Most products in the consumer market, whether it’s mass market or eCommerce, has a seven out of ten failure rate. However, when you have access to good data, you are able to pitch products in a way that people want to buy it and elevate that level of success. Kevin Harrington says that nowadays with the internet, we can target our offerings to people in certain niches, categories, or demographics such as age or zip code. Kevin is an original shark from the hit TV show Shark Tank and a successful entrepreneur for more than forty years. He invented the infomercial and helped make “But wait, there’s more!” part of our cultural history. In this interview, discover Kevin’s “tease, please, and seize” system for a good product pitch and learn more about direct response marketing, proof of concept, crowdfunding, and more.
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I have Kevin Harrington with me and I’m super excited about that. I don’t know how you could not know who Kevin Harrington is at this point. He’s one of the original Sharks. Kevin, you’ve been in direct response marketing when it was the TV version of it. You’re in more direct response marketing again in a whole new way online. You’re exploring all new fields. I saw a speech you gave at the City Gala and you are exploring what’s on the forefront, what’s next for shopping. You are always on the cutting edge of what’s going on in the intersection between products and consumers.
I’m an entrepreneur. I go back many years ago when I was watching cable TV when it first came out. I’ll never forget when I tuned in. I had a 30-channel package that I ordered when cable first came out. Now you get hundreds of channels. Back in the early ‘80s, it was 30. I got to channel 30, which was the Discovery Channel and there were bars on the screen. The idea hit me, “I found out Discovery was a new channel. It was only an eighteen-hour-a-day channel. I talked them into putting products on the air. This was in the early ‘80s and that was the beginning of the infomercial business, which became As Seen on TV. This was before QVC, this was before Amazon.
You and I have both been in the industry for a long time. We’ve seen it pre-Amazon, we’ve seen it via catalog and we’ve seen it via TV emerging. There have been lots of changes over time and now we see a shift again. The interesting part about this shift is that it’s much more data-driven. It’s not as emotional and selling-driven as it used to be. Getting that through is you’ve got to get through the data search portion first, then you get to the emotion and then you get to the selling portion of it. How have you found that to be? You’re a consummate salesperson of great caliber at presenting products in a way that people want to buy it at this moment.
I worked in the first dozens of years going back to the early days more on a gut feel basis. If somebody would come in, they’d pitch me and I would see, “What problem does that solve? Is it unique?” I had a little checklist that I would go through. Let’s say in a month we would do about 50 projects a year for dozens of years, one a week. I’m going to line up my next five projects. They have one or two that I thought were going to work, they didn’t work. Out of the other three that I didn’t necessarily have high hopes for, one or two of those would work. I found out that as an entrepreneur, you’ve got to learn to go with your gut here and there. I started finding that we were hitting successes that weren’t part of the gut reaction. As we went like, “Why is this happening?” Nowadays with the internet, what’s happened is this. We can go on Facebook, we can go on Instagram and target these offerings to people that are specific in an age demographic, in zip code demographics. We have a product that deals with people that bought prescription glasses. We could get down to these certain niches of categories. It’s a much more scientific business now. We call it the test before we invest model.
You and I both probably have similar statistics, but I’d love to check yours. Mine is that most products in the consumer market, it’s about a seven out of ten failure rate. Whether that’s a mass market or even on the eCommerce, that’s typically where it is. Direct response is different. It used to be in the Home Shopping Network, the statistic was awful. It was almost fourteen out of fifteen failures. You hoped your fifteenth one was amazing to counteract that. I’m sure you had some better odds than that or you wouldn’t still be doing this.
The seven out of ten fails are right on. I said for many years, we succeed one out of three times, which means two out of three times were not successful. We fail more often than we succeed. What we try to do is getting access to good data of who buys and all the different background situations that we have. When we’re sending emails or videos out to certain places, Facebook, Instagram, LinkedIn, Pinterest or YouTube. We can send them into one audience that we might know a little bit more about that audience. We might elevate that level of success. The more times you can get more targeted in who you’re going to go to, the more targeted you are, the more success you’re going to have.We fail more often than we succeed. Click To Tweet
I love your test process because that’s really big here. On Product Launch Hazzards and on my Inc. column, we talk about this all the time. We have a process that we call market proof first. Prove it is our first phase. My partner and I, we have eight out of ten successes. We have 86% success rate. How did we do it? We dialed in to realize that we were killing ideas early on in the process thru market testing that we were doing. We know our consumers well because we were working in Costco, Walmart or Target, so we had a much better sense of who those consumers were and much more data than most people had way back when we didn’t have the algorithms we have now.
We were able to check these things early on with them, and we had subsets of people that we would go to that would say, “It’s for juvenile products. We’ve got these moms with toddlers. Do they like it?” What most entrepreneurs fall in is they come in with this beautiful idea that everybody loves because they said, “We love this. This is great.” I always say, “That’s your mom, your sister and your friends. They love you so they say yes and they are not the people who are going to plunk down a dollar at the end. That’s who we have to check it with.” Now, we have all these resources to be able to do that. What’s a part of your screening criteria in your test process nowadays?
I love what you said. You said market ready, I call it proof of concept. Everybody that I’ve talked to loves my product, my uncles, aunts and relatives. They’re all going to love it. I tell people, “Go out to the flea market where people don’t know you. Take a stand and start pitching people that walk by, get their attention, create a great pitch and see if you can make it happen now.” Let’s say you’ve got to buy a stand at the flea market for $500. At the end of the day, did you have $2,500 in sales that are enough to cover what the stand cost you, the cost of the product and some of your other costs of operating a business that day?” If the answer is, “I had enough sales,” maybe you’ve got proof of concept. I look at where the rubber meets the road. You could go to the flea markets. You can do crowdfunding and put it up to the crowd and see what they say. You can go on shopping channels. You could sell to a catalog. There are a lot of different things you can do to market test your product and to get proof of concept. I like to see that before I invest too much money. I will invest in getting the proof of concept. This is called the test before I invest because I like to see that people are responding in a positive fashion on the product, being willing to put their money where their mouth is and buy it.
We want to test that as well. We also want our clients from our standpoint because we’re at the design phase of it. We’re starting early on with most of them. We also like to say, “We want to test here before a lot of these things get fixed in and are unable to be changed before you spend a bunch of money on tooling and inventory. Can we test it out?” Thank goodness we have great new technologies like 3D printing. We run 3D printing runs, sell them and see if people will buy them. Why not? Why tool for something when you don’t even know if it’s going to work yet?
We were talking to a bunch of people that were doing crowdfunding. I do crowdfunding not necessarily to raise the money. I do crowdfunding to see the response we’re going to get from the crowd. If I have a great idea, great product, great video, put it up and nobody cares. Nobody wants to buy it in advance or very few people, we may not have the right item. It’s not market ready, it’s not proof of concept and it’s not something that we’re going to go put tons of money into if the crowd didn’t respond in a positive way.
We’re at that stage. We’re doing the first product that we’d done for ourselves in about almost a decade. We haven’t done our own products in a decade. We have decided to go the crowdfunding route not because we’re not confident in the product. We’re confident in the product, but we want to be confident in the marketing message. We’re testing the marketing message through the crowdfunding model. People thought, “That was odd,” and I was like, “It is a promotion at the same time too.” If it works, you’ve got a higher level of hype and promotion. We’re going to bring the product in so we’re not worried about that portion of it. We didn’t need the money.
You could test a couple of different options to see which marketing method gives you the best conversion then too.
You get pitched all the time. You get products that are coming. A lot of them I see as well is not ready yet. What makes them not ready yet?
I see things in crude prototype stages. Some people bring these complicated things and they’re electrical or they require a significant possibly investment in tooling or in electrical approvals. Some things people think, “This is a simple product. It’s ingestible,” but you can’t make any claims if you don’t have clinical data. You may need a clinical study. People say, “This is a weight loss product and I’ve got testimonials from people that lost weight.” If you’ve got testimonials, that doesn’t mean the government allows you to make those claims. You need clinical data. There are all different times and places where people have issues of being able to go to market. Getting the product ready, getting the manufacturing, taking care of getting the studies done and getting the packaging done. There are a lot of elements that go into creating an amazing product that’s going to be successful out in the market place.
That’s a little too early stage without enough information and a lot could go wrong. I refuse anything that requires FDA approval of some kind. I will go UL listing but that’s borderline. Anything that goes beyond that that has an app or anything that’s going to require upgrades or platform that you have to pay attention to. We don’t do that technology integration. It’s complicated and many things can go wrong in the process that it keeps you so long to get to market too that it’s not worth it.
I invested in a product and a few years back they said, “We have this FDA thing that we made an application for.” Our people said it’s going to take 60 to 90 days max. I invested money. I was going through the whole process and then three years later there’s no FDA approval. What happened? My money’s tied up. I’m spending all this time with legal, with accountants and with lawyers. You learn the hard way. It wasn’t ready. It never did get FDA approval and my money was gone. I worked smarter and liked to know that some of these things are already in place.
The new model you’re working in is different and it’s fast. It’s speedy. You’re getting data back quite quickly on whether or not something’s working. What is that speed for you?There are a lot of elements that go into creating an amazing product that’s going to be successful out in the marketplace. Click To Tweet
It can be as quick. It depends on whether we’re doing everything internally or we use outside resources. If we do something internally, I can see a product, build a funnel or website for it and get some ads running with less than 30 days’ time. That’s moving quickly. If you see a product, put a deal together and get some websites up. We also like to have a little bit of crude video with it at least. I own a studio. We own a lot of different assets that we can move quickly but 30 days is quick to move. Generally, it’s about a 60 to 90-day process. It also depends upon how much testing we’re going to do. We’re going to use one channel of testing like Facebook or do we want to do Facebook, Instagram and YouTube. Sometimes you’ve got different types of ads that go to the different places that you’re going to. I like to try to get reads on my testing within 30 to 90 days so that I know whether I’ve got something. In some cases, we can do some of that with prototypes if they’re far enough along. We do like to have finished product. If you have the ability to ship the finished product to people and they see a prototype, then that’s okay. If you’re able to ship the finished product within that short window, maybe within 30 days.
We’ve done that with a 3D printed product before. We were testing out a pet product and it was one of those stock colors. It had different designs on it. We made a run of 1,000 pieces total but of four different designs to see which design would fly and then made the decision on what to injection mold. Our size, in this case, was about 250 pieces per design. What is your ideal size for testing for most products?
I say that I like to see in the neighborhood $30,000 to $50,000 at the retail level. If let’s say something is selling for $50, 1,000 pieces would be $50,000 at retail. If I’m going to spend $10,000 or $15,000 in ads, then if I have a two to four times return on $10,000 or $15,000, I’m going to get $20,000 to $50,000 in sales.
You see that then scaling up, which is why you see that conversion rate in the number of turns that you would do in that time would be worth the long-term investment of continuing forward with that product. That’s telling.
A shopping channel, an HSN or QVC, they’re going to tell you they want to see somewhere in the $50,000 to $100,000 range at retail value. If something sells for $50 and it’s going to go on a QVC, they’re going to want 1,000, maybe 2,000 pieces. They want a little extra in the warehouse if it hits and does well. They’ll ask for a little bit more, but I generally say in that $50,000 retail selling price range on a shopping channel, no more than probably $100,000.
That’s to see and that’s not too big to understand, “Is this going to fly? Is it going to move? Is it going to do something?” If you’re going to go from there and then want to get onto a shelf somewhere, you’ve got some telling numbers. You play with the buyer.
The product is the cost of goods up to you. If it sells for $50, if your cost is $10 to make it and you need 1,000 pieces, you only have a $10,000 investment in inventory. That’s not a bad number in building a funnel, getting a couple of ads, $10,000 in inventory. You can shave that inventory. You can do it for $5,000 in inventory, but if you can take a new product, get it tested and launched in 30 to 60 days and $10,000 to $20,000 get a great read on it. That is not a bad way to be in business. Spend $10,000 to $20,000, 30 to 60 days and see if you’ve got a winner. If it works, then you’re off to the races. It maybe could do millions. That’s not a bad way to go.
On the side of the inventory, that’s one of the reasons we do recommend things like 3D printing them. It’s making stage one stage instead of stage two of your product, which is way more complicated or bells and whistles that it might have. Even if the cost of goods is higher than you would like it to be because you’re buying a smaller run and all of that, this is an investment. Should I move forward before you spend hundreds of thousands of dollars in inventory and have to buy too many pieces? The other issue that we have a lot is pricing. You probably get a lot of people who don’t understand their pricing structure yet. Is there a way for them to get that?
I said, “If you have a $50 product and a $10 cost and you need 1,000 pieces, at $10 you’ve got $10,000.” That multiple $10 cost and $50 retail, I like a five-time multiple when you’re dealing in the lower price points. If you’re selling something for $20, you should not have any more than about a four, no more than a $5 cost to goods. That gives you a four to five-time multiple because you’ve got an allowance for media, allowance for credit card processing affiliates and all the other things.
Are you saying landed cost of goods too? That means that know your tariffs and you know all the things you need to make that landed. That’s in the warehouse at that price.
Some items, freight in can be expensive if it’s a heavy little item. You might spend $0.50 or $1 on getting something in on freight. I’m not talking about air freighting it in. I’m talking about even a boat if it’s a heavy product. Make sure that you need all your royalties, your profits, to finders. We have royalties to people that bring us deals. If they’re getting $0.20 royalty and you’ve got $0.30 for shipping and you’ve got the cost to goods, you have to add together all your costs and I like to see five-time multiple.
That’s important for everyone because a five-time multiple gives you because the most costly thing you’re going to find is this marketing. Some of it is investing in getting it right as well so having a budget for that in the beginning, especially if you’re doing it yourself. You’re not using a team like Kevin’s who have a lot more dialed in about the process and how it works. You’re going to run through and it might take you much longer than 90 days for you to get it going. You’ve got to have some budget and the ability to last that amount of time.Solve the problem such that nothing else is solving the problem in a similar fashion. Click To Tweet
When you have a good multiple like that, you’ve got allowances for all the things they sell to distributors who are going to sell to the retail stores and to sell to international affiliates. The whole world of affiliate marketing is huge. If you say, “I’ve got a $10 cost, I want to sell it for $24.” You don’t have enough margin there to pay for the people that you need to pay for through the distribution processes. You may be able to test it and make the numbers come close to working, but you’ll never have full rollout dollars for the distribution channels you need to allow for.
I’m glad you’re reinforcing a lot of what I say here and a lot of what our other experts say as well. Having that margins, having the spaces to move for retail is critically important in the future. You want to get beyond doing units to yourself. You want to get into the larger volumes. I want to cover one more thing that is pressing on a lot of people’s minds. That is them deciding if they’re ready to present to someone like you. Them deciding how they know if they’re ready and what that takes for them. What is your advice there?
Some people came on Shark Tank a little too soon. They get grilled by the Sharks and Mr. Wonderful is pulling the rug out from under them. I talked to somebody that had been on Shark Tank and told me it was a horrible experience that he had.
I have a few of those. There’s an article about that.
I tended to be a little more constructive with folks. If somebody is too early, I’ll tell them that. I’ll also give them some advice on fixing their pitch a little bit. One of the things that I say is, “I can appreciate anybody willing to give me a pitch if they’d given me at least a good pitch, even if it’s not ready to go.” I’ve had people say, “Kevin, I’ve been following you and I know what you look for. You look for something that solves a problem.” I call the system that I use, does the pitch tease, please and seize? When you please, you’ve got to tease with giving me an attention-getting problem that I can identify with, now I’m listening. You’ve got my attention. You’ve got a problem. Yes, I agree. That is a problem. You’re pleasing by solving the problem with features and benefits that are also giving you some magical transformation, some great testimonials. That’s the please. Solve the problem but also can you solve it uniquely? Is it a unique way to solve the problem such that nothing else is solving the problem in a similar fashion? That’s the please.
The seize is, “Do they have an irresistible offer?” Somebody may not be ready when it’s all said and done for me, but if they do a tease, please and seize, I’ll say, “You followed the steps to give a good pitch. Congratulations. That’s great, but maybe you’re a little too early. You don’t have proof of concept. You don’t have any success anywhere. Have you shown that this works anywhere? Does it work in a catalog? Does it work on a shopping channel? Does it work in a digital test? Did you put it up on Facebook, on an Instagram? Did you take it to a flea market? Where have you shown this to other than your relatives and your friends?” Some investors may get a little rough with you. They may get a little nasty that you’re too early. You’re wasting their time. I’m going to be constructive and tell you, “Give me a good pitch and I’m going to thank you for that but these are the reasons why it’s too early and come back to me at a later time.” I welcome people back to come back. I say, “If you want to come back, I only ask you to do one thing. Show me where you were and why I said it was too early. Now show me what you’ve done to bring it to the point of being ready to go and now we can talk.”
When you’re on the show, they want you to get a little tough every now and then. I had to do that on the show here and there. When I’m in real life, I’m a businessman and I’m trying to help entrepreneurs. I’m at a stage in my life where I like to empower entrepreneurs. I found that I can be mean and nasty and what good is that going to get me? I’m all about teaching in my days. I want to help. I want to empower, but I also am not going to give you false hopes. I’m going to tell you, “You’re not ready for prime time. You’re not ready for Broadway. You’ve got to do off-Broadway first. Let’s get the proof of concept. Let’s prove that this thing has potential and now we can test it before we invest.” If that works, then we’re ready to invest. That’s what everybody’s looking for. Are they ready for prime time? Are they ready for that big investment? That’s what I’m looking.
I want to make sure that you have an opportunity to tell us because I know you’re always working on stuff that’s brand new. Is there anything you want us to know? Anything you want me to share in my column as well as here with my readers?
One of the things that I have believed in for many years is learning how to sell is important. I learned how to sell back in the early ‘80s because I was following somebody and this person ended up becoming a mentor to me. His name is Zig Ziglar. One of his books was Secrets of Closing the Sale. He had over a hundred closes. Zig taught me some amazing things, and one of the tips he said, “If the selling price is here and the value is lower, you’re not going to make the sale. What do you need to do? You need to add value stacks to create more value than the selling price.” That took this form for me. I said, “We have a product that we’re selling you and it’s $39.95 and here was the value, but wait, there’s more. We’re going to give you six free steak knives and some other things, maybe a free video.” We increased the value stack and now we have a value higher than the sale price to make the sale.
This was one of the closing techniques that led to creating this, “But wait, there’s more,” concept out in the marketplace. To make a long story short, Zig Ziglar mentored me. I love all the things that he did. He passed away a few years ago. I have a relationship with the family, Tom Ziglar, Julie Ziglar and Cindy. The family’s amazing. People can learn how to sell. I’ve helped the family bring back Zig Ziglar and I’m partners with the family to take the Zig Ziglar assets back to the future. The future is where we are now to teach entrepreneurs and folks out there that aren’t familiar with Zig, we’re going to teach you how to sell. That’s one of the things I’m spending some time on. It’s one of the things I’m having a lot of fun with in addition to taking pitches, investing in businesses, we’re teaching people how to sell and all that good stuff. It’s been a lot of fun.
I’ve read an article about that. You also shared some of the great secrets of closing in the article. This is a thing that I want everyone to hear. The reason people like Kevin Harrington had such sustainable success through all these years of the shifts in the marketplace, of how shopping has changed. How consumers have changed buying habits and patterns is because you based it all on the same principles of what drives us to buy. Those principles haven’t changed. They’re the same ones that Zig Ziglar was using and those principles are the change. Those of us who have managed to last through all of these different technology changes and still be as successful and still bringing products to market, it’s because you’re basing it on a good strong foundation of things that work again and again.
Many years ago, I met people that were selling products at trade shows and fairs. We put contracts together to take them to television. We then took them around the world. We were putting them on shopping channels and it’s still some of the same techniques of connecting with the customer and selling the products by using certain techniques and systems. This is what we’ve been continuing to use for many years and it’s great that we have folks like Tracy that are willing to share this along with folks like myself willing to do this too. This is what makes for great podcast content. We’re sharing some of our thoughts with those entrepreneurs that are out there looking for some great tips. Thanks for having me. It’s been fun to be with you. Third time’s a charm. We had a lot of fun over the years and it’s great to be part of your show.
Thank you so much, Kevin. I appreciate it. Everyone, Kevin Harrington on Product Launch Hazzards and you can find us at ProductLaunchHazzards.com. You’ll be able to access all of the past interviews, but also all of the same articles. You can find us anywhere on social media at @HazzDesign, which is me. Thanks for reading.
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About Kevin Harrington
Kevin Harrington is an original shark from the hit TV show Shark Tank and a successful entrepreneur for more than forty years. He’s the co-founding board member of the Entrepreneurs’ Organization and co-founder of the Electronic Retailing Association. He also invented the infomercial. He helped make “But wait… There’s more!” part of our cultural history. He’s one of the pioneers behind the As Seen on TV brand, has heard more than 50,000 pitches, and launched more than 500 products generating more than $5 Billion in global sales. Twenty of his companies have generated more than $100 million in revenue each. He’s also the founder of the Secrets of Closing the Sale Master Class inspired by the Master of sales—Zig Ziglar. He’s the author of several bestselling books including Act Now: How I Turn Ideas into Million Dollar Products, Key Person of Influence, and Put a Shark in Your Tank.