So You Want to Launch a Physical Product

Even growing up in the magical early days of the internet, I always wanted to design and sell a physical product that people love. I’m guessing you’ve thought about it too. Maybe it came from awe at the industrial design of gadgets made by companies like Apple and Sony, or the fun I had with action figures and Legos as a kid. For centuries longer than we humans have spent our hours looking at screens, we’ve built and loved all types of physical tools. It’s elemental. Who hasn’t taken a second look at the chair they sit in or the mug they drink from and thought, “I feel like this could be better”?

A few years ago, I took the leap and left my tech job to design and launch a series of physical products. The products I co-created have gone on to sell hundreds of thousands of units and create profitable, growing businesses. The first was Birthdate Candles, a line of all-natural candles with a personalized scent and reading based on your birthday. We launched in 2019, and in our first year did over $4M in revenue. The second was Therapy Notebooks, a guided journal that uses evidence-based techniques to combat anxiety. Our first notebook has sold more than 100,000 copies and is available at retail stores across America. 

Traction aside, moving from the world of bits to the world of atoms has been an incredibly rewarding experience. It’s brought me some financial freedom, and I’ve learned a ton by working with factories, freight shippers, and even fragrance houses. The day-to-day is completely fascinating, and entirely different from the jobs I had as a startup employee. 

The most satisfying part is making something a customer loves. Whether it’s a friend texting me a picture of a candle they saw displayed proudly on a coffee table, or a stranger sending an email about how the gift they bought was so perfect it made their aunt burst into tears, knowing that a product I made had an impact on someone’s life is a feeling that never gets old. 

As my businesses have grown, many friends have reached out with the same question: “Should I try out selling a physical product?” One writes a music newsletter and is thinking of ways to monetize it. One has a day job at a big tech company and wants to launch a side project to make some extra cash. One had just returned from backpacking across Asia and had an idea for travel gear. 

My answer: yes—but there are a few things you’ll want to consider first.

There’s a lot to love about physical products from a business perspective. For one thing, humans ascribe more value to an object in the physical world (at least for now, in our pre-metaverse era). You might not bat an eye at buying a $30 t-shirt, a $75 skateboard, or a $120 bottle of perfume, whereas paying $4.99 for an app in the App Store feels expensive. Software is ephemeral—our brains just respond differently to an item we can hold in our hands.

In addition, a physical product business doesn't necessarily need venture scale to be profitable. Any startup employee will recognize the necessary evils of VC-funded growth: building overwrought growth models for the board meeting, having a terminal “runway” for the company in case a next fundraise doesn’t materialize. Making and selling a physical product can be more of a “lifestyle” business, with lower overhead and R&D costs, and a more direct path to profitability. That strips away some of the business-building complexity, and lets you focus relentlessly on making awesome products and delighting your customers.

All that said, building a physical product business operates by a different physics than building a tech company does. Specifically, because of the unique economics of physical product businesses, it’s not worth creating a product unless you know it can be profitable before you even launch. You need to develop and pressure-test a concept that you know has a great chance of making money from the very beginning, or it’s not worth doing. 

Here’s what I’ve learned about how to do that. Read on, future inventor…

Come up with a differentiated idea that (some) people actually want.

Brilliant product ideas don’t fall from the sky fully-formed. The best ideas start with a ripe audience and a unique observation, and take it from there. 

The easiest audience to understand is an audience of one: yourself. What is something you yourself want to buy? Is there a useful tool or object you’ve previously made for yourself? If a product idea is legitimately something you’d be interested in buying, there are almost certainly others like you who would be interested in it too.

Otherwise, broaden your horizons to those around you. Talk to friends, ask them what they’ve been buying. Walk around some stores and ask managers what’s been selling well. Browse Amazon and Etsy in categories you’re interested in, and look at what products that have a large number of reviews as a proxy for what sells well. Based on what your friends and family are talking about, or what you see on the e-commerce platforms, what’s a trend or need you feel is on the rise? 

If you’re one of the lucky few who already has access to an audience (say through an online following or community you’re a part of), or if you have a potential outside niche audience already in mind (say vintage car drivers or dachshund owners), start there and research — what do you think they would want? What do they like to buy today, and what are they lacking? 

That was our process for Birthdate Co. There’s always been a large audience of people who are into astrology, but we noticed that because of social media, astrology was growing faster than ever as a way for (mostly) young people to express their identities and relate to each other. Despite the widespread curiosity and brilliant Instagram memes, nobody had made a thoughtful physical product for those passionate about astrology. So we started with that audience in mind, and iterated until we came up with something they would love.  

Two paths that often work: either invent something new for an under-served niche, or create a best-in-class entry into a popular category in some way where it fills an unmet consumer need. As an example of serving an under-served niche, my friend Krishna invented Catalina Crunch after noticing there were no healthy, delicious cereal options for people like him living with diabetes. By creating an incredible product he himself wanted to see exist, he ended up making something that millions more have enjoyed. As an example of making a great product in an existing space, my friend Charlie’s company Strike Gently Co makes beautiful pins, blankets, and other products with edgy, distinctive designs. A blanket with a very cool design isn’t a new invention, but it fills an important need in a large category: helping the buyer express themselves creatively, or providing an awesome gift idea for a friend.

As soon as you have a concept or two, I’d recommend taking them to the next level by forming a strong opinion of what exactly your product does and why someone would want it. Famously at Amazon, Jeff Bezos asked every product leader to work backwards by writing a launch press release for the product they were working on as a way to understand clearly what benefit they were providing to the end-user. My version of this “working backwards” for physical products would be: make the storyboard or script for the ad you’d want to run on your ideal customer’s social media feed. Channel your inner Don Draper and design the ad creative that would make them want to tap through their Instagram or TikTok feed and buy it. If you can’t come up with a convincing enough fifteen-second ad, maybe the product isn’t yet exciting enough to sell well.  

Finding a compelling product concept is an unpredictable art that will take time. I’d recommend generating as many ideas as possible (no matter how dumb!), and writing them down, knowing that it might not be the first, but instead the tenth or hundredth, that feels exciting enough to pursue. 

The next step: start filtering your ideas by doing some research into margin and distribution. 

Not all margins are created equal. Pick the right category.

If you’re new to physical products, the rules of margin might not seem intuitively obvious. Books, hoodies, gadgets, and canned beverages might all seem like different flavors of the same general thing. But there are non-obvious differences that lead to big differences in margin—which can easily make or break your business. There are two main factors to keep in mind that determine your product’s profitability: product cost and pricing power.

Let’s take an example. I’m sure you’ve heard people express astonishment at the cost of bottled drinking water. The gall of Evian and Aquafina—they’re just putting filtered water in a plastic bottle and charging us a couple bucks for it! We should all be so lucky to be raking in huge profits in the water business.

But bottled water might not be as great a business as it first appears. As a directional reference, let’s look at the gross profit (total revenue minus cost of that revenue) of National Beverage Corp., makers of everyone’s favorite fizzy water La Croix. Gross profit for the trailing 12-month period is 38% on $1.1B of revenue — sounds pretty good, right? Now let’s look at Coty, a fragrance and skincare holding company that makes products with brand names like Hugo Boss and Kylie Cosmetics. Their gross profit (trailing 12 months) is 63% on $5B in revenue. A lot better than La Croix. 

Why is bottled water not as great a business as you might expect? First, let’s take a look at the product cost, or Cost of Goods Sold (COGS), which also must include the transportation cost of all the raw materials involved in manufacturing the end product. The cost of producing a bottle of water isn’t just extracting the water and bottling it; it also includes the price of shipping and trucking the heavy water to its final destination. Well over half of the cost of your bottle of FIJI Water certainly comes from getting the bottle across thousands of miles of ocean from Fiji to your local Whole Foods.

Next, let’s look at the price a bottled water seller can charge. One look at a gas station fridge makes it clear how competitive the bottled water industry is. Because bottled water has a lot of sellers, and customers have a mental price ceiling on what it can be worth, competition lowers the margin these businesses are able to capture. As a counter-example, perfume is able to command a much more premium price at stores. It’s also much cheaper to transport, resulting in fragrance being a higher-margin category overall. 

Beyond product cost and pricing power, there are other characteristics that impact margin if you’re selling online. One important one is the category’s typical return rate. Online fashion retailers like Revolve can easily have return rates north of 30%—people love to order multiple sizes or styles, try them on, and then send a bunch of options back. Whereas for a product like our Birthdate Candles, which are frequently given as a gift, return rates are low. Gifts are in general less likely to be returned, and our policy forbids returning a candle that’s already been lit. The logistics of managing returns are expensive, so the more returns there are, the less profitable you’ll be.

Before you commit to an idea, do your due diligence into the unique margin characteristics of the category you’re entering and how that will impact the costs and viable price for your particular product. Your bottom line will thank you. 

Think distribution-first. Where will you be able to sell profitably?

Most new product creators think product-first: “If I have a great product, people will buy it.” And having a great product is immensely important. But where you sell that product and reach customers—the distribution channel(s) you choose to focus on—is almost as important. The same great product could be a flop marketed on Facebook and a success marketed on Amazon, or the other way around.

I’ve talked to a few entrepreneurs that had that exact issue. One had a product in a category that a customer would normally buy in a drugstore, and started out marketing his brand on Facebook. His product was relatively low-priced, and customers weren’t used to buying it direct-to-consumer. That created a double-edged challenge: his customer acquisition cost (CAC) on Facebook was high and his business looked unprofitable. But that same product tested on Amazon, where ad costs were lower and customers trusted Amazon enough in the category to feel comfortable checking out, worked much better, and he was able to build a business with much better unit economics. 

It can be helpful to think about distribution channels in two ways: demand capture and demand generation. If you’re selling a product with existing demand you’ll succeed by focusing on demand capture, and if you’re selling in a less-defined category you must focus on demand generation. My friend Sib started an office furniture company, and an important demand capture channel for him is Google Search. When a potential customer Googles “best office chair,” they’re likely ready to research and buy. If he’s able to get his office chairs in front of the customer at that moment, and convince them with a compelling feature comparison and price, then he’ll win the purchase. On the other hand, in a newer category (our Therapy Notebooks for example), a potential customer might not even know about a product’s existence let alone be actively searching for it. We might focus more on a channel like Instagram ads, reaching someone with an engaging video to introduce the product while they’re casually scrolling their feed.

My advice: your overarching goal should be to sell a product that is first-order profitable. First-order profitable means that for each sale you get, when you subtract the cost of product and the cost of marketing to that customer, you’re making money on each order a customer places (including the first order). The rule for our team at Birthdate Co: for every candle or book we sell, the product cost + shipping cost + marketing cost must be lower than the revenue we collect from that customer for that order. Otherwise, we consider that an unprofitable marketing channel and cut it back.

It may sound straightforward, but it is not easy to do. Many well-known e-commerce businesses (you’ve seen their subway ads) have raised tens of millions of dollars without being able to demonstrate they can do this—and have to rely on repeat purchasers, subscriptions, and complex “customer lifetime value” equations to justify their marketing spend as profitable. But if you can make something that is first-order profitable in a market that is at least moderately large, you’ll have only good problems to solve as you scale. 

Get real feedback from people willing to open their wallets.

I’m always surprised by how many would-be sellers or entrepreneurs are afraid of feedback. If you can’t show the thing you’re working on to 5 friends, or 10 coworkers, and get generally positive feedback, how many strangers do you think are going to fork over cold hard cash for it? 

You can start with just a one-line description of the product, but it’s better if you have a low-fidelity mock-up of some kind. If you have the skills to put one together, go for it, but if not, there are endless resources online to find a designer who can help (Fiverr or Upwork are good affordable places to start). 

Show your mockup to people and get feedback. I understand the anxiety of having your ideas judged at an in-progress state. But you can let your friends know up front that it’s an early version and you’re looking for their thoughts on how to make the product better. That’ll reframe it from feeling like a judgment of your worth to a collaborative conversation to get their advice. 

When you ask for feedback, try to really cut through the noise of the responses you’re getting. Especially if it’s from friends, constructive feedback often comes couched at the end of positive reinforcement: “it’s a great idea, but…” Example: “Ajay, I think your design for a dog apron looks super cool… but my dog doesn’t cook, so I’d never buy one.”

At least the first five versions of designs for Birthdate Candles that we showed friends were met with… utter confusion. Our friends had no idea what they were looking at, and truthfully they wouldn’t have paid $5 for a candle. But there were nuggets of the idea and design that they found interesting, and that gave us enough signal to keep iterating and gradually make the product more clear and exciting. 

After your friends, show your idea to strangers to get some true external market validation. Put up a landing page and test the product. Now that you’ve done your Bezos-esque exercise of thinking through the ad copy up-front, you can throw up a landing page with your key value propositions and drive some traffic towards it from Facebook or another digital marketing channel. From there, you can see how many potential customers are clicking through on your ads, and even if you’re able to collect some of their emails.

Another great place to get feedback is at in-person events. Say you’ve designed a new kind of tote bag that is way comfier to hold. It might make sense to go set up a table at a farmer’s market, show people a prototype of the bag, and ask for their thoughts. Live feedback has two additional benefits: first, it’s higher fidelity, meaning you get to actually see and hear someone’s reactions and body language which is always very informative; and second, you have the chance to build a more meaningful connection with a potential future customer. 

Although we’re talking about the early days here, seeking feedback is important no matter the stage. Whether you’re pre-prototype or you’re shipping out thousands of orders a week, keeping a close eye on what customers think of your products is one of the most valuable things you can do for your business. As you grow, you’ll gain more tools to collect feedback, from on-site reviews to NPS surveys. But making a genuine connection with a customer and asking their qualitative feedback will always teach you something useful.

Now that you have a well-validated idea, it’s time to figure out how to make, sell, and distribute your product.

You probably shouldn’t make your product yourself.

Setting yourself up with the right manufacturing partner might cost a bit more up-front, but will save you lots of time and money in the future. There are 3 routes for how to manufacture your product:

1. Literally make it yourself 
2. Customize and buy from a contract manufacturer, then resell 
3. Collaborate with a manufacturer to create a new product entirely

Route number one is awesome if you’re just getting started, but it’s only possible for some categories and product formats. For example, if you’re starting a tea brand and want to sell bags of loose leaf tea, you might be able to rent space at a commercial kitchen, get the ingredients, and assemble the packets yourself, like my friends Bharat and Radha have done at Bala Chai. But if you want to sell tea bags, you’ll likely need access to a factory with specialized machinery to make producing them easy and repeatable. Route one also obviously takes longer, is more labor-intensive, and does not scale well. 

Route number three is necessary if you want to make something that truly looks like nothing that’s been done before—like, if you wanted to make a bluetooth speaker in the shape of a giraffe. There are light and heavy versions of route three, but all will require a larger up-front capital investment and likely significantly higher minimum order quantities (MOQs).

The vast majority of direct-to-consumer brands you’ve heard of (Casper, Away, and so on) take route number two. In fact, a lot of the cool direct-to-consumer companies you’ve seen ads for are buying their products in bulk from the same factory catalogs. Here’s a TikToker showing us how to find the manufacturer where Our Place makes their famous “Always Pan.” 

A scroll through Alibaba’s marketplace will make it clear that most new consumer product brands are being built on the backs of savvy manufacturers that know exactly how to manufacture products that look like a brand made it themselves. By adding your unique custom twist on top of a product that a factory is already set up to produce, you’ll be able to get started much more quickly, and with a smaller up-front capital investment. 

For a lot of categories, if you want to get information on the range a contract manufacturer might charge to make something, you can find a potential supplier online and try to get in contact with a sales team to get initial quotes. For example, if you have an idea for a supplements brand you want to start, find a private-label supplement manufacturer with a quick Google search and peruse their product listings. A surprising number of the supplement brands you’ll see on a marketplace like Amazon are brands relabeling products made by a contract white-label manufacturer like those.

Price is your friend. Don’t be bashful. 

As a consumer of physical products, you’ve been brainwashed by the retail industry to think you’re accurately evaluating price. “This shirt is made of a nice material, it’s probably worth $60” or, “This non-stick pan seems well-designed, $99 makes sense.” 

Now that you’re thinking about becoming a product entrepreneur, it’s time to completely revisit how you view product pricing. To make your business work, you’re going to have to charge way more for your product than the cost of making it, and probably price higher than you think. 

Next time you go to the mall or step into a Target, look around and remember that everything you see was likely manufactured for 5-20% of what the price tag says. It might feel insane to a rational fair-minded person, but spending time in consumer products will make this feel normal.  In general, a full 50% of that product’s price goes directly to the store you’re buying it in. 

The Cost of Goods Sold (COGS) is the all-in product cost to you of manufacturing and packaging a customer’s order. Once you have a general idea of that, apply a multiplier of 4x to create the lower bound of price you’d want to charge (75% gross margin). If you don’t think people will buy what you’re selling for 4-10x what it costs you to make it, then your business will have a difficult uphill battle ahead.

Try to take the highest end of what you realistically think customers will pay, and start your price higher than that. If you need to, it’s easier to come down on price without alienating customers than it is to raise it. Also, you can use discounts to sell through inventory. 

Psychologically, it’s easy as a creator to think people will want to pay less for something than they actually will. Try the exercise of thinking as shamelessly as you can. If you were a maximal capitalist (put your John D. Rockefeller top hat on), what would you sell your product for? Balenciaga sells screenprinted t-shirts for $650. Okay, maybe you don’t want to be that shameless. But harness some of that energy and recognize that your customers will likely be willing to pay more for your product than what you feel it’s worth.

Find a scalable, easy-to-manage fulfillment solution. 

The basic decision when it comes to fulfillment is: should you ship your products out yourself, or hire what’s called a 3PL (third-party logistics) partner—basically, a warehouse that ships your stuff out for you? The decision is personal, and varies from business to business. I have friends with seven-figure businesses that still ship everything out of their own house, and friends that sell less than $100K in product per year and use a 3PL.

I don’t begrudge the former at all, and you’d definitely save on fulfillment costs by managing everything yourself. But I think in many cases it might be optimizing for the wrong thing. As much as you might hear on an episode of “How I Built This” how admirable it is that a business started by fulfilling their doodads out of their garage, for most businesses of all scale, you’ll save yourself a lot of time (and probably money) if you opt into a more scalable managed fulfillment route.

My advice: find a reliable 3PL in your vicinity that’ll fulfill the logistics you need at the volumes you’re starting with. Or try a tool like the Shopify Fulfillment Network or ShipBob as a 3PL platform that’ll manage storage, logistics, and shipping entirely for you. Instead of spending your time printing USPS labels and folding packing slips, spend that time learning from your customers how you can make your product better or testing new marketing channels. 

You’re ready for prime-time!

Phew, that was a lot! But if you’ve followed all the above, I think you’re in a great place to launch your product and feel confident that you’ll be able to find a route to profitability and growth. 

If set up the right way, creating a physical product business can give you a degree of financial freedom, let you design the lifestyle you want, and give you an outlet for your creativity. Most importantly, you’ll be putting your little mark on the world by building products that people find useful. Making something worthwhile takes time, and there will be many roadblocks you’ll have to push through. But one day, you might just see a product you designed in a customer’s hands or on a store shelf. And I can assure you, when that happens, it’ll all have been worth it. 

If you have any further questions, I’d love to hear in the comments!