I’ve been thinking a lot lately about the process of starting a model railroad company. There’s a lot of good products on the market, but there’s also some significant gaps I’ve noticed, and I want to see if starting my own company is within reach, as well as just learn more about the industry in general.
So what goes into running a model train company? I myself have solid concepts of financing, the business startup process, raising money and sales; it’s the process of finding suppliers and making the actual product where I’m confused.
How does one find companies abroad (like say Samhongsa) to make trains? How are the trains designed and made? How do they come to the US? How are they forwarded to retailers? What are some other important components of such a business, and how are they managed?
You might want to look at Rapido’s latest youtube video. Parts of it are just Jason’s humor, but you get an idea that you need significant technical expertise on the design end and the repair end.
Brasstrains.com have videos where they talk to importers, people who design an engine, or a car, to be produced in brass/styrene in Asia. They don’t address the how of your question, but maybe some of those importers would be willing to share their experience.
Division Point, Spring Mills Depot and the Coach Yard would be names, there. I imagine these to be much smaller operations, in terms of manpower, than Rapido.
I would think actual experience in the industry would be invaluable.
with competition for similar products, wouldn’t you think an existing company would want to produce a product no other company makes? … unless it’s not profitable
Having worked in this business, and over some nearly 50 years having known/met a number of hobby shop owners, and key players at companies like AHM, Bachmann, LifeLike, and others, I can tell you it is not that simple to know what will be “profitable” and what will not.
I suspect if one had deep enough pockets to invest in this business and wait it out, there are lots of products that could/would be profitable.
But they might never meet todays financial industry standards for beign a “good investment”.
If you could hand the accounting books from Athearn “back in the day”, to an investment accountant today, I would bet he would say “don’t do it, it’s a bad investment”.
But Irv did it, and made money, and rulled the industry with a few others for many decades. And the current owners of that product line still enjoy a strong place in this market.
This has never been an easy industry to make money in, likely harder now than ever.
I believe there are a ton of products that today’s manufacturers are missing the boat by not making, but they can’t afford the risk because they don’t have a enough debt free capital.
Older business models depended on larger margins but allowed for longer paybacks - that works, but it takes "CAS
Financing is clearly a huge obstacle and issue. This is why I cringe when good firms fail in the model train business - not just our own loss of a source of supply, but the impression those failures give to a lender or other financial angel. Back in the early 1960s, the news articles (and there were many of them, all versions of the same article) that model slotcars had more or less killed off the model train hobby were very damaging even if untrue because the guy sitting behind the desk at the bank didn’t know from trains, but he did know what he read in the Wall St Journal or his own local newspaper.
Making broad contacts in the industry is another. I think they matter a great deal. That is why it is so interesting to watch the manufacturers and importers “work the floor” at the National Train Show (NMRA) or Milwaukee’s Trainfest.
But back to the OP’s question.
One wing of the model train business involves those people who not only know how to make things - model trains - but in particular know how to make the things that make the things. I’d give an example of Cliff Grandt who clearly was an expert tool and die maker in addition to expert modeler. In their own ways I suspect Jordan, Bowser, FSM, and Bar Mills have similar stories: they knew how to make the things that make the things. But that was not enough - they also had to learn the business aspects including the rather tight little world of model train distribution. And the successful ones have a good sense of what significant numbers of modelers want.
A different approach might be Matt Gaudynski of Fox Valley Models. He is an expert modeler and really has a good finger on the pulse of what modelers want. But he really got his start working in a good model train shop near Milwaukee (and not just running the cash register, needless to say) and then an excellent model train shop near Chicago, and that train shop had its own
i thought i read that some company that made foam coolers (styrene) were looking for some other (hopefully) money making opportunities and started molding styrene frieght car bodies. (in other words, they didn’t quit their day job).
Judging by all the five-ton trucks from the courier companies and the Post Office rolling in and out of PWRS every day, they must be doing something right.
There is a good interview somewhere with Jason from Rapido about all the mistakes he made starting out that includes some of the answers you have questions for.
The fact that you are asking these (what I consider) basic questions on a Model RR forum tells me you need to get experience working for a company that deals internationally, especially with the trade climate the U.S. finds itself in currently.
Product gets around the world through courier/Post companies and depending on the amount you get your own container may be the way to go.
Rapido seems to get a container delivered from China to Ontario and then distributes from there out of their warehouse. I often wonder if it would be possible to have his lower-cost Chinese labour box up the product addressed directly to the retailers and direct to home customers apply Canadian postage in China and have the container delivered directly to the Canada Post hub in Vancouver and distributed from there to all that have ordered. At that point it may also be cheaper to have what’s left bound for the warehouse in Ontario to be taken by mail. Just a thought as I know many companies do it that way.
You need to make a business plan. The plan needs to describe the product, be it solid objects, or services, or software, or something else. If you are going to run a company that company has to have a product. Then you have to plan your distribution. Retail sales in hobby shops? Internet sales off a website? Sell thru a distributor like Walthers? Sell from a booth at train shows? Something else?
Then you need to estimate costs, cost of goods sold, rent, utilities,taxes, advertising, wages, internet access, and whatever. Then you estimate sales, sales volume, and revenue. Try estimates of various prices and estimates of extra sales for lower prices. See if your company is making money after all that estimating. If you aren’t making money on a paper exercise like this, you won’t make money in the real world. Estimate the amount of startup capital you will need to get going.
Have some knowlegeable people critique your business plan. Pay attention to their comments, don’t ignore them. Rewrite as necessary. Then you need to find some investors to loan you the money you need to get started. Dunno where you find investors. Banks don’t do startup financing. Expect to sink all your personal assets into your startup capital.
The Cramer brothers were in the wholsale hobby business here in Baltimore before starting LifeLike. They were the original primary supply to what is now ModelTrainStuff, MB Klein, think 1950’s.
LifeLike was a model train supply manufacturer before it was a styrofoam cooler company.
Their first model products were trees, grass, ballast, grass mats, paper mache tunnels, etc, all actually manufactered here in Baltimore at their Union Ave factory.
They replaced paper mache with styrofoam, then realized the potential of the cooler business. Life Foam Industries was one of the largest styrofoam manufacturers in the world when the Kramers sold it. It dwarfed the model train business that it started from exponetially and it funded the creation of the Proto2000 line.
But before all that, they bought most of what remained of Varney
Another place to look at either from a compition standpoint or as a manufacturing possibility is 3D printing. It could be those “gaps” could be partially filled by Shapeways or similar companies. It depends on the physical size of items you are thinking of manufacturing. Shapeways charges their customers a setup fee then basis the cost on the volume of material that is printed. Costs rise rapidly with the size / volume of the item printed. The advantage is Shapeways owns
dknelson
I do know some who kind of backed into model trains by way of other lines of business - die cast toys, imported promotional give-aways, and such.
i thought i read that some company that made foam coolers (styrene) were looking for some other (hopefully) money making opportunities and started molding styrene frieght car bodies. (in other words, they didn’t quit their day job).
Life Like. They started making train set foam tunnels by flipping over the foam coolers they made as their main business.
Not really.
The Cramer brothers were in the wholsale hobby business here in Baltimore before starting LifeLike.
LifeLike was a model train supply manufacturer before it was a styrofoam cooler company.
Their first model products were trees, grass, ballast, grass mats, paper mache tunnels, etc, all actually manufactered here in Baltimore at their Union Ave factory.
They replaced paper mache with styrofoam, then realized the potential of the cooler business. Life Foam Industries was one of the largest styrofoam manufacturers in the world when the Kramers sold it. It dwarfed the model train business that it started from exponetially and it
You may want to consider buying an existing company. There seems to be a constant turnover of the smaller Mom and Pop companies. As they age and lose interest and abilities they decide to sell, sometimes for rather reasonable prices. If you go that route you should have a history of their financials to work with and a more definitive business plan to present to any other investors. Some of these businesses take some sort of skill set to operate. Think Grandt Line, NWSL, 3-D and resin and plaster casting, laser kits etc. How does one decide on what needs to be made?
If you’ve noticed gaps in available products it just may be that some one else has already researched that product and found it to be unprofitable. Your costs to bring a product to market such as you describe will be high. It sounds like you want to be in the import business and that puts you at the mercy of foreign manufacturers, their governments, shipping companies, our own government, public relations and advertizing, perhaps a distributor, and finally a somewhat fickle market. There’s always some body who says your model is misssing the “XYZ” detail and your sales take a hit. So after a few expensive airplane rides to the Far East, false starts in production runs, errors in the model(s) and re-does you may just end up with a container load of your desired item(s). Then all you have to do is sell them. At the same time you are starting work on the next project and all of it’s costs are a drain on any sales you might have on item #1.
And don’t give up your Day Job…
I was in the business for 23 years, worked hard, and made a few dollars, but I would never go back into it.
Well I hope I haven’t stepped on too many toes, but figured a view from a former model railroad company owner may shed some light.
Rapido has 2 factories in china, in several of their videos mentioned that they would be willing to provide their excess factory capacity to other companies. So my suggestion working through them would be the easiest way to go