I'm speaking with a few product based companies that are invalidating everything I learned in my college Economic classes. The model I exercised in school was to manufacture your supply in order to build inventory. You then market your product to create demand and ultimately sell your product at the market price.
Today, you can manufacture demand with no greater of an investment than an idea and a video plea recorded on your smartphone. Setting a target on a crowdfunding site, demand is validated as the product is pre-sold. Only after the target is successfully hit, do you scramble to supply your goods - typically through a well established manufacturing partner. If demand (or your marketing talent) isn't large enough to warrant manufacturing than you shut down the product with ZERO carried inventory and almost no cost outlay.
On Kickstarter alone, in 2013, over 3 million people committed over $480 million dollars in funds with nothing in return but a promise of future delivery. While many of these projects were creative endeavors; products and even product categories were successfully tested and then delivered upon through this model.
Oculus Rift on Kickstarter
Take the Oculus Rift as an example. The concept of virtual reality has been attempted frequently over the last twenty or even forty years by large companies with billion dollar labs. A garage entrepreneur jams a smartphone into some goggles with crafty code and some new tricks and says he will deliver if he can raise $250,000 in pre-orders.
The concept was a hit and attracted over 10x that amount in pre-sales as well as video game visionary John Carmack's support. Ultimately, Mark Zuckerberg bought the company for $2 Billion dollars. Not a bad return on the initial outlay of some rough prototypes.
Admiditly, Oculus was a bit further along than some Kickstarter prototypes that are nothing more than a 3-D printed mock-up. These new companies, however, are using the platform to accelerate through the market validation phase and pre-sale 100% of their supply. Successful companies can do this again and again with new products, ensuring that each new model is a success.
The inflection point of the companies I am talking with, is where they are looking to have even broader distribution than the crowd-funding sites and online sales. The majority of consumer sales is overwhelmingly still in retail. How do you change the operating paradigm and DNA of your company from a demand driven creation of supply, to a more capital intensive bulk delivery model that increases risk, squeezes profit margins, and increases sales cycles? Better question is, why? My answer: to maximize the impact that your product can have on the marketplace - and of course, make it up in volume.