by organizing into a dropshipping method, where ultimately the customer again
pays for shipping. All components of the
manufacture (materials and labor) are included in the cost of goods sheet.
Equipment maintenance is very
low. Greasing the threaded rods and
wiping the cutter down now and again. It
has never broken. I have depreciated the
machine by 25% and giving its FMV .75 cents on the dollar. You can see more about the machine and its
system here http://www.Step-Four.at
under Standard Wing Cutting machines. It
is the professional package with the extension.
I also have the Basic 540 CNC mill (unused), and would be willing to
sell it as well separately.
Q: Are products defined by paper drawings, CAD
files, templates or something else? How
will future product improvements or product designs be
created?
A: The products are defined by files drawn (or
imported) into the Step-Four software.
They can come from CAD files (.dxf) and be
edited on the machines software. Product
improvements are done in the Step-Four software. New designs can come from many places. A
drawn template can be scanned, lines drawn over it in 3D program (other
alternatives possible – like Adobe Acrobat), and the lines exported to the
Step-Four software. This is why my
company was called 3D Kits, as I used my animation software to visualize the
product designs, then export the shapes to the cutter
software.
Q: Are all products manufactured by hot wire
cutting? I would like to see pictures of
the equipment used and understand the major operations.
A: Yes the floats are 100% hotwire cut. The other hardware is only cut and packed
(wood/wire). The foamcutter
is truly a magic machine!
Q: Should I consider doing custom float
cutting?
A: The combination of working directly with
customers and the tweaking time in the software could make custom cutting
prohibitive. If such a strategy were
pursued it would be smart to put limits on the adjustments customers can make,
and yes if cut to order is pursued as the major source of fulfilling the
floats, making simple adjustments would not be a problem. However, in general floats are a pretty
simple concept. Small adjustments to the
geometry, such as asymmetrical profiles, curved V bottoms, etc don't make much
difference in the actual performance of the model on the water. Especially for the lighter planes -- which will be the bread and butter of the business. This business is popular because of the
emergence of the booming electric market.
Q: What about this Step-Four company that made
the cutter?
A: I have been in need of Step-Fours support in
the past 7 years, and each time they have responded immediately. I consider their response time better than
most
Q: Sales (internet retail) appear to be fairly constant at about
$500 per month? There is no indication
that sales are growing as the product becomes better known. (See the graph
added to your spread sheet in the attached file.) That would represent a fairly small increase
in my current business.
A: Yes I would say "fairly" constant,
as you can see the peaks during the summer season. I have spent 8 hours on the phone, in late
2002, selling this product – that is ALL.
If you do not get serious about the lack of marketing then I see no
reason why the sales should increase.
That said, it puts you in a powerful
position. You have a distribution
agreement to work with, you have a product that
clearly sells itself even without an active marketing campaign. When I did those 8 hours of phone work to
hobby stores, I probably ended up selling $500 in floats. I sent out quite a
few 19" Float samples, but they were well worth it. I cant imagine the
situation this business would be in if I were capable of keeping up on
vendors. Horizon and Tower are
opportunities to expose the brand, but they will want to put the burden of
selling the floats back onto you, and just get their cut. So its right back to
you to market. However, the distributors
have some powerful tools that you can use (fliers, catalogs) but you have to be
the squeaky wheel and give them good advertising material to work with. But
that's not a big deal, just comes around to basic marketing.
Q: Labor-- $500 in monthly sales
appears to be about 14 sets of floats and at 15 min each for production that is
about 3 1/2 hours per month. So
production labor time should not be a big concern. Is that about your average cutting machine
run time per month?
A: Yes I would say the Labor would be
between 3-5 hours per month in an average month. You would be working while the cutter is
cutting. You would also need to add to
this the 8-10 hours of marketing that should be done. Without that time spent,
you would be risking growth.
Q: Neither the dist. or vendor sales shows evidence of growth.
In fact they appear to possibly have gone dormant or worse!
A: The vendor sales were never good.
Local hobby stores either found out about us through a magazine or through
Horizon but didn't want to order through them. LHS are not big on delving into
new products without some coercion. The
distribution agreement with Horizon has gone from what might have been pretty
good to nothing at all. Here is a brief on that subject:
"B:
Distribution
FoamFloats never sought out a distributor for consideration as a
provider.
FoamFloats was approached in spring 2004 by Horizon Hobbies to
consider distribution through their network. We signed a distribution deal that
led to $8779 of float sales. The basics of the initial
agreement was 60% off MSRP, Horizon orders in bulk and we pay shipping
of the palettes to one of two warehouses, and they pay Net30. These floats were
packed in white boxes with color labels that included a bar code required by
Horizon to track them. It became clear to Horizon that moving the floats was a
challenge due to the large number of products offered. Their warehouse space is
valuable to them so after the '04 season we decided to rework the agreement
into a drop shipping format. Under this format their take was reduced to 50%
off MSRP, they ordered small quantities, and I shipped directly to the vendors.
These floats were shipped without labels and in brown or white boxes. This
drastically reduced sales as the burden of moving the floats was off Horizon
and on FoamFloats. We made no attempts to work with
horizon in advertising or promotion of this new drop shipping format. By mid '05 sales under this agreement ground to a halt.
FoamFloats was approached by Tower Hobbies in late 2004 to submit a
proposal for distribution. We provided Tower with our bulk distribution
agreement as signed by Horizon. Tower passed on including FoamFloats
in their provider lineup. FoamFloats made no counter
offer or attempts at negotiating this contract. It was assumed the pricing for FoamFloats was too high for the high volume low cost Tower
Hobbies philosophy."
So
that's the situation with Horizon currently.
The drop shipping format needs a face lift and marketing. You have to consider Horizon a marketing
client and work with them to spread the product. I would suggest approaching Horizon as a new
owner with a strategy, as they want to sell this product, obviously. Be aware, also, that the cost of manufacture
spreadsheet includes labels and white boxes. These costs (avg
about $.80 per unit) would be removed by going to a brown box drop shipping
format.”
Q: You say lighter planes and the
booming electric market will drive the business. I suspect this is true, but one would need to
look at the monthly sales of each size floats to see if indeed the small floats
are the emerging market. If so maybe
dropping the larger floats and bringing on new smaller floats would be a good
idea.
A: I like the way your thinking, however, going
smaller than 16" isn't likely to help cover the electric market. Parkflyers don't get much smaller than
that. You can produce a graph of the
float sizes sold from my float sales spreadsheet (i
would if i knew how!) to see what the dissemination
of sizes is. Yes you could drop the
larger sizes, but selling a nice 60" float to a gasser is a nice take for
the bottom line, however after consideration of the labor and costs of
materials you might consider this not worth it.
These are the kinds of shrewd business decisions I was unable to make,
and I expect to sell the business to someone who can. It would also be important to find out
exactly whats available for the float market, and
adjust sizes accordingly. However, FoamFloats will still likely be the lightest option, but
especially for the larger floats, will require work to finish (sheeting or
'glassing). Still I've sold quite a few
larger floats. You can easily readjust
the size of your float offerings with very, very
little time spent working the CNC files.
I have adjusted sizes somewhat based on maximizing the use of the 2x8
sheets of DOW blue foam.
Q: I continue to be concerned about
fumes and odors, what is the environment of the current location? Commercial, residential?
How far are the neighbors?
A: I was very concerned for years about the fumes
and odors. I went to the trouble to
contact an Industrial Hygienist at one point near 2001 to get some information
on what cutting foam might be doing. He
informed me that the thermal degradation of Styrene isn't that terrible of a
fume, however not good to inhale (obviously).
What he did suggest would be bad is the thermal degradation of EPP foam
since it has plastic in it (I was cutting some of that at the time since I was
producing the MantaPlane) -- as it would be a
carcinogen. I have looked into filters
multiple times. There are some industrial HEPA filter systems that seemed
suitable, however they were quoted in the thousands and since almost no one has
ever complained I never made the step and bought
them. I'm in a residential area with an
elementary school across the street. No
one has ever mentioned a problem. The neighbors front door is 25' from my exhaust, which is vented
to the ground. The fumes vent in the
open air pretty quickly, but a neighbors window within
20' of the exhaust wouldn't be a good idea.
However you are able to run the venting quite a
distance, which could be increased by a more powerful fan. Currently I have not found the maximum
distance for venting, but 15' does not show a problem -- this is also a
variable based on how air-tight your hood is.
As far as fumes inside, you will not have a problem. You can even use the hood for soldering and
avoid fumes from that as well. Any fume
issue will have to do with volume and time of cutting. The cutter can be setup to run cuts later
when it would not be an issue, but if you start doing big business moving the
system to a small industrial area would likely be wise (you will need the
storage anyway). The fumes would be no
worse than an auto paint shop.