The companies that have submitted proposals to Allbusiness’ Big Business Contest are a fascinating cross section of start-ups ranging from electronics components to cupcakes. Although I’ve been known to make a decent cupcake when necessary, I know a lot more about electronics component distribution after writing about that industry for nearly 20 years.
Our applicant, “Lifelong Entrepreneur,” is, I think, correctly touting the strategy of teamwork when it comes to building a business. There are, however, a couple of unique aspects of the market this company is playing in—electronics components distribution—that the applicant should be aware of before moving to the next level.
The first is the source of its products. If this company is buying from an authorized distributor—one that has been franchised by component suppliers to resell their products—that’s a step in the right direction. Here’s why: the electronics components industry has been cracking down on counterfeiting by encouraging customers to buy only through authorized distributors. Authorization guarantees the products being sold are authentic. Counterfeit products most often enter the market through unauthorized distributors (or brokers) that buy and sell excess inventory in the open market. If there is a problem with a component purchased through an unauthorized reseller, the customer is out of luck. Suppliers will only support the products they know has been purchased through authorized channels.
So, if the applicant is buying from an authorized distributor and can prove it, customers are less likely to run into problems. A better move would be to seek supplier authorization: contact the supplier directly and apply for a franchise. The best bet would be small suppliers that aren’t currently distributed worldwide. Top-tier component makers are very selective about awarding franchises.
I’d also be very cautious about defining these products as “valueless,” or “scrap:” I don’t know of too many electronics manufacturers that would knowingly put substandard components into their products. If our applicant is selling to inventors, hobbyists and other non-commercial customers, this may be less of an issue.
The other concern I have is storage of the products. Electronic components can easily be damaged by static electricity, water, heat, cold and numerous other factors. Every distributor that I know of use warehouses designed to prevent electro-static discharge (ESD) and is climate controlled. I’d strongly suggest investing in products that prevent ESD—there are mats, lab coasts and wrist bands that do this—as well as dehumidifiers and other products that can protect components from damage.
That said, many of the electronics distributors I know started out as family-owned businesses and are still run by those families today. If our applicant can resolve some of the conflict he’s seeing within the family, there are plenty of precedents that support family-owned distribution companies.