Tips for Making Smart Inventory & Equipment Purchases:
An Interview with RT Custer, Co-Founder of Vortic Watch Company
Let me introduce you to the owner and co-founder of Vortic Watch Company, RT Custer. Vortic Watch Company is a high-end wristwatch engineering and manufacturing company based in Fort Collins, Colorado. RT and his partner, Tyler Wolfe, started the company while still in college at Pennsylvania State University. The two have long had a passion for classic watchmaking techniques and timepieces and turned that passion into the prestigious and unique manufacturer that Vortic is today. RT and his team combine the cutting-edge technology of metal 3D printing with gorgeous, antique, American-made pocket watch movements to create bespoke wristwatches. Every single aspect of their watches – from the leather straps to the technology inside – right here in the US.
Since launching in 2014, RT and team have accomplished the following:
- Scaled the business from making 100 watches per year to making more than 250 watches per year – and they are on track to quadruple the business in 2017.
- Significantly brought down the cost of making their watches by investing in the right kind of equipment and making smart inventory purchases
- Has hired and trained four employees, with plans to onboard more.
We spoke with RT about how smart investments in equipment and inventory have helped him secure these wins.
RT, thanks for taking the time to chat with me. To start, tell us a bit about how you got started.
RT Custer, Founder of Vortic Watch Company: We started Vortic when I was still in college. My business partner, Tyler and I came up with the idea while we were on the golf course! He wanted to make a fully American-made wristwatch using some of the technology I was studying in college. We spent a lot of time talking through the concept and how we would approach it. We then put it on Kickstarter and raised $40,000 to buy our first 3-D printer and our initial inventory.
Very interesting that you started on Kickstarter. What did you learn from this experience, and would you recommend it to other manufacturers?
Kickstarter, and crowdfunding in general, is what you make of it. Just because you have a great idea and put it out there doesn’t mean anyone will see it. It’s like having the best website ever, but if you don’t drive traffic or promote it on Google or FB, there is a chance no one will see it. So, Kickstarter became this amazing platform where we could drive all our friends and family, and then their friends and family members, to promote our idea. What I learned from the experience is that it’s not Kickstarter that it made us successful, it was our story and connections and marketing strategy that made it successful.
In terms of recommending Kickstarter to others, for those in the consumer products space, there are a lot of financing options now. You have Kickstarter, Indiegogo, etc. The whole crowdfunding industry has boomed, so I would recommend trying it.
But again, you must do it right and approach it as a campaign and not expect the platform to do all the work for you. It’s a great thing to do as part of a funding portfolio, but not the only way to get money.
What has been the biggest challenging in scaling your business, and how did you overcome that challenge?
Cash flow is the simplest answer. Obviously, we have a fun business, and our product is great to make, and we have excellent reviews. But, our sales cycle is very slow due to the price point. To keep my cost of goods at a manageable level, I need to order hundreds of parts. I’m then restoring hundreds of components of the watches which is very, very slow. The lead times for all my components are very long. Managing my whole supply chain is complicated and the root cause of my cash flow challenges.
We’ve had so many ideas on how to make the process and products better that sometimes when that new idea gets implemented, and you start making money from it, it’s almost 6 – 9 months later. We sold “Version 1” of our product for almost 18 months, even though we started developing version 2 within our first 6 months. It took us over a year to develop.
In terms of managing the production process, having access to capital is key. We’ve raised equity-based financing to get cash in the bank and came to OnDeck for additional capital. We also took pre-orders, where customers paid 50% up front which was super helpful for cash flow. It’s how we survived through the holiday season. It’s a great idea in concept, but you must have an amazing sales team to make that strategy work.
When do you think it makes sense to finance purchases like inventory or equipment, or do you try to use cash flow to buy what you need? Are there some types of manufacturing equipment or inventory that’s easier to finance than others?
When we came out with “Version 2” of our product, we thought it was as close to final as we could get. We felt strongly about the product and we wanted to invest money into it. We considered our cost of goods sold and we thought if we could buy 500 watches in terms of parts, instead of 100, we would be on the right track for quadrupling our output.
As a business owner, you must think about your economies of scale – with cash flow you can get to one level, but with financing you can get to an entirely new place. This increases your margins, and your cash flow, and ultimately your revenue and profit for your business.
What’s your philosophy when it comes to investment in equipment or inventory? What are some of your key dos and don’ts?
In the watch industry, we call that “bringing it in-house.” Rolex is a great example of that – they are completely vertically integrated they make everything themselves. That’s part of their brand and value – it allows you to maintain a phenomenal quality and control the cost of goods to a T. It’s very expensive to get to this point – you must buy every machine, hire and train every person. For Rolex, this is literally billions of dollars’ worth of investments.
My first hire in the company probably should have been a watchmaker, but he was a graphic designer. If I hadn’t of hired him on an entry-level salary, I would have had to pay an outside agency 4x or 5x of what I have paid him. We also hired a web developer to build an online experience where customers can design their own watch on our website. Having him rather than hiring an agency, saved us tens of thousands of dollars. Now we are doing that with manufacturing – with the financing from OnDeck we are buying more equipment, bringing manufacturing in-house and decreasing our overall cost of goods.
My biggest piece of advice is to try to have as much control over the creation process as you can so can control your costs. And if you aren’t technical, you can still be actively involved in the process. Every time I hire a new supplier, I physically sit down with them because I want to understand what they do and know exactly what I’m paying for. This eliminates a lot of questions and confusion, which ultimately reduces costs down the road.
How do you manage your inventory? Have you made any arrangements with your suppliers, so you don’t have to keep all of your inventory on the shelf?
If I buy 500 screws, which is a really small order in the industry, I have to keep it in inventory. We have to hold that inventory ourselves. Thankfully most of our expensive inventory is labor-based. So labor is more expensive than the physical inventory, which saves us a lot in terms of cashflow so long as everything is timed correctly.
The most important thing is to pay your bills on time. Sounds simple, but if you give someone a PO, they make you 500 screws and you get net 30 and then you don’t pay them within that 30 days, they will not make anything for you ever again. You can burn bridges fast.
There was one time I was going to be 2 days late and I called a vendor on day 29 and I told them I needed a few more days. They were astonished that I called and were so thankful that I asked for more time. It helped create trust between us. Integrity matters. We need more people to do that in our industry, especially if we want American manufacturing to thrive.
What advice do you have for other manufactures who are looking to scale their business?
The biggest thing that you can do as a manufacturer to grow your business is to take care of your customers and provide the best product and service possible. This is critical – and what will make your customers come back.
That’s why every website promotes their ratings on Facebook and Google. And even beyond social ratings, word of mouth is the most important. I’ve met 80% of my suppliers by sending quotes to some people and they referred me to someone else…it’s a tight industry and your reputation is everything.
What role has access to capital played in your ability to grow your business?
Access to capital is the difference between me sleeping and not sleeping. I could run my business off simply cash flow, but not without serious planning and perfect timing. Without banks the world would be ok, it would just be really stressful. If I don’t have a funding source, because I’m constantly aware of my inventory levels and running out of inventory, that’s when I don’t sleep.
That’s why companies like OnDeck are so important – they help you build your business credit while removing stressful ups and downs in cashflow which is really helpful for businesses like mine.
Where do you see your business five or 10 years from now? What’s your plan to get there?
We are a watch company now – we have one product which is the only truly American-made watch. We want to be known as a product development company and a brand. We want to build more amazing one-of-kind products, and we won’t always just make watches. We get approached by other brands all the time who want us to make products for them because they’ve seen the quality of our work or they want to build their products here in America like we do. We’ve recently started getting into private-label manufacturing which is both fun and has huge potential.