What is the #1 cause of startup failure? They simply can’t pay their bills. So why have bills that are not directly related to sales?
We advise startups, especially in the CPG space, to outsource everything except Sales, Accounting, and Quality Assurance (also known as Quality Control or QC). This means avoid buying production facilities, office buildings, a big staff or any big stuff until your sales “earn” them.
Startups should focus on sales for the sake of their own survival. They can’t afford to have a monthly payable millstone around their neck pulling them down, especially when sales are not justifying it.
But there are 3 functions you can’t outsource. Sales– Nobody is going to make sales happen but you. Accounting– You need a good accountant to give you timely reports so you can understand your cash position and manage your cash flow. Quality Assurance – You must oversee any and all outsourced production to protect your reputation and avoid disastrous recalls.
Quality Assurance Defined
What is quality assurance? It is assuring your customers that the quality of your branded products will be the same as, or better than, what they have come to expect. When we built the Barefoot Wine brand, we outsourced production, so, for us, we define assurance as the enforcement of strict compliance to agreed upon product standards by theoutsourced production company.
Before we learned “how things were done,” we were told by our contracted outsourced production facility that they would comply with “industry standards.” When we asked for a copy of “Industry Standards,” guess what? They couldn’t provide a copy. No one we asked could, including governing agencies! We had to work with our winemaker to develop exact standards for bottling that would protect our quality and, thus, our reputation. We created our own standards for product QA.
Quality Assurance Contract Clauses
This started a policy in our company that we still advise our clients to use today. We call it, “Make Mistakes Write!” Not only r-i-g-h-t, but W-R-I-T-E! In other words, write down the mistake and list the documents that need to be created, updated, or reinstated to prevent a reoccurrence of the mistake. So we actually wrote down the “industry standards” and made them part of the contract. Still, there were the inevitable glitches. And, we wrote down new clauses to prevent them from reoccurring. In fact, when we started, our production contracts were only 3 pages long, but when we finally sold our company, they were 37 pages long!
Policing the Job
But just writing clauses in contracts is not enough. You must have a representative present during production with the authority to stop product any time there is a glitch. We found this to be true in several aspects of our business. There were key times in the vineyard where decisions were being made. Our person was there. There were decisions made during the winemaking process. Our person was there. And even in the process of printing our merchandising materials, we had to have our person there to do press checks. Every product we had created for us required our person to be there, policing the work!
Standardization
Ultimately you will develop checklist, signoff sheets, and better contract clauses to standardize production. Standardization is a journey, not a destination. Along that journey you will discover shortcuts and improvements to quality that will become you new standards. You may be surprised by how the producers get around your specifications. Through experience, you will better understand and define where and when to insert your own people to make the right decisions. And you will be much better prepared for the next producer you contract with, because you will have more knowledge and better documentation.
Outsourced Quality Assurance
People ask us, “How can you assure quality when you outsource so much?” Our answer was simple, “Our outsourced producers don’t get paid unless they comply with our strict quality standards. We don’t have to accept substandard goods.” And then we added, “If we produced substandard products using our own facilities and our own labor, we would be under much more financial pressure to put those substandard products out in the market. So, using contracted services is really to our advantage quality-wise!”
Conclusion
And, that’s just the point isn’t it, saving your reputation? If you want to save your reputation and get loyal return customers coming back, buying your products over and over again, and recommending them to others, you’d better not ever disappoint them. We found that brand advocates feel obligated to tell everybody not to buy a product they endorsed that let them down. Now it’s their reputation on the line! The most effective form of advertising, and, in the long run, the most inexpensive form of advertising is Quality Assurance. When referring to your product, you want your customers to say, “I can rely on this brand! It’s dependable!”
