What I learned from taking my small business international
CEO Kevin Brown discusses navigating the complexities of foreign exchange.
Friction Labs, a Colorado-based company, creates and sells products for outdoor athletes and climbing enthusiasts. The business’s specialty is a proprietary chalk to help give climbers a competitive edge. CEO of Friction Labs, Kevin Brown, discusses with Wells Fargo knowledge he has gained since expanding the business into foreign exchange.
Wells Fargo Works: What aspects of your business are imported or exported, and what considerations are made when shipping product overseas?
Kevin Brown: We import some of the products that we sell, like a product from Spain that we have exclusive rights to distribute in North America. It’s called Climbskin — it’s like a shea butter hand cream for keeping your hands in good climbing shape. So it doesn’t keep your hands nice and soft, it kind of makes them a little bit tough, so it lasts longer on the holds and rocks. We also import different chalk components of our products before they get refined in the U.S. And we export to about 27 different countries around the world right now. We do really well throughout the U.K., Ireland, France, Italy, Germany, Austria. We’ve also had pretty good success in Japan and South Korea.
Every country has its own unique rules for shipping. So when you finally get your first order from a distributor to a new country, you have to figure out your H1 codes and different tariff codes, and different forms. If you don’t abide by those things, your shipment usually gets lost, or trashed, or returned. And if it gets returned, you actually have to pay for it to come back to you. So it really behooves you to slow down and figure out how to do it right before you just put some stamps on it and hope it’s going to make it there.
Wells Fargo Works: How do you determine what countries to import from and export to?
Brown: It just comes down to availability. We import magnesium carbonate for our chalk, and we get it as close to the source as we can, because it’s less expensive. The more hands it goes through, each product gets taxed a little bit. And then we have a real expense when it comes to refining the raw product once we get it. There’s a surprisingly small amount of geography you end up doing business with. Anytime you do business internationally, you start looking at the health of the country’s economy. You have to realize where your opportunities are so that you’re matching up who your ideal customer is, not just in the U.S., but everywhere. Just because someone uses a product like yours in their country doesn’t mean you’re going to have success in that country.
Wells Fargo Works: How did you find and attract international buyers and vendors?
Brown: We went to ISPO in Germany, the largest outdoor goods and retail tradeshow. There were stand-up paddleboards, surfing, everything climbing-related, hiking — you name the sport.
So you get yourself a little 10-by-10 booth, some marketing materials, you bring your product over, and buyers just come by. Sometimes you see a distributor for a whole country, and sometimes you see a buyer for one shop or chain. Then you do your due diligence and figure out who you want to work with, what the real opportunity is. You have to make sure that you have contracts and your trademarks in those countries. If you put the cart before the horse — you start with the relationship but don’t have your trademarks — your distributor can go and file for your trademarks and potentially block you out of that market completely.
You can look at companies similar to you and which distributors they use. If they’re competitive with you, they won’t be able to work with you anyway, but if they’re similar, then you can contact them and say you’re looking for a distributor in that country. Other than that, if you’re really plugged into your industry, you can usually get word of mouth from other people who are good distributors to work with.
A friend of mine has a company that sold to our distributor in Japan, and he asked me for a bunch of samples of our product that he was going to send over as a gift. They really liked our product, and now we’ve been working with them for four years. So sometimes you get something sort of serendipitous like that.
Wells Fargo Works: What should other small business owners know about foreign exchange before making the shift to import and export?
Brown: The first thing you want to do is evaluate if you have a real opportunity. Just because you have some opportunity doesn’t mean it’s a good opportunity. The amount of effort you’re going to have to invest, the opportunity needs to be able to show a return on that effort. Just because Europe is one continent doesn’t mean you should be in every country in Europe right away. You want to figure out how to work with a distributor successfully before you spin out more, because you’re going to learn a lot along the way in terms of how to make a distribution partner work.
Upfront, at least your first couple of orders, always get paid first before you ship. It’s really difficult to chase someone down on net terms that you don’t have a relationship with. So have the account prepay, then earn their way into paying on net terms. And always have them pay by wire transfer, because then you know the money is real.