I see from the control panel behind the scenes here at the Lamentations on Chemistry control center that in the last few days a few people have found this site with the search words “starting a chemical business”. I have written a post on this previously and really have little new to add but I will emphasize one important thing: starting a chemical business is like starting any other business. You have to find a product to sell. Once you do this, it is a matter of pulling together the resources to make it happen.
A few other hints. I would add that the entrepreneur should be wary of much advice from MBA’s. They have B-School sensibilities drawn from academics and nurse considerable dogma about the latest business models that may make the task seem overly complex. Chemical manufacturing is based on a simple concept- buy relatively inexpensive raw materials and use them to make a higher value product for a price that a customer will pay and will afford you a profit. That’s it.
If you can’t make a gross margin of at least ~50 % (EBITDA), then don’t offer to make the product. There is nothing specific to chemicals about this number, it’s commonly used in manufacturing. Point is, it is critical to keep costs low. You have pay for employee benefits, taxes, interest, insurance, business trips, analytical costs, and put some money aside for investors and growth. Remember competition will eventually beat down your prices. Be prepared for that. Keep you head on a swivel.
Be an opportunist. Make whatever is profitable. Your pots and pans don’t care if you’re making boronic acids or siloxanes. Don’t offer anything without a front run and an IP search.
Be prepared to grow organically. Stay away from commodities unless you have a big pot of cash and the willingness to go into mass production in a competitive arena. Pharmaceuticals? Well, it’s an extended nightmare to enter into and I wouldn’t recommend it. But entrepreneurs are characteristically hard headed, so do as you please.
Pick a manufacturing site away from population centers and with zoning that will let you grow. You might have to stay away from desirable urban corridors to do this. The last thing you need is a subdivision next door packed with nosey suburbanites who don’t like the cut of your jib or the smell of fugitive emissions. Take advantage of industrial parks with existing heavy industry.
Make sure that the fire marshal is happy with your operation. Good housekeeping prevents accidents and looks good to insurance underwriters and firemen.
Resist the temptation to occupy bright and shiny office buildings. Use your resources to attract good people and pay them competitive salaries. If they’re stimulated by the work, they won’t need or miss fancy office spaces. Use your cash and credit resources to purchase equipment from auctions. Do your best to keep your D&B rating as good as possible. This will help you get better purchasing terms and conditions from suppliers. Remember that you will need working capital to bridge the gap between ordering raw materials and the receipt of payment from customers. This is where marginal businesses really get into trouble.