So you bought a CNC machine. Congratulations!
Now you’re thinking you’d like to make some money with it. Start a Machine Shop Business of some kind.
Make at least enough to pay for the machine. Or, you’d like to supplement your income a bit. In the back of your mind is the notion that you could make enough that you can quit your Day Job at some point.
I see discussions around this all the time in the various online forums I frequent. I see frustration, and some folks feeling beaten having tried and failed. Others are ecstatic. They own their own machine shop businesses that pay the bills and they’re living the dream. I know many wonder, “What’s their secret, did they get lucky?”
Most are somewhere in between, or haven’t yet jumped in for fear of failure. I’ve started and grown a lot of businesses, so there’s one important thing I want to pass along right now:
It’s all doable IF you know how
It really is all doable if you know how. There’s just a handful of key things to know that will improve your odds of success. Unless you have a lot of experience starting businesses that are successful, now is the time to do your homework. Don’t just plunge blindly ahead!
As it turns out, I have spent my entire career starting businesses large and small. I’ve been in 6 different Venture Capital startups in Silicon Valley, 3 of which I founded myself. My companies have had many successful exits ranging from acquisition to even an IPO.
I’ve started small companies on a shoestring too. I started CNCCookbook without any outside capital. I didn’t even use much of my own capital. Today, it’s a thriving business that pays me more cash than I made at any of those other companies until I sold them.
I’d like to pass along what I know about starting companies. I’ll focus this for someone with a CNC machine who’d like to use it to make money. I’ll give you a quick video and 6 key rules to get started planning your business. They’re the things that have helped me most, and I follow them every time I start a new business. If you go through them before you spend a dime on anything, you’ll be positioned a lot better to start your machine shop business.
BTW, a lot of people think writing a “Business Plan” is the best way to start. That comes later. Business Plans are useful, but only after you’ve crystallized the answers to the key questions. Without those answers, writing a Business Plan is almost impossible.
Let’s get started!
3 Key Questions Before Starting a CNC Business
I made this video for my CNC Chef column in Cutting Tool Engineering Magazine. It walks you through the very first 3 questions to answer before you do anything else about starting a CNC or Machine Shop Business. Take a few minutes to go through it:
I’ll pass along some Freebies to help you with the questions in the video at the end of this article. But for now, let’s go over my 6 Key Rules for Starting a CNC Business.
6 Key Rules for Starting a CNC Business
#1 Don’t Quit Your Day Job
I want to get this one out of the way right up front:
Don’t quit your Day Job!
Many starting out feel a tremendous temptation to quit their Day Job and go all in. Don’t do it!
I know. I know.
The classic image of the entrepreneur includes quitting the Day Job right away. An entrepreneur is someone who risks it all to pursue their passion. We get visions of sleeping on friend’s couches, working out of garages, and eating ramen to save money. We think Entrepreneurship is all about sacrificing comfort, safety nets, and backup plans. This sacrifice gives us that sharp edge and total dedication that’s so important when starting any business.
There was a big study done that followed 6000 small businesses to see what made them tick. Those that kept their Day Job until their small business was far enough along to pay the bills were 33% more likely to succeed long term than those who just quit and went whole hog.
Moonlighting will make you feel incredibly short of time. You’ll think there’s no way to get it done. You’ll be exhausted. But there’s something else too. If you Moonlight, you won’t have time to implement all the crazy ideas you have up front. You will learn to focus and choose the most important thing to work on. You will learn the value of good enough, as there is not enough time for perfection. It will force you to make smart trade offs and prioritize.
The other thing is you haven’t learned enough yet about your business. Not having full-time available means it will take you longer. That extra time will allow you to grow into the new business and it will force you to learn more as you go.
Lastly, it will keep you from stressing out and going crazy as you watch the money run out. With a Day Job paying your bills, you can afford to take it slow, learn how to succeed, and perfect your business chops.
In short, you’ll learn to be a pragmatic business owner. As a result, you’ll be less of a danger to yourself and your business than if you were loose full-time and desperate to make it work.
I’ve written a lot more about this and about what sorts of things you’ll be focused on before you quit the Day Job over on my entrepreneurship blog. Read more there.
#2 Learn how to market and sell.
“What if I threw a party and nobody came?”
That’s the secret fear of every entrepreneur before they launch their business and even for a while after.
It’s the hardest problem every business faces. And, it never goes away. It’s a constant struggle to figure out how to do it better. How to keep getting more customers. How to pick up the pace of new business.
CNCCookbook has gotten huge for me over many years. Yet, every morning the first thing on my mind when I start the day is what I should be doing to ensure the growth continues.
If you’re great at every part of the job except marketing and sales, you probably have a secret fear.
What if I can’t do it? What if I can’t get customers?
Here’s a secret you need right now: anyone can learn to market and sell. I was a painfully Geeky Engineer without a clue for a long time. It turns out that in the digital world we live in today, that’s an advantage.
When I started as an entrepreneur, I used to think of sales and marketing as being like the Madison Avenue Mad Men:
It’s a compelling stereotype of marketing and sales. So cool. So aloof. So, “I know how to market and you never will…”
But, in today’s Digital World, that’s all BS. In fact, it never really worked all that well. There’s an old saying in marketing, “I know half my advertising doesn’t work, I just don’t know which half.”
What’s different is that in today’s world, you can know which half doesn’t work and which does!
It’s much closer to being a science, in other words. I learned this from the man who came up with the idea for Netflix and was it’s Founder and first CEO. I tell that whole story over on my entrepreneur’s blog if you’re interested.
But here’s the thing:
If you have no proven track record selling and marketing, don’t just assume you can build a great product or offer a great service and wing it.
You are very likely to fail. In fact, as CNC’ers, we’re overly well endowed with Product Skills. We’re Product People. We love to talk product and we like to think product is everything.
Newsflash: it’s not. You need to accept and embrace the need for marketing and sales. You need to covet those skills.
Take heart, realizing you have this weakness, you’re now ready to get strong there. It’s one more reason not to quit your Day Job. You realize you need to spend some time learning this marketing and selling craft well enough to launch your new product.
I can help. Get over to my entrepreneur’s blog (bobwarfield.com) and sign up for the email newsletter. I am writing articles all the time to teach you what you will need to know. I will be launching an online course soon that takes you from nothing to a web site with enough traffic and an email list with enough names that you can launch your business. It’s in development and will be available soon.
#3 Pick a fight you can win.
This one is HUGE.
You have the luxury of picking a fight you can win.
You even have the luxury of testing it out to be sure you will win before you invest too much in it.
Pick a fight you can win…
This concept is pure Sun Tzu from way back. In fact, one of my favorite business quotes came from a very successful Venture Capitalist’s daughter:
Strategy is what you do to make winning easier.
Dang. We could all use a little bit of “making winning easier,” am I right?
This principle is true on many levels.
Your CNC machine, whatever it is, has strengths and weaknesses. You’re not going to be competitively machining Titanium parts in large quantities on your Tormach CNC Mill. That’s not a knock on the Tormach, it’s just a reality you will deal with.
There is a market it can win in. There are many markets it can’t. You can’t put your Tormach up against an HMC on a commodity job shop run. So don’t even try.
Find the market where your machine can win. Find the target market where your marketing and sales abilities can succeed. Heck, if you really want to be cooking with fire, find a market you can reach first, then decide the best machine for it.
When I decided to write CNC Software, the very first thing I considered building was CAM Software. It’s the sexiest CNC Software there is. And I’m really really good at writing software (LOL, if I do say so myself). I’ve gone up against world leaders and beaten them.
But I knew that CAM was absolutely the most competitive hardest market there is in CNC with the possible exception of CAD. Even if I thought I might win that fight in some sense, it wasn’t high likelihood. And it was going to be an epic-bet-your-business battle. Fortunately, I was old enough and experienced enough to realize that Old Age and Treachery beat Youth and Enthusiasm every time.
So I backed away from CAM and built G-Wizard instead. Can you imagine how happy I am with that decision given that there are now giant companies giving away fabulous CADCAM software for free? Hello Fusion 360, good bye little tiny CADCAM companies, we hardly knew ye.
So, pick your fights carefully. Do your homework. Knowing exactly how to do that homework is one of the topics I’ll be covering in my online entrepreneurship course.
Remember one other thing too–there is always competition. And there is always room for more than one product. Focus on your customers. You need to be good enough versus the competition plus that extra bit of special only you bring to your customers.
BTW, this isn’t just about beating competition. The flip side is doing the homework to make sure the market is big enough to matter for your business goals. Most of them are–the Internet is a BIG place, after all. But you need to be sure.
#4 Are You Better At Sales or Marketing (Local or Online)?
This is very important to know about yourself as it will affect some of your decisions down the line.
I like to use the analogy of acting versus writing.
Marketing is writing. You are writing copy that sells. You can analyze the results, revise it, and see if the results improved. There’s time to react and it is a process of steady refinement.
Selling is acting. It happens in real time, face to face. You can analyze the results somewhat, and refine them for your next sales meeting. But not to the degree you can with writing. We’re not programmable robots. Anything can happen in real time.
I’m pretty good on my feet, but not as good as when I have time to think about it. I have actually been involved selling a lot of multi-million dollar software deals, and the professional sales people always begged for me to come along to help sell. But in the end, I view myself more as a marketer.
It’s worth asking yourself which way you’re better?
Local or Online
A related issue is the whole Local or Online thing.
Do you sell on a website? Or are you going to sell to your local geography?
Personally, I prefer the website. It lets me reach a big audience and work from a marketing perspective more than a sales perspective.
You can try to sell locally from a website. Restaurants and similar businesses do it. But it feels to me like selling CNC work locally is more of a hands on sales job. If nothing else, most local audiences are pretty small, so you need a higher likelihood of closing them to get enough business unless you’re really handy getting great PR locally.
Choose your business to fit your strengths. Develop your strengths to fit your business too.
#5 Decide: Products or Job Shop [Plus the 3 Ways to Compete]
This is a bit of a subset of the whole fight picking thing as well as the local/online/selling/marketing thing, but I want to cover it because it is very central in the minds of a lot of CNC’ers.
I meet a lot of great machinists who don’t think they have a head for products, and really, probably don’t think they have a head for marketing and selling either.
Often, those folks want to start a Job Shop. They feel it lets them focus on the machining and forget the product stuff.
There’s nothing wrong with choosing to be a Job Shop rather than to make your own products. But you need to be comfortable with the implications.
You’re still going to have to be good at marketing and selling your services for one thing.
And, you need to realize that unless you can pull off a fairly tricky thing, Job Shops sell a commodity that people buy largely on the basis of price.
The dean of competitive theory, Michael Porter (Harvard B-School Professor) says there are 3 ways to compete:
- You can build the best
- You can build the cheapest
- You can serve a niche that are being under served by #1 and #2
This applies to Job Shops too, but it’s hard to be #1 (the best). I’m not sure there is a “Best” Job Shop in the country. It’s more like there is a “Best” for a certain kind of part. Maybe.
More commonly you are either #2 (cheapest) or #3 (niche). I always hated being the cheapest. It’s just a hard slog. You have to be really good at optimizing every last detail and sometimes you’ll need to make trade offs that are abhorrent to product perfectionists like me.
For those reasons, I think it’s a lot easier to start a small business making products for some market where you can be a big fish in a little pond than it is to be a Job Shop at a small scale. That’s the tricky thing I mentioned.
How can you succeed as a Job Shop?
Well, you are a guy in a garage, so your overhead is less than many shops. That can help you to be cheaper, but it’s probably not enough.
Personally, if I had to make a Job Shop succeed, I’d go looking for the right niche.
Start with geography. You’re not equipped as the little guy to go jump on Mfg.com or something similar and outbid nationwide players for big jobs. But, assuming you’re not in some huge metropolitan area that’s choked with machine shops, you might have relatively few local shops to compete with. So, you’re geography can begin to define a niche. It’s your pond.
That means you have to get out and find a way to reach people in your geography. The Yellow Pages are long gone, but make sure you’ve done everything you can to win on Google Local Search when people look for machine shops. Beyond that, figure out which doors to go knock on and then start knocking.
I know a successful Job Shop owner who sends his wife around in a van. She’s got a bunch of shiny parts in the back that the shop made. She calls on businesses that have large machinery. For example, printing presses. She walks in and asks to talk to whomever is in charge of maintenance. She lets them know, showing them the shiny parts, that the local shop would be happy to help them make a replacement part if something wears out on one of their machines.
In a similar vein, there’s a fellow on the Tormach Facebook group who caters to the local farmers in his geography. Farmers have heavy machinery that breaks all the time and they’re often far from city dwelling machine shops. It costs them money when they can’t run their machines, so having a rural machine shop is very helpful.
Most Job Shops want larger part runs. They optimize their processes and increase their margins.
If some garage inventor walks in with a small project, the Job Shop either turns them away or quotes them such a high price that the guy leaves anyway. Maybe you’re the one willing to do those jobs.
Just make sure you’re really good at making one offs. If you need to make a part 4 times because the first 3 were scrapped, this is not going to be your cup of tea.
You need to figure out how to get it right the first time every time to succeed here.
Machine Capability Niche
Maybe you own the only machine that can do a certain something in your geography. Or you’re one of a very few.
You’ve got the only waterjet. You’ve got a VMC with bigger capacity, so you’re the only one who can work on really big parts.
I know a guy that lives on an island near a harbor. It’s far away from anything. He has big travel Milltronics machines and he removed the enclosures to make even more room. He put the word out to the ships that call there that he can make repair parts. Ships need big parts, and it is really expensive for them to be stuck in a harbor waiting on parts. So he does pretty well in that niche.
Shops can make a go by being the experts at certain materials that are hard to machine that most shops shy away from. Take Tungsten as an example. It’s fairly nasty, but if you need that material, you need it. So you’ll pay for it. I actually did a machining guide for Tungsten if you’re curious.
Front End Specialties
I’ve talked to multiple companies that developed what I’ll call a “Front End Specialty” niche. What I mean is they did a bunch of work that gives them a major advantage for a certain kind of part that has many variations. Then they only do jobs for that kind of part.
Examples are custom gaskets, custom bushings, and custom manifolds (i.e. hydraulic, air, or similar manifolds).
In each case they put together fancy customized software that makes it easy to pump out high quality g-code for any part in their niche. They have tooling, fixturing, and machinery that’s ideal for their niche.
In many ways, I’d put sign makers into the Front End Specialty niche too. It’s possible to develop the expertise, tooling, and software to make signs quickly and easily and that can be the basis of a good business.
There’s a thin line between Front End Specialties and being a product company. Do people come to you with a part you’ve never made before that’s in your Front End Specialty? That’s more Job Shop. Do they come to get a copy of a part you made for someone else? That’s closer to Products.
Check out the custom car badges Austin Barnett makes:
Find a niche to take some of the pressure off to be the cheapest. Be the only guy that can do a job and you will likely get the job.
#6 Tool Up As You Succeed. Place a Lot of Small Bets and Double Down on Winners
I use the term “Tool Up” advisedly, as I don’t just mean literal machine shop tooling. I mean every expense and decision. Don’t buy or invest until the market shows you the value of the investment.
What you want to do is place a lot of small bets and double down on the winners. You’re starting out very much in a listening and learning mode to see what’s possible.
Be in that habit of:
- Place your bet (or run the Experiment if you prefer)
- Measure the results. BTW, don’t place a bet unless you can measure it’s results.
- If the results are at all good, try to improve them further. If they’re really lousy, move on and try a new bet.
- Rinse and repeat.
That basic cycle is the essence of what’s called “Growth Hacking.”
Eventually, you’ll find your power alley. Once you do, focus on it. Put all your energy there and maximize its success. You should be able to ride it a long way!
Freebies to Help You Along the Journey
I’ve put together a special Toolkit that will help you through your initial planning process if you’re thinking about starting your own CNC Business. It includes:
- Slides from the 3 Questions Before Starting a CNC Business Video
- Worksheet to take you through those 3 questions as well as the 6 rules.
- List of articles I’ve written that can help fill in the rest of the details for your New CNC Business planning process.
If you’d like to get the New CNC Business Toolkit, here you go:
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