The Sad Truth About Microbrands

In the Chinese language, there is a term that is widely used in the world of business: 关系 (pronounced–GUAN-SHE). The direct translation is “relationship,” but in practice, it actually means much more than that. It has been said before that foreigners who cannot speak the native tongue of China are often given higher prices/sub-par treatment compared to a local or Chinese-speaker. Much of this has to do with a misinterpretation of business practices and culture between China and the rest of the world. In China, the lines between business and personal is blurred much more than it is in the western world. This makes for much a more interesting business relationship, but one that is also more delicate. The complex nature of business in China is both a cultural issue as well as a communication one and is a maze that requires caution and trust to navigate.

There was a recent debacle in the microbrand world that has brought to light many of the issues that microbrands frequently face. From sourcing a factory to raising the funds to buy the product, microbrands are at the mercy of these Chinese factories. When a factory provides the expected delivery dates, they delay the shipment 99% of the time. All microbrands know and understand and usually work the delays into our communication with end customers. This is just one area where new brand owners may potentially stumble when dealing with factories.

The process of bringing a new watch design to life always starts with the prototyping phase. It involves creating moulds for each component and sourcing movements. Once the prototypes are completed, which typically takes 3-4 months, brands tend to use them to launch pre-orders. These pre-orders sometimes serve a very specific purpose: to fund the full scale production of the watch. Factories typically require that you pay them a 30% down payment of the full production cost before they start production. Only when you pay off the 70% balance will they release the product to the microbrand owner, or in some cases, directly to the customer.

The burden lies on the microbrand owners to gauge demand and accordingly, manufacture enough watches to meet that demand, but not over shoot. If, for instance, an owner asks a factory to product 500 watches but pre-orders flop, by the time the owner realizes they made too many, the watches may already be completed. The 30% deposit would have been paid off by the pre-order sales but the factory is now sitting on 500 cases, which they lost money on and the brand owner cannot pay off the remaining 70% because of a lack of demand. The microbrand might end up selling 300 of those pieces and end up sitting on 200 unused pieces.

This issue becomes a bit of a “chicken or egg” question. As a microbrand, the very definition of our business is that it’s low volume. As such, we do not have access to enough data to accurately gauge demand. An argument can be made that homage watches are filling a very obvious demand for watches which feature designs that are much more widespread and recognizable. While we cannot access the data itself, we can read between the lines and deduce that brands like Rolex and Omega are producing the watches they produce because of a demand for those designs that have lasted through the years. Microbrands can react by producing watches that are reminiscent of watches by these larger brands. On the other hand, microbrands that pave their own way and release designs that are unique to their brand assume the risk of putting out a design that has not been tested and could very possibly fail.

The Rolex GMT-Master Photo credit: www.luxurytyme.com

The Rolex GMT-Master
Photo credit: www.luxurytyme.com

The MKii Key West-GMT - Does this look familiar? Photo credit: boutique.mkiiwatches.com/

The MKii Key West-GMT - Does this look familiar?
Photo credit: boutique.mkiiwatches.com/

The only way to truly rid brands of the issues outlined above would be to 1, bring all manufacturing in-house and 2, sell many more watches; both of which would render the brand no longer a “microbrand”. Prices would go up, designs would become “safer” and person behind the brand will be subject to much more scrutiny. Much of the "passion" would be over shadowed by the numbers.

Many technological advancements have allowed this microbrand market and community to be born and thrive. But with the new technologies that have come along, a sudden shift in attention has reduced the industry to a “gold rush” for the naïve entrepreneur. Without realizing the difficulties that still plague this industry, many people, from the aspiring entrepreneur to the seasoned brand owner fall victim to the pitfalls of this marketplace. Some of the issues are just part of doing business, as every industry has their own specific difficulties. As brand owners we can do everything in our power to mediate the inherent risk and as consumers, we must filter out the inauthentic mushroom brands that are looking for a quick buck from the ones who are here with the intention to stick around. In many ways, it feels like as a microbrand, we have to work twice as hard for half the reward, but we wouldn't have it any other way.

 

 
The original Dogfish Head restaurant/brewery, opened in 1995 and still in operation. Photo credit: dogfish.com

The original Dogfish Head restaurant/brewery, opened in 1995 and still in operation.
Photo credit: dogfish.com

Years ago when Cullen and I started applying for college, one of the questions on his college application was “who is someone you look up to?” His answer was Sam Calagione. A quick Google later and I learned that he was the founder of Dogfish Head brewery in Delaware. The story goes that two weeks before they opened their first microbrewery, Sam found out that his business was completely illegal. That very night, he drove to the state office and started the process of writing his own legislation and changed laws to legalize commercial beer brewing in Delaware. Soon, the local community was galvanized to stand behind Sam. That was over 20 years ago, when the beer market looked very much like the current landscape of the microbrand watch market, with only a few extremely large corporations but a huge number of microbreweries (microbreweries --> microbrands: see the parallel?). Fast forward 20+ years and every grocery store in America has an extremely extensive beer selection, making it nearly impossible to settle on one. Dogfish Head is frequently heralded as one of the pioneers of the craft-beer movement.

The unstable foundation that Dogfish Head was founded upon has taught us very valuable lessons about the microbrand watch industry. No, we do not have to re-write laws. But sometimes having a deeply rooted passion for the work we do can be strong enough to change the orthodox way of doing things and perhaps even prompt the market to stand behind us the same way Delaware stood behind Sam Calagione.