In my previous post I talked briefly about the process of starting a business with little or no money. In order to do this, I suggested that the best path is to look at things you do every day and find areas where you might be able to carve a niche. With that in mind, how about starting a business based on poop?
I was under the impression that one of the reasons for cloth diapering a child is the cost advantage of cloth diapers vs. disposables. When I looked into the possibility of cloth diapering our baby when she arrives later this year, I was stunned by our calculations that said cloth diapering could cost as much as disposables! (Note: this is not a post about the cost of cloth vs. disposable diapers, I will write a separate post to justify my statement.) Yes, they could be a lot cheaper if we buy them used or get them as gifts but both of those options won’t work for us. As I delved deeper into making it affordable, one option I wanted to try was – why not make them myself?
And if I can make them myself, why not sell it to other moms in my situation?
Now, that I had an idea I had to check if it’s a viable business idea. Fitting this idea to my 3 requirement chart, I needed to answer 3 questions – Is there a market? Am I good at it? Am I passionate about it?
1. Is there a market?
One diaper costs anywhere from $15-$25. I estimated my need to be 30-40 diapers, since I don’t want to do laundry every single day. That is a LOT of money to put upfront. I need each diaper to be less than $8 to break even with disposables in less than a year. I do not think every single mom out there is doing a break-even analysis, but from the number of people asking how to get coupons or how to find out about sales in the mommy forums, I know there is a need for cheap, good quality cloth diapers.
From surveying Craigslist on how much used cloth diapers go for (about $10), I know that if I sell my brand new cloth diaper for around the same price, I should get traction. I might even be able to set the price point at $12-$14 and still save people a lot of money.
So yes, there is a market.
What would be my selling point?
I will be competing against the big name brands and professional, work-at-home moms who have been sewing for many, many years. My target audience would be families who have tight budgets and don’t want the Cadillac of cloth diapers but very nice, does-the-job-perfectly-well ones for a much more affordable price.
Is there any cost advantage in making my own cloth diapers?
Can I even make one for $10? I didn’t want to theoretically answer this question, so I went ahead and made a few. I will spare you the details on what materials I needed as it is not relevant for this post, but the cost for stitching a complete cloth diaper came out to be – $3.25.
What about my time?
Most of us forget to put a value for our time, esp. when initially starting a business. It is fine at the beginning but we really do want to get the maximum value for our time. So how does this business idea do time-wise?
For the first diaper, it took me two hours. Mind you, I was new to stitching. I didn’t start with knowing a fool-proof pattern. I bought a diaper I liked, I reverse-engineered it and was off! The second one took less than an hour. Now that I have a design with all my modifications, I can make one in half-an-hour.
If I can make two diapers in 1 hour and sell each for $10, the value of my time would be ($20-cost of the diapers $6.50) – $13.50. Not terrible, but not very attractive either. As time goes on, I have to streamline the process a lot to reduce the time and cost of the materials or raise the price (which will kill my selling point).
2. Am I good at it?
I am, even if I do say so myself. My first few stitches were, well, blah. After I got the hang of it, I had much better control. If I make a few more for my own use, I am pretty sure I can make one that can compete with the professionally made ones.
3. Am I passionate about it?
I am a frugal minded person who cares about the environment and money. I am not passionate about learning the nuances of cotton vs. bamboo vs. hemp. All are absorbent, I am not adding to the landfill, so I will go with the cheapest option. I am not passionate enough to keep improving my product, which I feel is essential for any business.
So is this a viable business idea to start with little money?
Yes, for someone with more passion about the environment and the best ways of raising a baby in the most eco-friendly manner. For example, if you are someone who enjoys evaluating every single fabric to make sure it is the most eco-friendly fabric, how they wear out with each wash, what kind of conditions adversely affect them, etc.
For people who are thinking about this idea, how should you go about starting a home based business?
Even though this idea is not for me, I did all the ground work, which took many hours, to come to that conclusion. So let me give the information you need to hit the ground running and save you hours and hours of research.
(Note: I live in Washington State, so some of the information I collected was from WA state government websites. I checked the requirements for California and they are very similar. May be at some point I will write a “starting a business guide” with requirements for all the states, but for now, start with your State’s Department of Revenue to find out the equivalent procedure.)
Licensing requirements for starting any home based business (not specific to any idea)
- Fill out a business license form. For choosing the name of your business, you will have to search in your State’s business license database, Department of Revenue database, Secretary of State Database and U.S. Patent and Trademark Commission for federally registered names.
- You can get a DBA (Doing business as) name.
- Apply for a UBI (Unified Business Identifier). This is a 9-digit number that connects your record in Department of Revenue, business licensing office, Secretary of State and Department of Labor (if you have employees).As far as I know this step is unique to Washington State. Check if your State has this number under a different name (may be Business Registration number or something).
- Choose and register your business structure (Sole proprietor, LLC, S-corp., etc.)
- Get any relevant business license(s) from your city. Mine requires a separate application and its own zoning requirements. If you are in Washington, you can use this worksheet to find out your city’s licensing requirements.
- Get an EIN (Employer identification number) from the IRS. If you are sole proprietor you can get away with using your SSN, but EIN is free and great to have to keep your business and personal finances separate.
- (Optional step, applicable if you have a business that deals with textile, wool or fur products). Get an RN (Registered Identification Number) from the Federal Trade Commission (FTC). You do not need a RN, but if you have one you can use this RN in place of the name of your business in the labels that you are required to affix on your products.
- (Option step) You can set up your business accounts at your bank or credit union.
Is that all I need to start selling cloth diapers?
Starting a home based business is easy, but when it comes to selling children’s products, there is a whole other slew of requirements you need to know and follow.
Note: Some people think that selling on Etsy and having a low volume business somehow make them exempt from all these requirements. They are wrong! Even if you sell on Etsy and sell only 1 diaper a month, you are a business in children’s products. You are liable for the products you sell and you SHOULD make sure they are compliant with all the requirements for a children’s product. Small businesses have some leeway (which I will mention below) but for the most part, you have to follow the regulations.
- Cloth diapers are exempt from the textile act but you are still required to attach a care label.
- You are required by law to certify the safety of your product and declare any hazards (flammable, choking hazard, etc.)
- Look into the CPSC (Consumer product safety commission) and CPSIA (Consumer Product Safety Improvement Act) for what is required from the safety stand point. If your product is not safe and it causes harm to the baby, you are liable.
- In general, for Children’s products you are required to do independent 3rd party testing. But if you are just starting out you can register as a small batch manufacturer and can be exempt from the testing. Note that I said “testing”, not the safety of the product. Instead of 3rd party testing, as a small batch manufacturer you can rely on the statements of your supplier. But it is still your responsibility to get the relevant certifications from your suppliers and declare what needs to be declared.
- You are also required to track all your products with permanent marks in the product, so that it is easily identifiable if you want to do a recall.
Other resources for cloth diaper business: Real Diaper Industry Association, Cloth Diaper Compliance Facebook group, “Manufacturers of Cloth Diapers: Applicable CPSC Children’s Product Safety Rules” from CPSC.
As I am not passionate enough to go through with everything needed to make this a sustainable business, I am dropping this idea from my list of possibilities to start a business with no money. But, it doesn’t mean I have wasted my time with all these research. Now I have some experience in doing market research and evaluating the cost/time benefit to take an idea to market. I will be able to evaluate future ideas as I get them faster and be able to quickly give them a “go” or “no go” status. As an added benefit, I got another idea that is much more profitable and easier than the cloth diapering idea. It is still in the textile area, but has a lot more potential to make more money.
In the next part of my series I will update you on a winning idea that we are planning to try out.