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.
sent you a pm
Henry
COB Potomac & Northern
Shenandoah Valley
MjorstadThere’s a lot of good products on the market, but there’s also some significant gaps I’ve noticed,
do you mean a profitable model railroad company?
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
greg - Philadelphia & Reading / Reading
gregc Mjorstad There’s a lot of good products on the market, but there’s also some significant gaps I’ve noticed, do you mean a profitable model railroad company? with competition for similar products, wouldn't you think an existing company would want to fill produce a product no other company makes? ... unless it's not profitable
Mjorstad There’s a lot of good products on the market, but there’s also some significant gaps I’ve noticed,
with competition for similar products, wouldn't you think an existing company would want to fill 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 "CASH", not borrowed cash.
How much CASH do you have, I'm all in to help someone run a manufacturer or large retail operation in this business.
Sheldon
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 manufacturing/importing wing. They were also a presence at major train shows. So he got to know the manufacturers, distributors and the retailers thoroughly before he launched his own business.
As is well known the guys at ScaleTrains for the most part got their start at Athearn before breaking out on their own.
So as to the original question - assuming business knowledge and assuming some source of financing, to me the paths are either to be a skilled maker from a production standpoint, or get deeply involved with the manufacturing/importing/retailing aspects, make your contacts, and then go forward from there.
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. But even they had or presumably had a "train person" guiding them into the actual model train business itself.
And of course yet another alternative is to be extremely fortunate in your choice of ancestors, which is the path of the folks who run Walthers.
Dave Nelson
dknelsonI 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).
You do it with other peoples money, incorporate.
https://www.pwrs.ca/archive/dyn.What_We_Do.php
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.
MjorstadHow 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?
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.
Brent
"All of the world's problems are the result of the difference between how we think and how the world works."
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.
Good Luck.
David Starr www.newsnorthwoods.blogspot.com
Hello All,
Just to be facetious...
Like the old saying goes, if you want to end up with $1-million, you need to start with $2-million!
I know that won't help.
"Uhh...I didn’t know it was 'impossible' I just made it work...sorry"
gregc 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).
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.
Life Like. They started making train set foam tunnels by flipping over the foam coolers they made as their main business.
jjdamnit Hello All, Just to be facetious... Like the old saying goes, if you want to end up with $1-million, you need to start with $2-million! I know that won't help.
There is a lot of truth to that. Also, a huge percentage of small businesses in ANY industry fail.
Disclaimer: This post may contain humor, sarcasm, and/or flatulence.
Michael Mornard
Bringing the North Woods to South Dakota!
[/quote]
NittanyLion gregc 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. 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, sent the tooling to Hong Kong, and made inexpensive train sets for decades.
They also were partners in the creation of Sanda Kan, which is now owned by Kader, Bachmann's parent.
When they sold it all, buyers interested in the styrofoam business did not want the hobby division - which as we know went to Walthers.
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 the production faclities including million dollar printing machines. Customers buy single items from online 'stores' the designers set up on the Shapeways web site
The size of a production run to make a profit is very important. Injection molded styrene takes thousands of units to make a profit, but the molds last for a long time. As mentioned above, take a look at the Rapido videos of their trips to China, and the amount of product sitting around awating the next step in the production process. Also consider the currrent restrictive tarifs on goods imported to the USA from China. That may not be the place to go for a startup of offshore manufacturing, Viet Nam is where some companies are going.
Resin kits fill and intermediate market area. Masters a hand built and molds are made from them. The rubber molds do not last as long, but are cheap to make and replace. The break even point for a production run is a lot smaller than styrene. Using epoxy resin may also introduce a hazardous waste disposal cost to a business plan.
Also mentioned above, name recognition is a huge hurdle for any startup. This takes a lot of advertising money up front. Companies that started in recent years had advertising in MR and other magazines, as well as pre-production samples to show off at major train shows before their products went on sale.
George In Midcoast Maine, 'bout halfway up the Rockland branch
ATLANTIC CENTRAL NittanyLion gregc 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 funded the creation of the Proto2000 line. But before all that, they bought most of what remained of Varney, sent the tooling to Hong Kong, and made inexpensive train sets for decades. When they sold it all, buyers interested in the styrofoam business did not want the hobby division - which as we know went to Walthers. Sheldon
The Cramer brothers were in the wholsale hobby business here in Baltimore before starting LifeLike.
See, that's what I get from trying to go from memory while waiting for a hair cut.
I just added a few more facts to my orignal reply........
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.
Mark B.
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
Very good advice from Mark. A few other points:
It will probably take more money than you estimate.
Even if you do manage to produce a successful product, then you'll need to follow it with something else. Not everything can be a hit.
If a products ends up being a "clunker" sales-wise, it can be tough to overcome unless you're well-funded enough to invest in more new items.
Jim
I don't have any advice to offer.
But I do wish you good luck and success.
And make a few things in S once you get going.
Paul
Mjorstad 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?
If you have to ask all these questions you are a long way off from starting a successful model train company.
By way of a couple of examples, ScaleTrains, was started in 2015 by former employees of Athearn, who had a number of valuable years learning the ropes. Arrowhead hobbies was started last year by a fellow who had worked for ExactRail for some years.
In addition to the years of experience these people had, they also had a lot of passion for the hobby and a great deal of detailed knowledge about trains.
Knowledge and experience are both extremely important because there a many very knowledgeable hobbyists out there who are a tough crowd to please. This forum really doesn't give you a good gimpse of how discriminating railfans are either.
Bottom line, you can't take hundreds of thousands of dollars and expect to make excellent product and please a lot of difficult customers without knowing your stuff. I can tell you no way I would start a model train company!
To quote that famous Clint Eastwood saying: " a man's got to know his limitations"
Rio Grande. The Action Road - Focus 1977-1983
You can make money in the train buisness but not as much as many others and as in all buisnesses, there is risk. Do your overhead cost analisis first, then add in cost of goods. Next is cost of any finaceing. Now you have your cost, add any profit you want and then crunch the numbers. Don't forget about taxes, insurance etc.
I'm curious as to the "significant gaps", I mean I'm sure all of us could come up with many products that are not availiable, and that we want or would buy, but what is your "significant gaps" that you want to fill?
Perhaps another way of filling gaps is through something like Shapeways.
This topic actually reminds me of an old lottery joke, where a meager hard working farmer and his wife won a $5 million state lottery drawing, and the local news reporter asked him.."How is this going to change your life, Mr. and Mrs. Jones? What will you do with your winnings?"
The farmer thought a minute, and answered.."Oh, I'll probably just keep farming until it's gone."
Good luck!
Mike.
My You Tube
Buy the Northwest Short Line business.
I hear it's for sale...
OldEngineman Buy the Northwest Short Line business. I hear it's for sale...
There are lots of people who are hoping to see NWSL bought and continued. But here is one persons insight:
"The way his annoucements read is that he wasnt really interested in selling it at this time. Unless somebody came along with a really good offer. Maybe he has something in mind down the road to restart on a smaller scale. Just didnt sound line he was really ready to let go"
Anyway, the OP wanted to start a model train company and it seem part of the motivation is to see rolling stock made that isn't made presently by anyone. He probably isn't interested in making gears or plastic choppers etc.
My impression is Craig Martyn started BLMA to see some freight cars brought to market that he wanted as a modeler and railfan. He brought some nice N and HO freight cars out and then sold BLMA and his assets to Atlas Model Train Company when his metal business cards business took off and was making more money.
mbinsewi I'm curious as to the "significant gaps", I mean I'm sure all of us could come up with many products that are not availiable, and that we want or would buy, but what is your "significant gaps" that you want to fill?
It would be interesting to know what the OP wants brought out. Most of us can think of rolling stock we wish would be made, but the trick is, how well would they sell.
For one thing, there is a major gap for auto carriers to fill the mid-1970's thru mid-1980's. All of the enclosed auto carriers in HO are mid-80's and later (Intermountain) and the Walthers auto carriers are late 80's and later. The Athearn Genesis auto racks are open and they only offer one with side panels so far. We really need some early partially enclosed auto racks and early enclosed auto racks, which were manufactured as early as 1974.
If you have time and skill, sure. I have almost no time presently and arthritis is settting in too so I don't any plans to fill gaps by buying an expensive 3D printed body and then cleaning it up and adding all the parts to it, painting and decalling etc.
This topic actually reminds me of an old lottery joke, where a meager hard working farmer and his wife won a $5 million state lottery drawing, and the local news reporter asked him.."How is this going to change your life, Mr. and Mrs. Jones? What will you do with your winnings?" The farmer thought a minute, and answered.."Oh, I'll probably just keep farming until it's gone." Good luck! Mike.
My mother grew up a farm girl and we used to go visit grandpa on the farm in Iowa over the years as kids. Her half brother, Donny, ran the farm in later years until grampa died at age 97 and as often happens, the farm was split up 6 ways so the eligible inheritors would get their share. Donny did work side jobs, probably because the farm didn't make him a decent living but it was a small farm. He grew crops and some cattle and used to grow pigs too, but in later years "pig factories" made that unprofitable for farmers in his area.
When grampa died, Donny tried to keep the farm by buying the others out of their shares, but at about 1/3rd market value. So my mom had the courts grant her executor so all the adult children would get their fair share. Of course that required the farm be sold at market value. I rode out there with my parents one last time to see grampas farm about 20 years ago and was shocked to see the farm house a pile of rubble and debris because it had been demolished after sale of the property, but the barn and outbuildings were still standing at that time. I had visited that farm many times since I was a wee lad so seeing it in that state signalled an end of an "era".
But you are right, farming is a hard life and often a losing battle. In the northern Virginia suburbs west of Washington DC, there is a big farm called Cox Farms and they do a HUGE fall businiess doing hay rides and corn mazes and lots of things for children. Last time I was there with my sister and her young daughter they were charging $10 a head to get in and it's always very crowded in the fall. They do a canny business and rake in lots of money.
A year ago, several miles to the west another farm near South Riding, same area as Cox, another farm decided to cash in on Cox Farms big success. Their sign posted on the corner of an intersection was erected to lure in families with children - it says "AMAZING FARM FUN". It cracks me up because those who have lived the had farm life know farming is anything but AMAZING FUN. It's up with the chickens every morning and hard work all day, and hoping this years crop will bring in enough to pay off the farm loan taken out the previous year to buy seed and all the ohter expense and hopeo to have a profit to life off of.
AMAZING FARM FUN my back side! Children are fed a fantasy coolaide; hopefully none of them will grow up and think it's going to be a great way to make a living. But the same goes for the model train manufacturing business. Its a complex and risky venture and should not be undertaken lightly.
Lots of answers here but only a couple coming from former owners. Mark B. being the former owner of AIM, Inc had great products. Listen to what he says.
Many times over the years I have thought of productS I would like to make and then sell. Any business but especially a hobby specific business is a tough sell but if you are also producing it, you have to have lots of talent. I feel I was one of those guys who could sell a product I believed in and I did for over 25 years. I couldn’t handle a hobby production facility but I knew it.
Chances are if you are borrowing money you will fail. But even if you do not need to borrow, the mention of a good business plan and a knowledgeable review of it is a must.
I think in today’s hobby industry a 3d production facility would have a great chance to succeed. A Shapeways clone plus your own product is sort of what I am thinking of. Rusty Stumps just announced he closes up 10/1/2019 and he has had a great run with just he and his wife running it. But Walt is a skilled programmer, draftsmen and product dreamer. There are lots of ideas out there, lots of good and lousy advice and while you may not need $2million, you will need quite a bit. Best of luck.
Tom
I myself want to attempt this on a smaller scale (no pun intended) by taking scale drawings, making 3d models of them, and 3d printing them. Then I can list and sell them when I have "stock", so there is no pressure. Just some food for though and this coming from someone who knows nothing about owning a business. But it does seem to me that 3d printed models is now a viable option. Especially when you have models of prototypes that previously had no scale counterpart on the market.
I'm beginning to realize that Windows 10 and sound decoders have a lot in common. There are so many things you have to change in order to get them to work the way you want.
First - Don't quit your day job. That being said, we started a small business that makes things to enhance your model railroad layout. I don't want to say the name (don't want to break the rules). It's unique and different. We invested our own money, came up with a plan on what we wanted to make and then started to make some products in the US. We did a few shows, took out some ads and after 5 years we're growing and growing. As Howard Wolowitz from the Big Bang Theory told Penny "We're going to be hunderdaires!" So we're not quitting the day job, we are busy 12 months a year and enjoy doing this for the love of the hobby.
Why are we growing? We're making something many people want that's affordable, which is a big plus and we're making things to enhance what is out in the model railroad accessory market to make it look better.
Neal
And Lifoam (the surviving company after the Life-Like selloff) is now owned by Newell Rubbermaid (who also owns Elmer's glue and X-Acto BTW)
I've often mused that running a structure kit outfit could be fun, but literally after "if I ever won the Powerball."
Another musing is that I have the technical skill and ability to run a decal operation. Sometimes I think that would be a neat side project instead of a day job. But I'd have to contract out actual printing work to one of the commercial printers (like one model railroad decal company that has theirs printed by an Italian firm). That introduces a whole new layer of costs and pressures that make my head depart the clouds and come back to Earth.