In this episode, Josh interviews Nathan Resnick, founder of Y-Combinator a sourcing platform. Nathan shares expert advice on negotiating with manufacturers, building strong supplier relationships, and managing payment terms. He discusses the importance of understanding your value to factories, balancing primary and backup suppliers, and regularly re-evaluating product costs. Nathan also offers practical tips on warehousing outside the U.S. to save on tariffs and improve cash flow. The episode wraps up with actionable takeaways for business owners looking to optimize their supply chain and sourcing strategies.

Chapters:

Introduction to Nathan Resnick and Sourcing (00:00:00)
Josh introduces Nathan Resnick, his background, and the Sourcing platform’s mission and achievements.

Negotiation Tactics and Understanding Factory Value (00:01:00)
Nathan explains how to assess your business’s value to a factory and leverage it for better payment terms.

Factory Cash Flow and Forecasting (00:02:01)
Discussion on factory cash flow challenges, importance of forecasting, and mutual understanding in negotiations.

Choosing the Right Factory and Negotiation Leverage (00:02:58)
Advice on evaluating if you’re the right customer for a factory and when to consider switching.

How to Find Out Your Importance to a Factory (00:03:55)
Nathan shares practical ways to determine your share of a factory’s business and the value of building relationships.

Building Relationships and Guanxi (00:05:27)
The importance of personal, transparent relationships with manufacturers, especially in Chinese business culture.

Balancing Primary and Backup Suppliers (00:06:19)
Strategies for maintaining a primary manufacturer while having backup options and when switching is worthwhile.

Re-evaluating Product Costs and Sourcing Quotes (00:08:31)
How to revisit product pricing, get competitive quotes, and the realities of sourcing platforms like Alibaba.

Three Actionable Takeaways (00:10:42)
Josh summarizes key takeaways: building relationships, revisiting unit costs, and warehousing outside the US.

Warehousing and Tariff Strategies (00:13:43)
Advice on warehousing in Mexico to save on tariffs and improve cash flow, including 3PL recommendations.

Closing and Contact Information (00:14:30)
Nathan shares how listeners can connect with him and learn more about Sourcing.

Links and Mentions:

Tools and Websites 
“Sourcify“: “00:08:47”
“Alibaba“: “00:10:23”
“Global Sources“: “00:10:23”

Key Concepts 
“Guanxi“: “00:05:35”

Actionable Takeaways 
“Build a Relationship with Your Manufacturer”: “00:11:29”
“Revisit Product Unit Costs Regularly”: “00:12:33”
“Start Warehousing Products Outside the U.S.”: “00:13:43”

Contact Information 
“Nathan Resnick” on LinkedIn: “00:14:44”

Transcript:

Josh 00:00:00  Today I am super excited to introduce you all to Nathan Resnick. Nathan is the founder of Sourcify, the fastest growing sourcing platform backed by Y Combinator that helps hundreds of companies manufacture products around the world. In the past, Nathan has brought dozens of products to market, ran three e-commerce companies. He’s even sold one of them and has been part of projects on Kickstarter, raising over seven figures. He writes for media outlets like entrepreneur, The Next Web Business. Com, and can frequently be seen on CNBC. Nathan also used to live in China and he speaks Mandarin fluently. So with that introduction, welcome to the show, Nathan.

Nathan 00:00:41  Josh, thanks so much for having me on.

Josh 00:00:43  I’m sure with your experience you have probably some good negotiation tactics. you’ve probably have a few case studies of people that you’ve helped, navigate getting better payment terms with their manufacturer. So would you mind just kind of diving in and sharing more there?

Nathan 00:01:00  Yeah, totally. I mean, I think first off, you got to understand how valuable your business is to your factory.

Nathan 00:01:06  Right. So I would do that by really trying to understand, you know, you make up most of their production output, you know, of all the factories, production volume that you work with, what percentage are you? Is it 30%, 10%, 50%, 80%. You know what? What is it? And then you kind of understand where you’re at from a negotiation position, right? Because if you’re a brand that makes up the majority of a factory’s output, obviously you have a much stronger lever to pull if you’re a kind of minority customer for them or a smaller customer for them, then, you know, maybe that’s not even the right factory for you to be working with because you don’t have a strong lever to pull. So I think, you know, number one, you’ve got to see eye to eye to eye with them in terms of forecasting and helping them better understand. Well, hey, you know, this year, this is how many units I’m planning to produce. And I think there’s a big disconnect between supply chain teams and factories when it comes to forecasting, because a lot of supply chain team members don’t understand.

Nathan 00:02:01  There are a lot of brand owners don’t understand. You know, that factory has to go purchase raw materials to produce your products as well, so they have their own cash flow challenges when it comes to, you know, making sure they have enough factory workers to produce your product, making sure they have the raw materials to produce your product, and then they aren’t getting paid, you know, for 30 or 60 days to produce your product if you’re negotiating your terms. Well. And so you’ve got to understand it from their standpoint as well of, you know, hey, how is this going to help their factory grow? Because it can also put them in a cash flow position, which is challenging. And so that’s something you need to be aware of when you go into your negotiations. So I think number one, I would just make sure you’re seeing eye to eye with that factory that you’re working with to understand, you know, how big of a customer am I for them? You know, what does their cash flow look like? And have I done a good job making sure they understand my forecast? And that’s when I would go into the negotiation of saying, hey, you know, we’re trying to grow and to grow.

Nathan 00:02:58  We need more, you know, cash flow to scale up our ads, to get more customers right. And so that’s how I would approach it. I think if you’re a brand that is, you know, a smaller customer like sub 10% of a factory’s output, it’s going to be really hard for you to negotiate that. And honestly, in that position, I might actually, you know, kind of take my option to of, you know, trying to ask yourself, am I the best customer for this factory? And can I find a factory where I’m, you know, a much larger customer that I can grow with more? so that’s that’s another kind of question that I would ask of, trying to understand, like if you already know your small customer for this factory, are they even the right factory for you? and then, you know, it’s just.

Josh 00:03:41  Real quick, before you continue on that, my question would be on that. How do you have that conversation to say, hey, by the way, how much of your business do I make up, right? Like, that could be an awkward conversation to have with somebody.

Josh 00:03:55  So how do you find out that information?

Nathan 00:03:57  Yeah. I mean, it’s easiest to do with boots on the ground, right? So if you can have your own team that can go to the factory. That’s great. Or, you know, hire a company like source to help understand or look at their audits. You know, say, hey, we need a financial audit of your factory to sell into, you know, X retailer or whatever it may be. You can get some financial information through an audit that’s been conducted on that factory. And so those are kind of the main ways that I look at it. But I would also just try to build a relationship with the sales rep or product manager that you’re working with at that factory and help understand, like, hey, you know, who else are you working with? What else are you producing? You know, are we a big or small customer for you? I mean, just ask these questions like simple questions. But for whatever reason, a lot of owners or a lot of brand, you know, founders don’t don’t ask.

Nathan 00:04:41  and especially as they grow, you know, they become more focused on growing top line and kind of overlook, well, the growth top line. You know, your cash conversion cycle is such a key component of that.

Josh 00:04:52  Yeah. Yeah. Those are those are great insights. So we’ll we’ll clue you back into where where I interrupted you on. But I think that is an important thing. And also like just creating a good relationship with your manufacturing partner is like probably the number one takeaway there, right? Not just seeing them as like somebody that I just shoot a quick email to and and say, hey, can I need a place, another order. Like we’re talking about building a deeper relationship here and seeing your manufacturing partners as just what I said, a partner in your business. Right. Because they truly are.

Nathan 00:05:27  Yeah. And that’s that’s so vital to with, you know, kind of guanxi and the whole, you know, there’s literally a term in the Chinese language in Mandarin of, you know, guanxi.

Nathan 00:05:35  And it’s just the kind of business relationship that you have. And I think that is the essence of doing business in China. And, you know, I think a lot of people say that. But at the end of the day, especially in times of the past, you know, three years when we had Covid and very few people were going back and forth, it was hard to build a relationship with your factory. And so I think, you know, now, if you have the opportunity to travel back and, you know, meet them and show that you care and show that they’re, you know, a vital part of your business, it can mean even more for them to, you know, continue to grow with you. and I think that, you know, like you said, it’s such an important factor of your business is how do you have more transparency with your factory. And I think one of the best ways to do that is, you know, being more transparent in regards to forecasting.

Josh 00:06:19  So how do you balance between wanting to be somebody’s primary, you know, customer and sending as much of your business to them as possible so that you are their largest customer, ideally, versus, hey, I want to have a backup option, you know, what is it you’re sending them maybe 10% of your orders, but then maybe you’re paying a higher cost of goods over there, etc.. Well, I mean, it’s a it’s a juggling act. Tell me how you think that, right?

Nathan 00:06:48  Yeah. I mean, I think for your backup supplier, it doesn’t mean that you have to like, place, you know, 10% of your volume to them or even 5%. It’s just that, hey, I know this factory can produce this product in case something happens to my primary factory, right? So I’m not saying you constantly have to produce product there. It’s just something that you know, as you do a cost analysis for your your supply chain this year, you should understand. Okay, you know, I now know that this factory over here can produce my product for a price that is, you know, a little bit higher, but or even if it’s a little bit less right, like a source file, we found that the threshold to change factories in terms of the work that’s required is you need to be saving at least 10% of your unit cost to change factories.

Nathan 00:07:31  I mean, that’s really when it becomes worthwhile. So, you know, if you’re going from paying $100 to your product to $90 for your product, that’s a significant difference. and so we think 10% from our data, it just shows that it’s really worthwhile to make that switch. You know, if you’re saving 3 or 5 or 7%, you know, sometimes it’s it’s not worthwhile, especially as you have, you know, most of the time built a really strong relationship with that primary factory. But if you know, this new factory can save you at least 10%, then often it’s worthwhile. And that switch doesn’t happen overnight like I described. Right. You’re starting to place, you know, 10% and 25% and eventually gradually moving it over. But, you know, at the end of the day, it’s definitely a threshold you need to be aware of and something you need to keep in mind.

Josh 00:08:20  Yeah. No, that makes a lot of sense. So, Nathan, where is somebody to begin? You know, if they maybe they launched their business three years ago, they’re doing more than seven figures now.

Josh 00:08:31  They’ve never, you know, touched the product price ever again. They’re just working with that same manufacturer. Where do they begin to go back out. You know, getting quotes from the market again to see what another competitive quote might be?

Nathan 00:08:47  Yeah. I mean, the best is, is, you know, I gotta plug myself here because that’s literally what we do. And that’s, you know, how we win business is just go to source, find book a free source and consultation. I mean, we’ll literally do a free price, you know, pricing your product analysis for you. We do all that work. All we need is samples and your existing factory name. Because we don’t contact your existing factory because we don’t want to, you know, get involved with that relationship with whatsoever. Yeah. And so I mean, that’s the best bet. You go have your supply chain team do it yourself. You know, if you’ve got boots on the ground in Asia, whether it be in China or whatnot, you know, a lot of those factories are located in the same cities.

Nathan 00:09:24  So that’s another angle. Or you could go on, you know, Alibaba or global sources and start doing, you know, the work yourself and doing the research yourself to, you know, get another price quote for your product. So, you know, those are kind of the three main avenues. I think a lot of times, I mean, what more and more people are realizing is like Alibaba and all these marketplaces is pay to play, right? Like if I Google or excuse me if I search on Alibaba hat manufacturer, the hat manufacturer that’s you know, number one is paying Alibaba the most to be the number one search result. Right. And so it’s same with any marketplace. and you know it’s pay to play for suppliers on Alibaba and global sources. So you know just because they ranked the highest doesn’t mean that they’re their best factory. I mean, I’ve literally been to, you know, some of the biggest factories I’ve ever seen in my life that weren’t even on those marketplaces because they’re working with, you know, big brands already that they have longstanding relationships with and they don’t, you know, need to be or want to be on those marketplaces.

Nathan 00:10:23  Because even for most, factories on Alibaba, they know, you know, 90, 95% of those inquiries are going to be very small, you know, startup brands. That’s not going to move the needle for them. Right. And they know, you know, with with production it’s a big fish game. Right. The more products you produce, the more money you’re going to make. Yeah.

Josh 00:10:42  Now, Nathan, as we begin to wrap up this episode, you know what I love to leave the audience with is three actionable takeaways from every episode. I think you already dialed it up from the beginning. You already had three kind of points. So I’m going to reiterate everything that you kind of shared. Let me know if you if if I’m missing something from these three actionable takeaways. but number one would be actionable. Takeaway is to create a relationship with your manufacturer. Okay. And not just seeing them as somebody that I send an email to. And I click the reorder button and they send the products to me, actually spend the time jumping on the phone with that manufacturer or getting on a zoom call or whatever it is.

Josh 00:11:29  The more you get to know them at a personal level, the more the doors and the opportunities are going to open up for you, because that’s what kind of relates. You know, I’ll tie this into action. Item number one is negotiating your payment terms with them. So if you’ve already crossed off the box, that’s like I have a solid relationship with my supplier. I know their family. I know their children. I know you know so much about them. Then you’re probably at that stage where if you haven’t negotiated your payment terms, we talked about a lot of creative ways to do that today. Then go and execute one of those strategies and that is going to change the game. For your business, you’ll be able to launch more products more frequently. You’ll be able to, you know, order higher volumes at the same time and have a better cash flow and save a lot of money on interest if you’re taking loan payments or anything like that. Action item number two kind of parlays into that building a relationship, but revisiting your product unit cost, right.

Josh 00:12:33  So obviously renegotiating your unit cost with the manufacturer can be possible. But the other strategy is on a regular basis. And I think you mentioned maybe it’s every 1 to 2 years. You go out and you just kind of do a new cost analysis, right. You reach out to sourcing experts like yourself that have these relationships with manufacturers and you say, hey, what could I get? Here’s the volume that we’re doing, here’s how much we would be ordering. what could we get our product at that allows you to kind of get a better understanding of what the market price point might be for your products. And I think the ultimate recommendation there is if you can save 10% on that product unit cost, that’s when that decision point to say, hey, maybe it is worth switching. It’s that 10% inflection point there. Yeah. Then last, last but not least is a third takeaway is start warehousing your products right outside of the US in Mexico. And we talked about that. It’s going to allow you to save you know, or push off those tariffs to a later date.

Josh 00:13:43  And if you’re importing your items at quantities or units at less than $800 in value, you don’t even need to pay those tariffs as well. So imagine how game changing that can be to your business if you’ve got a 20% tariff. And Nathan did a great job. He shared some of the company recommendations, that he would recommend to set something up like that. Use them as a three PL again, game changing for your business in terms of cash flow management and also saving costs in general with three PL warehousing of your products. So those are my three actionable takeaways. Nathan, is there anything I missed or anything else you want to elaborate on there?

Nathan 00:14:27  I think you hit the nail on the head. Josh, that sounds great.

Josh 00:14:30  Awesome. Nathan, this has been an excellent episode. You’ve shared a lot of knowledge with us. where can people reach out to you and learn more about Source Fi and, and, you know, hire you and your services?

Nathan 00:14:44  Yeah. our domain just certified. It was an expensive one.

Nathan 00:14:48  So hopefully, you know, you find it. And, for me personally, I’m pretty active on LinkedIn and Twitter. So if you just search Nathan Resnick. Resnick, I’ll be there and feel free to connect with me.

Josh 00:15:00  Awesome. Well, Nathan, thanks so much for sharing value and your advice and recommendations on this podcast today, and I appreciate your time.

Nathan 00:15:08  Thank you.