There is massive inequality in the world today and this definitely needs to be resolved. There is inequality primarily because there are too many people that are not equipped with the education to be able to succeed in a modern economy. However, the band-aid approach to solving this seems to be a call for a transfer of power to those that have been left behind. But if people have been left behind because of a lack of education, the world actually becomes worse off as those without the education and training take these positions of power. It’s hard work, but the only way to truly get rid of inequality is by making sure people are getting the education and access to resources they need from literally birth. This is really hard to do, because you are dealing with all sorts of cultural norms within families, general cultural norms and rigid institutions. But it’s really the only way to solve inequality, but the good of all humankind.
I had the pleasure of interviewing Joseph Heller, Founder and CEO of The/Studio. After years of managing his own supply chain business in China, Heller created the first on-demand manufacturing platform that eliminates the work of finding and managing factories in order for customers to focus on brand execution and quality. The/Studio’s clients are able to custom manufacture their products from scratch using advanced technology and a network of vetted factories worldwide. Backed by $11M in Series A funding, The/Studio now has offices in China, Romania, Philippines, Los Angeles and San Francisco.
Thank you so much for doing this with us! Can you tell us a story about what brought you to this specific career path?
I’ve always been an entrepreneur and while in college I managed to raise a seed round in the early 2000’s for a startup that helped local artists sell their products online. It was like a very early Etsy. We had initial success with the business, but the dotcom bust hit and we were unable to raise more money.
We kept the artists’ inventory on consignment as I wanted to help them to sell their inventory during the holiday season. I ended up renting a retail location at a shopping mall and thoroughly enjoyed running the business. After we sold through all of the inventory I started buying novelty products from Chinese American middlemen in Downtown LA. That piqued my interests in China and when I graduated from Berkeley, I went to China to find the factories on my own.
From there I ended up starting a supply chain business in China to help American businesses find and manage factories there.
Are you working on any new or exciting projects now?
After running that business for years, I realized that I could never scale my 30 person business to a billion dollar company, which was always my ambition. I did however recognized that manufacturing was a massive industry. Fashion manufacturing alone is over a trillion dollars a year in global value.
I quickly found that there were two really big problems with manufacturing. The first was that the entire industry was managed without software. Even the biggest brands and retailers were working with factories using emails and spreadsheets. There were virtually no modern software tools to help facilitate the work. Secondly I realized that there was a huge gap in the market for the production of small-batch, quick-turnaround-time manufacturing. Factories and all of the middlemen in the supply chain required really large orders and the lead times were long. We were getting inquiries all the time from smaller brands that wanted to manufacture products, but their quantities were never large enough. Furthermore, even a lot of the larger brands were demanding smaller quantities and quicker lead times.
My thesis was that small brands now had the ability to set up an ecommerce store on Shopify or Amazon and advertise to their customers on Facebook and Instagram. This gave them access to their customers in a way that would have been impossible even 5 years previously. Furthermore, because they knew their customers better than larger brands, they were actually more adept at quickly spotting trends. Setting up a store, marketing and even storing and shipping inventory was now achievable for a small brand. However, the problem that nobody had solved in the world was how to make manufacturing accessible in the same way that the last mile was now accessible to everyone.
I created The/Studio because I believe that we can unlock a tremendous amount of global value if we can make the first mile of manufacturing as simple as a click of a button.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
When I first moved to China I was around 25, and I met another expat who was in his late 20’s. He had a successful export business and he was one of the very few expats in China that I met whom was able to really navigate Chinese business culture. Almost all of the other expats that I were either working for large multinationals or were, in general, unsuccessful business people that really didn’t understand how to navigate the cultural landscape. My friend had a thriving business, and he sort of showed me the ropes of how to grow a team in China and do business in China.
What are the top opportunities of doing business in China?
In the past, tapping into China’s manufacturing could prove to be a very lucrative business. Billions were made off of cheap labor and the factories that churned out products that could be manufactured much less expensive than anywhere else in the world. I remember the days when factory workers in China were literally making $100 a month.
13 years later these wages are now at $700 to $900 per month, and working in a factory was no longer a desirable job. The days of being able to benefit from China’s cheap labor are over.
Our business is a manufacturing startup, so I’m often asked why don’t we build out our manufacturing supply chain outside of China. China is no longer a cheap labor destination, but it still has the world’s most robust manufacturing supply chain for soft goods and basic consumer products.
Chinese entrepreneurs have been able to replicate expensive German and Japanese machines for about a ⅕ to 1/10 of the cost, with almost the same quality. Therefore any entrepreneur in China with less than $100K investment can set up their own factory. When the machines have issues, they can quickly get a technician to fix the machine or replace the parts. Furthermore, China still has a deep ecosystem of factory workers and managers that are highly trained. Lastly, all of the raw material suppliers to make a particular product are highly clustered, so that in some cases raw material suppliers can deliver materials within hours in the middle of the night if necessary.
For example, if you are making jackets all of the thread, button, material suppliers will likely be within a one mile radius of the factory. We are trying to create an on-demand custom manufacturing platform where brands and entrepreneurs can react to trends immediately, with quick turnaround times and low quantities. There is no other manufacturing ecosystem in the world that is this reactive and flexible. For example Vietnam and Bangladesh import all of their machines and raw material from China. This is fine if you want to make 100,000 white shirts with a 6 month lead time. It doesn’t work if you want to manufacture in real time.
Aside from our business the other obvious business opportunity in China is the domestic market. China has a growing middle class that is in need of competitively priced goods and services. For the most part China still lacks a lot of the basic consumer infrastructure that exists in the West.
However, the big challenge of selling into the Chinese domestic market is that the playing field is still not even. A foreigner selling into a domestic market is always at a disadvantage even in the US, because they don’t understand the local market. However, this is exacerbated in China, because the rule of law is still not up to Western standards and local entrepreneurs will always understand how better navigate and manipulate the system to their advantage.
Can you share the top challenges of doing business in China and how you overcame them?
The biggest challenge in China is the lack of a rule of law. Things have improved dramatically in China, but because there is lax enforcement of IP law and because salaries are relatively low compared to the cost of living in China, the incentives for employees and really anyone you do business with, are quite high. In the beginning I had engineers in China that stole customer data, employees that would try to sell directly to our customers, and we had huge issues with the factories not manufacturing goods according to spec and then not taking financial responsibility for these issues.
The first thing that I did was really spend time trying to build a local team that I could trust. The truth is that in any country it’s challenging to find an amazing team. This is even harder when you don’t really understand the local culture. So you have to put an enormous amount of time into building your team, and it starts with finding excellent local management.
The other thing is that you have to understand China is not the US, so you just have to put certain safeguards in place to still get value from China but protect your business from the things that could harm your business. For example we took engineering out of China, because I realized that there was no way to safeguard the data. This is not to stay that you can’t build a quality engineering team in China. Some of the best tech companies in the world are in China, but I just felt I couldn’t invest the resources into building a successful engineering team in China.
However, I feel that as China is getting richer and more educated a lot of these problems are starting to disappear.
We keep hearing about the “Trade War”. What are your thoughts about it? Given the unknowns, how do you plan to pivot?
Our intention was to always build a manufacturing supply chain outside of China. One of the problems with manufacturing supply chains today is that it is very difficult for companies to switch factories or regions, so if there is an issue such as a trade war or political instability, their supply chain is at risk. At scale it has always been our plan to offer our customers wcustom on-demand manufacturing around the world. So if a customer wants “Made in USA”, we want to help them to be able to identify a factory in the US.
The trade war has definitely accelerated our interests in countries outside of China. However, given what I stated earlier, even with the tradewar and increased tariffs, China is still the most competitive manufacturing ecosystem today. It will take India at least 5 to 10 years to be able to replicate the manufacturing ecosystem that China has developed.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
My favorite life lesson is just a true belief that hard work pays off. I started The/Studio with my own capital and grew it from literally nothing to a business with 150+ employees in China, Romania, Philippines, Los Angeles and San Francisco. There is no way that this would have happened without hard work.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)
There is massive inequality in the world today and this definitely needs to be resolved. There is inequality primarily because there are too many people that are not equipped with the education to be able to succeed in a modern economy. However, the band-aid approach to solving this seems to be a call for a transfer of power to those that have been left behind. But if people have been left behind because of a lack of education, the world actually becomes worse off as those without the education and training take these positions of power.
It’s hard work, but the only way to truly get rid of inequality is by making sure people are getting the education and access to resources they need from literally birth. This is really hard to do, because you are dealing with all sorts of cultural norms within families, general cultural norms and rigid institutions. But it’s really the only way to solve inequality, but the good of all humankind.