PLH | Asset Building

In the consumer retail market where 7 out of 10 consumer product launches fail and less than 2% of inventors ever make any money, the odds are stacked against you. But with some Product Launch Hazzard protection tips and Success By Design tactics, you can reduce risk and defy the odds as you go from Product Idea to Big Brand to Sold. Tracy Hazzard, Product Launch Expert in the Product Launch Hazzards membership community, dives deep into a proven formula that helps optimize processes and maximize your resources so you can out-source, out-design, and out-profit your competitors. It has been applied to virtually all types of consumer product categories, and mastering its fundamentals is the first step to retail sales success. These solutions were firmed up from years of practical experience in working with big and small brands.

Watch the Episode Here:

Listen to the podcast here:

We’re going to talk about asset building product design. This is my favorite subject in the world because I went to school for design. I had been practicing this for 26 years. When we talk about asset building value, we want to build a company, we want to build a business. We don’t want to build a product. We want to build something that’s going to get bought and going to get us a valuation that’s high or maybe something like that. Asset Building Value is not about money, it’s not about having a bunch of patents. It’s not about all those things. It’s about being original, being long lasting. When somebody buys you, they want to make sure they’re going to get their value from having bought you, that it’s priced for profit. It has to be profitable. When you sell your company and it only has 2% profit margin, it’s no wonder you get a low valuation that’s lower than your revenue. We need to make it priced and we need to make it value. That’s competitive proof. Competitive proof is about sending off the competitors and making them feel like they don’t have a chance to compete with you.

First, a little question. Does the best product win? No. Have you guys found that out as you’ve been working, the best product doesn’t win, the best idea doesn’t win, and the best brand does? We’ve got to build a whole brand. There are way too many product failures in the world. Any guesses on the product failures? How many of you have had five product failures or more, three or more, one or more? How many of you are just too afraid to launch a product because you think it’s going to fail? There’s probably a few of you out there. You’re not alone because there are lots of product failures at retail as well. Seven out of ten consumer products fail in the market. That’s pretty dismal. That’s not really good odds.

You know what’s worse? HSN, Home Shopping Network, has fourteen out of fifteen product failures. How is that a business? Why they’re not doing so well right now, just take a look at some of these logos. You’ve got Toys“R”Us. They just went out of business. They couldn’t find a buyer. There was no value for them. X Rocker and Whalen got bought out by Li & Fung. Hayneedle is gone. We start looking at these things and we say, “Big brands have some problems too.” They fail but they have a little bit more runway than you do. They got little deeper pockets. They can afford to have this shotgun approach of having ten products and only three succeed, but they also have a little secret formula. They also know that there are certain things that they have covered that they don’t have to worry about. They have a lot of systems and processes and things that work.

Let’s talk a little bit about why so many fail both for the big brands and for you guys. Why do you think they fail? Quality? Customer doesn’t understand it? Poor marketing? They’ve become irrelevant? Typically when I do an audience, they’re not as savvy as you are or as technical as you. They say it’s usually money that comes up, money, team, lack of capital. You guys got it. You know already that it’s the wrong market and the wrong product. Those two things are gigantic. They’re 54% of the failure rate. If we can get the market connected to the product and we can make that fit, we have a lot less chance of failure. We can reduce the risks and defy the odds.

PLH | Asset Building

Asset Building: Competitive proof is about sending off the competitors and making them feel like they don’t have a chance to compete with you.

Let’s talk a little bit about a case study where we didn’t do that so well. Laura Beck was one of the people I wrote about in Inc.com. She has a company. She literally called it StripedShirt. Her idea was that she would create these striped shirts so that you could wear them to a baseball game, she was Red Sox fan, and you wouldn’t have to wear the logo on it. You could just wear the colors. Let’s see how that turned out.

“Hi, I’m Laura. Welcome to the world’s first real Kickstopper campaign, the liquidation of StripedShirt. Five years ago, I started a business, StripedShirt, striped shirts for women, kids and babies to show their colors and support a team of a school, a cause, an organization. Five years ago, I threw caution and career to the wind and I built a business on a dream I had for twenty years as a girl sports fan. Why can’t I just wear a cute red and blue striped shirt to a Red Sox game? I don’t want to wear a logo on my chest or a guy’s name on my back? I did it. It was glorious. I created a pattern, I made a sample, I found a manufacturer, and within six months, I had thousands of shirts in my garage here, and most of them still are today. It turns out even the best businesses don’t always fly, and if you build it, they won’t necessarily come. Even a great site with good SEO doesn’t bring in the sales. After a five-year go, I’m saying no, this is my Indie-No-Go. This is my Kickstopper. Help my husband park his car in our garage again someday, help company sleep in our guestroom without feeling they’ll be smothered in the night by stripes, and do it for the children. Help make my midlife crisis a little less expensive. Just go to StripedShirt.com, place your order and at checkout, enter the code Kickstopper, you’ll get 50% off your order, and I’ll get one more stripe out of my garage. I’m Laura, a proud and public failed entrepreneur. I’m wearing it like a badge of honor. You start wearing a striped shirt support my Indie-No-Go. Pass it on. Tell your friends I need everyone’s help kickstopping my business. Thanks for your support.”

You know what that feels like? You try to avoid that at all costs. You don’t want to have that. Kickstopper, this is a serious campaign. This was not a joke. She spent five years, $150,000, and then realized that she had this entire 10,000 pieces originally. She had only sold 2,000 over five years. She did not have them on Amazon. She learned a lot of lessons there, but the number one thing was she didn’t test that product market fit. She didn’t know that people didn’t want to buy a striped shirt. There are lots of reasons for that and we’re going to talk about that and ways in which we can make sure that we don’t have a design problem on our path to getting to brand gold. We want to get to that high level evaluation.

Sometimes we have to learn our lessons the old fashioned way. If I told you a little bit of story about how Tom and I got started, would that be okay? There’s my husband right there. He is in the cool 3D-printed tie which you can see there. We do 3D prints, that’s another story. We have three podcasts, Product Launch Hazzards, WTFFF and Feed Your Brand. When we started out, we started out with the Palm Pilot. We started out selling stylus pens. We invented stylus pens for handheld computers that were called the Throttle originally. We were so excited about it and we had this great business that we built it up. There was no Amazon, there was no Shopify; there were none of that. We had to do everything the hard way. I personally quoted the database system and the customer services to myself and I don’t have that skill set, I went to art school. It was an interesting venture for us. We were super excited.

One of the main things is we had these great patents and we were so proud of them and we were so excited about them and we kept going into Palm and saying, “We have these patents and we have these really cool pens. We’ve got a whole bunch of people who are buying them from us direct mail order. Why don’t you put us in your catalog?” That’s what you had to do back then. You couldn’t just get on the buy box. You had to beg them to put you in the catalog. We kept doing that and we did that for about a year and it hadn’t happened, but our business started exploding because we started to do more things. We did pens for FedEx Ground because they were using stylus tablets. We started doing some for lots of doctors and lots of pharmaceutical companies. Our business was growing and we got an office and it’s all freshly painted. I walked in there and I’m so excited. I opened up the catalog and the back cover is a picture of a stylus pen that looks exactly like ours that we did not design, and I was devastated. I went home and cried. I had all these employees. I had this new office. We built this business up over a couple of years at this point. We had these patents. It was supposed to help. We were so frustrated and I was so scared about what was going to happen to my family and to everything that we’re going to do, but I bucked it up and Tom and I got together. The next morning, our entire team and thirteen investors, all of us together, and they were all friends and family, we said, “What are we going to do? We got $5,000 of cashflow in the bank. Are we going to be able to make this work?” They said, “You can’t fight it. You don’t have enough money.” We said, “What can we do about it?”

We decided to fight with a grassroots campaign and this is how we became featured in Harvard Business Review. We created a viral campaign with no social media. We created this one exactly here, “Do we detect a bit of pen envy? They look a lot alike, don’t they?” That became the subject of IP and Entrepreneurship course that’s taught in 26 countries around the world and it helped us win. We didn’t really win a lawsuit. We settled a lawsuit with IDEO, the largest design firm in the world, and Palm. We did get lucky. I will totally admit that we got lucky because Palm wanted to go public and they did not want to be fighting with their developers, their third party. That’s how we got out of that. It taught us some extreme lessons about how to design, how to test our products, how to make sure that our intellectual property is safe, and how we use intellectual property today.

As was mentioned, we’ve done 250 products, that’s $2 billion, and they are a combination of Amazon and mass market. If you divide that up, that’s $8 Million a year because this is our statistics over the last eight years. When you get askew, you want it to work really well. My favorite part about it though is when people take pictures of your product, isn’t that cool when they show you that they’re using it? That’s my favorite part about designing and selling products. Let’s talk about that profit formula. Here it is. It is out-design, out-source, and out-profit. That’s over simplified, but I am going to dive that in for you and give you the steps all along the way. It doesn’t matter whether you are going for funding or you are self-funding, the reality of today’s economy is that seed and self-funding covers the product market proof.

You have to prove your product before you can get to scalable growth. We have to get through this phase because you aren’t going to find money. The bank’s not going to believe in you. There’s a whole many things that are not going to allow you to scale that business if we don’t get this part right. We are really good at it because we don’t want to have a 2% profit margin and we don’t want to have seven out of ten failures. We want to have odds to defy that so that we force the banks and the investors to go back and look at that and say, “You’re right. We need to change our metrics here.” That’s what we’re looking for because when you show them the proof, the money flows. It does and you may not need them. This is what we’ve found over time. We don’t always need them because the money is flowing from the sales of the product, because the sales of the product are exceeding your expectations.

Let’s talk about the out-design. The number one thing that we try to do with everything that we do is to get ourselves into me-only territory. You understand what that is? Me too. That’s arbitrage. Me-only. That’s like you’re the only guy in town. You’re the only girl in town. The other thing that we do is research our fit offline with real people, not data. We figure out what women want. We’ll talk about why that is. If you don’t know, I’m surprised you’re still here. Design out costs, that’s number one thing we got to do in the design process. The guy who had the hack about changing the size on the products, I loved it. That is something that serious designers, real designers, designers who don’t just draw pretty pictures, do. They design for manufacturing, design for cost effectiveness, throughout the whole process to make it smoother and make it more cost effective and make it more competitive.

Let’s talk about good design, though, because good design is right fit. It’s intentional. It’s purposeful. It has some reason you’re doing it. It is not because you want it to be pretty. It’s cost-effective. If it’s not cost-effective, why are you designing it? That’s just feature add. Anyone can make something more complex and add features to it, but making something simple, think Apple, is hard. Design, at the end of the day, needs to be very valuable. If it’s not, it just doesn’t fit. Design is not what we normally think about. It’s not creative. I say that and I went to art school. It’s not optional if you’re building a brand with value. It’s totally optional if you don’t have that style of business, if you have no plans to sell your brand or create a bigger brand value. It is not nice to have.

I hear that all the time, it is not nice to have. If you want to have a big brand, this is what you need. Design is essential to sales success. That’s why you need it. It makes your sales bigger. Why is that? Today, we are in a gigantic consumer market. You know how busy this is. You guys have seen this. You’re competing with that every single day, but it is the consumers who matter. They have so many choices. It’s amazing how many choices they have. If you don’t stand out, if your me-too or even just me-special which is like you change the color and maybe added a little feature, if you’re just that and you’re not in me-only territory, you don’t have the longevity you’re going to need. You don’t have the brand value you’re going to need. You don’t have proof that you are valuable.

Let’s talk about that offline research so we can get a broader product market fit and decide what those design features should be and what’s so critically important in the design process. You know this better than anyone. When I give this talk, I usually give it to inventors and product people and they don’t have the background you have. You’ve already got one step ahead. You know you have a reachable market because you can reach them through Amazon. You can reach them through direct response. You guys are marketers, you know that. That’s the hardest part though. You know that you need quantifiable data. You guys have a lot of data to use with, but is your data relevant to telling you that people want to buy what you have beyond already selling it or before already selling it? That’s one of the key areas we want to look at here. We also want to show competition. I say this all the time and it shocks people, but you guys should know that. I always get this f groan from the audience, but if there’s no competition, you shouldn’t do it. You should test it and make sure because it is rare that you are that big an original or ahead of the curve that far. If you are, you’re paving the way for everybody else and you’re highly likely to not make enough money. Make sure there’s some competition out there. You don’t want it flooded with competition.

PLH | Asset Building

Asset Building: Design is essential to sales success.

You then want to have the me-too minimum. We always study this. We do ads like this gigantic matrix for a couple of designers. We have a lot of data that we use, but we make these matrices of showing what it must have to be comparable to the existing products on the marketplace. These are must haves, me-toos but we want to have that me-only maximum. The difference is that maximum has to be a value to the consumer you want to attract, not because you think it’s a value but because they think it’s a value. That’s where we’re going. Who do we ask? Typically, we ask our friends and family. Not a good idea. Why? Because our mom loves us and everything we do is so great. “Yes, Tracy. You can do it. It’s fabulous.” My dad’s the opposite. My dad’s so afraid I’m going to just flop, that it’s going to be hard, it’s the hard way to do things to be an entrepreneur, and begging me to go get a real job. They say no. We do have yes women and no men. That’s how it works. Let’s instead practice good market research.

Here are some ways that we do this. We do survey-style feedback. You know that I loved the PickFu app. That was another great hack. These ones I use all the time, Field Agent for mobile market research. They also let you access Amazon Prime members, Walmart shoppers, whatever demographic you want, all of those things. We’ve statistically studied this. Even if you have 200 in your survey that you do, it is still statistically accurate enough to give you enough feedback. What you have to do is don’t just say, “51% of the people liked it.” That’s not good enough. You need 80% or more to go or no go. It’s pretty easy. You can pop up pictures or renderings. We do that all the time. We A/B test colors, we do this pretty frequently, and you ask them questions because you want to make sure that they’re not buying it under duress. They haven’t seen anything else. They’ve been trying to get one. They need this feature like that thing so you want to make sure that they want to buy it.

Ask them some good questions and make sure you use someone who’s qualified to write those questions. It’s not very costly. You can find them on Fiverr. I know a few if you need them. Let somebody else write the questions because when you write them, they’re leading and they usually give you a false answer. We want to make sure we’re not doing that. Focus groups, I’m not a huge fan of them. I’ve worked in a lot of companies where we do them. I’m not a big fan of them unless you do them early in the design and development process and use it to provide information for how to design and develop. If you do it, do not do it yourself. Focus groups, go to nonprofits. Go to meetups. Go to MOPS groups, Mothers of Preschoolers, if you’ve got juvenile products. You can, if you’ve got baby products, go to a Lamaze class. Bring them healthy snacks, no coffee, and do things like that and they’re very happy to let you know what they think. However, do not do the moderation. Do not ask the questions yourself. Bring a professional in. It doesn’t cost very much. It’s worth the money and it will get you better answers.

We also match that qualitative research. What do people think with a competitive product research? We have to know what the market trends are happening. Here’s the problem. When we look at the numbers on Amazon and we’re just looking at the sales numbers and all of those things or we’re looking at keywords, merchant words, any of those types of things, it doesn’t give us an accurate directionality except in a short-term, and because of seasonality of shopping, it’s not always accurate. We have to be careful that we are watching our product category. I want you to have one category that you stick with. You’re in juvenile products. If you’re in jewelry and accessories, great. Be keeping the par in a category because it’s easier for you to study the trends over time as you sell more.

What we want to do is see things going up and down. This is pretty old, but if you look at that, you see that structural mesh. Remember that chair I showed in that picture about our sales? That chair sells at Costco $20million a year. It’s been there for six years, which doesn’t happen at Costco very much. That’s our platinum record. This was the statistics. This was the trend data. It says 0%. It’s not going up. Why would we develop a structural mesh chair? We screened that against a lot of other information like manager chairs were going down. There was a price point we were trying to hit. Task chairs were going up so we added a lot of features that has flip up arms and a bunch of other cool things that it does. We turned it into a structural mesh chair that has all those great features. If we had them in setting the overall trends in the market and what people want, then we wouldn’t know it.

The number one thing that we did that made that chair so successful is we figured out what women want. 86% of retail purchases bought are influenced by women. I say this all the time and someone will challenge me and go, “Not men’s underwear.” No, you’re wrong because your mom bought your underwear, and after that, if you bought it yourself, you wanted a woman to see you in that underwear. She was influencing your decision. Yes, it’s happening. It’s statistically across every product category. When we look at that, we have to know what they think. Are they going to tell us? I don’t think so. You have to find ways to get at that. You have to find ways to get them to answer you. You have to find ways to figure that out. Some of the ways we do that, we go head-to-head. This is a mistake. I want to point that out.

This is a company that I advised and they were making this amazing aquaponic lettuce. An aquaponic lettuce uses less water and is sustainably-farmed. It’s a cool company out of Utah. They wanted to do a test in the local farmers market and in the Trader Joe’s. They got permission to do it and they were going to run it right next to the locally-organic lettuce. They came to me and they were like, “We’re going to do this with this time. That says it’s grown with 50% less water. We’re going to sell them for a dollar less so that we’re sure that people will buy it.” I looked at them, “Will people buy that? I don’t know. If I saw that it was a dollar less, I’m going to start thinking to myself it’s not as good. Maybe it tastes bad because it doesn’t have enough water in it.” We must go head-to-head against our competition. Same price, same things, and test our maximum value feature only. The thing that we want to get across, we test that at first at the same price point. We don’t test it at a premium price point. Later, we’ll test can we command a premium, but first we want to make sure we can compete.

We do this a lot of ways because we do not want to spend a lot of money on inventory. We do not want to have 10,000 striped shirts so we do a lot of low-cost rapid sampling. This is a camo design we did for a company. This camo we produced, we only made five yards. You can do a lot with that and a lot with testing. This is a company that does that and will print on any material pretty much. We also do 3D printing. A good example of what we do with 3D printing is we will make a run of 1,000 pieces if we need to. Usually we make hybrid, like there’s electronics in this. Those electronics exists. We didn’t reinvent those. We were testing out the design, but if we had to go in tool for this product, Tom what would the tooling be? 4,000 or 5,000, 6,000, 8,000? They had four design ideas. Which one’s going to sell? I don’t have a crystal ball. I’m a good designer. I’ve been doing this a long time. I can make a good guess, but I don’t know every single market. I don’t know what’s going on today. I don’t know what millennials think. I have one but I don’t know what’s going through her head every day. I got to make sure that I’m right if I’m going to spend $1,000 and then have to buy a large rent of inventory because you have your own tool. We got to make sure we’re right here.

This is some of the ways that we do that because we want to actually sell. I’ve got a couple of these mixed in. You want a big insider tip for big brand value? You know what this is? Coolest Cooler, one of the biggest Kickstarters, $13 million something like that. Don’t Kickstart. It’s big failure point. Don’t Kickstart to start your brand. Here’s the question, which one of these two do you think they funded? An eyelash curler that is 3D-printed and 3D-scanned to perfectly fit your eyelashes, perfectly fit the shape of your eye, because every person’s eye shape is different. It will fit perfect and it will pinch the corner of your eye lid. It’s pretty cool and has tech. Or a razor. I don’t know what a linen micarta handle is. It’s some wood thing. It has a magnet on the end and it has a cool blade. It is a high-end luxury razor, but it’s still a razor.

Which one do you think funded? The razor got funded. In fact, it over-funded and they never delivered. That’s not original. That’s me-special at best and they couldn’t deliver that, and they got more money than they should have. The other one, they didn’t fund all. Kickstarter is 70% young men with no money. Look at the stats, it’s true. If you’ve got young men with no money advising you, no wonder that not a single Kickstarter has had mass market success for any of the ones that actually made it through to the mass market. Also, many of the ones that succeed fail miserably, like the Coolest Cooler, to not to deliver. They will never make it on a shelf because no retailer will touch someone who can’t deliver and can’t manage their money and their process. It is the kiss of death. There is an exception to it, and that is if you already know what will work and you already have a pre-market and you know you’re going to fund, then go ahead and do it. However, you have to be willing to fund to everything in the process and you have to not switch and not get crazy when you overfund because that’s what happens.

Let’s move on to outsource. A lot of you know what sourcing is. We do a little sourcing a little bit different, so this is what I’ve highlighted for you. We go direct to them and we make it in person or make it personal. We reduce our risks all along the way for everything that we do when we source and we design outcosts in the entire process. We’re always on top of every stage in what we can do in the manufacturing process. The other thing that we design out, which is so important, is complexity. It is your complexity of having 12,000 skews or however many you have that is killing your ability to run your business and your ability to be profitable. I worked for Herman Miller on the Aeron chair, that old chair that is the famous icon for tech companies and the tech dying off.

One of the things that I learned so early on in my career was that there was always room for you to be able to cut. My job, I was 24 years old, was to walk in there and tell that entire company that I had to take what was their material line, the material line that had 600 skews that was designed by a very famous designer and architect in the ‘60s. I had to take that and I had to cut it down to 300. I had to cut it in half. Do you think I was scared? I was pretty scared that I was going to tank miserably and everybody was going to be mad at me. What I learned is that nobody cared. They were so happy with the cut. Everything got more profitable, everything got less complex, and everybody made more money. I cut actually 400 and then redesigned 100. We brought in 100 new. When you smartly design, we made the whole market happy too.

There are ways to have lower complexity and less skews and make it better. We want to think about that overall, and that starts with sourcing smart and taking out the complexity from the beginning. We build this in-person relationships where not an email with any of our factories. We’ve never been. We have a team on the ground so that does help us. It’s not a giant team, we just have a few people, but we are always there and we’re always meeting with factory owners. We are not just in communication and think we’re building relationships with the sales team. That’s good. You want to do that, but they’re not there to tell you how great you are and say that to their management.

PLH | Asset Building

Asset Building: No retailer will touch someone who can’t deliver and can’t manage their money and their process.

They’re not willing to risk that. They just want that next purchase order from you. They’re not there to advocate for you. You have to be able to advocate for you and say, “I’m building this great business. It would be great if we could scale up with starting with this minimum order quantity because if I preserved the cash, it’s more likely that I will reorder from you faster and we will both able to be in this together and partner and collaborate on this.” We have found that works. Have dinner with them, enjoy the time, and become personally related to them. You build these good relationships and they do not take your IP. They respect you and they are much more willing to negotiate, work with you, and collaborate with you to take out those costs and complexities.

I have a dialogue. They’re going to come back to me and say, “If we did it in this order and you took this particular part out, we could save a ton of time. If we save all this time, then we’re going to be able to produce faster and you’re going to be able to get a lower price.” We do a lot of these things because when you have no relationship, you will have lots of risk. Due diligence has been one. Did you check them out? Did you go see them? We’ve found factories that don’t have the finish line that you expect. Do you want to know why your products are always delayed? It’s because they don’t have copper finishing and you thought that they did and you requested it, and instead they’re sending it to another outsource. This is where understanding and being on the ground and seeing what they actually have as to what they say they can do is important.

We have billing materials. You should be able to get this. You should be able to understand the difference between the material costs, the labor costs, the processing costs, and shipping costs and all of those things. You should be able to understand that at great detail. If you don’t have a good relationship with your factory or your sourcing, you are not going to get that.

Volume mismatch. Have you ever had it happen to you where you go, “Here’s my great price on 5,000 pieces,” and you go, “You know, can I have 2,500 to begin with and then I’ll buy another 2,500 in 45 days later? Would that be okay with you?” They go, “Sure, but it’s going to cost you.” They raised the price and then when you say, “I’ll buy the 5,000.” The cost went up on that. That ever happened to you? It happens all the time. They need to meet a certain volume. You have a volume mismatch when you’re not meeting something that they need to do. When you request otherwise, they freak out about it.

QC and QA testing. I’m sure you are familiar with QC, but does anybody know what QA is? Quality assurance is different than quality control. Quality control is making sure that they meet your metrics that you’ve set, the wood stain can be this dark and maybe within these variables, the fit is this, you must quality control and test one out of every five pieces or 500 pieces or whatever that is. Quality assurance is making sure that we can maintain that quality over time, that we can cost reduce. There’s a lot that goes into that. That is important to make sure that you have or are getting, especially the longer you run a product and the more important it is, the more me-only it is, the more important is that you put that in place.

How about one more insider tip? This is the bean bag company. Have any of you ever heard of the bean bag recall because children died from being zipped up inside of the bean bag and sucking in those plastic pellets. It’s horrible. A bean bag company was selling bean bags to Walmart and Target and all of those great places. This recall happens from the CPSC, the Consumer Product Safety Commission. When this happened, they were going to lose instantly $20 million on their bottom line. They were in the midst of trying to go for a buyout. They were in big trouble. We came in and we said, “What can we do about this? Let’s see if we can save your business for you.” We invented a zipper that can’t be opened. They were able to go back into the buyer and they were able to save the business. They only lost six months of business because once a buying decision has changed and they don’t buy, you can’t get back in at mass market for about six months. They only lost about six months. They only lost $10 million. They were able to save their sale from that. That took us two weeks. Maybe we charged them $5,000 to $10,000. That wasn’t very long, but that saved them $20 million. They saved them their business.

Compliance is not optional. You absolutely have to think ahead for these kinds of things. These are all the things you probably don’t know that you don’t know. We have a lot of rising cost per skew. The inventory is the biggest drain on our bottom lines in the valuations of our business. We look at that and look at all these costs that are in here, turnover ratio, obsolescence and depreciation. We’ve got labor, delivery, and the import duties. We’ve got shrinkage and stock-out cost. These are a ton of things that we have in this that are draining this. This is one of the reasons we’ve heavily invested in 3D printing by the way, because wouldn’t it be awesome if we were on demand printing? We didn’t have to have any inventory. We just had to have a design. We’re working on that.

If we’re going to out-profit, we’re going to change that inventory model. We have to be smart about everything that we designed along the process, and that means complexity. That’s the way we can get to this out-profit. We get to this competitive proof space in which we are so efficient that our competition can’t catch up. It makes it so that your competition can scratch their head to go, “What the heck, how are they able to sell it for less?” I guarantee you they’re not measuring the box. It’s a smart way to go through this. We start thinking about this in terms of patents and other things. Designed to last, build for profit and for higher valuation, that’s what we’re going for. You are under constant pressure. Watching the numbers on Amazon stresses me out. We don’t have to watch that in mass market retail as often. We get a report once a month and we go, “That’s pretty good. We did all right.” There’s pretty much a guarantee of stocking orders when we get a new product in and things turn into relative pace. Watching it on a daily basis makes you feel that constant pressure that you have all the time, that competitive pressure every single day. We want to do everything we can to reduce that and to get out of that competitive proof.

Here’s the big insider tip for patents. Let’s use patents for offense, not defense. You remember my story, defense wasn’t going to work. There was no way we were going to sue IDEO and Palm and make that work. We have to use patents and trademarks and copyrights for offense and we used them all that way. We use them to fend off. We use them to say, “Look, we got some great value.” We also do something we call bulletproofing our IP. We bulletproof our patent and our IP and things like that by intentionally inventing in the holes. We’re plugging the holes when we invent, we’re finding out where our competitors are weak, and we’re inventing right into them as long as they’re relevant. We got to go back to that relevance. They still need to be valuable and relevant. We also provisional patent first. This is my biggest advice to people over patent. They spend too much money on that and you want to save it. You need it for your marketing. You needed to create traffic and leads. That is the number one. I say that as a designer who should care more about the product. I don’t. If you don’t drive traffic, it doesn’t do you any good. Save your money for that.

We want to hit those competitive gaps that I was talking about and we want to create a patent fortress. We’ve done this. We take somebody’s patent, which is right in the middle of that. It’s great and you have a great me-only territory. This is wonderful, but here’s what’s going to happen with that. Someone’s immediately going to find a way to circumvent it. You are hackers. There are patent hacks out there. We’ve done it. We do it for good though. We don’t do any black hat patent hacking. We will only do it for the patent holder and when we do it, what we do is we circle that patent with a fortress of other patents every which way that it might get hacked and might get circumvented. Sometimes when we do it, we actually find a better way. This happened with one of our clients who’ve found a better way, a cheaper way, to make their core products. They were about to go into court and enforce their core patents. Having all of those holes plugged around it made everyone come to the table. What it also does is it gave them tremendous valuation because now you don’t just have one patent, you have a group of patents. You have a market territory.

We do that a lot, design to outlast. That’s that Aeron chair I was referring to. This was just designed to outlast. I have one of these chairs that I bought in 1994 and it still works. It’s amazing. When you think about that, they’re still making it practically the same way. I talked to them a year ago for an article interview and they’d only made some minor changes in the scope of everything. It was that efficient. When you think about how long they ran that tool, how long they ran that product, how well they know it, how little they have to think about that every single day, it is still the best selling chair on the market and every market. Remember product market fit. We want to get those better odds to show us the money. We want to get to that place, but here’s what I hear, it’s going to cost too much. It’s going to take too long.

I worked with some Amazon sellers, you are not patient. You will not wait for good design. You will not wait for a better product. Go ahead and bring in that me-too product, that means special products, but still be patient because what happens when everyone get jumps on you or on your listing? You’re going to be ready with that next thing they won’t even have thought of yet, so do both. I can do it myself. I would love and I was asked to teach you design here, but I don’t know how. I wish I could. There’s so much I can teach you. You can hire well so you can find someone, but this idea that you can do it yourself, if you do not have the skill set to be able to design for manufacturing, to be able to take out costs, complexities, get yourself some help because the rookie errors, the cost, the time really costs you.

PLH | Asset Building

Asset Building: When you have no relationship, you will have lots of risk.

I have this opportunity to do the 10 Biggest Product Launch Hazzards. Mind the gap. Too many niches, when you spread yourself too thin and too far out into many categories. You have to get product competency. Too many places. Don’t do it until you’re really competent in one. Don’t spread yourself too thin. Too much inventory. Please don’t buy 10,000 pieces of anything unless you’re absolutely sure it’s working.

Over-patenting. Do not spend too much money on your patent upfront. Do not file international PCTs until you know you’re going to sell in another country and you know which country should go on to sell. Do not waste your dollars until you are sure it works. Please patent. I am not knocking any IP attorney here. Go, get their advice, get their help, but do not overspend on doing that too early.

Too many secrets. If you keep it so secretive, you’re not getting enough help, you’re not getting enough advice, you’re not getting other people who are category experts to give you information. When you’re in me-only territory, do you care if everybody knows it? No. You want to shout it. You want to build brand values. You want to be out there because you are not me-too. You are not a cookie cutter design. You are not a cookie cutter product.

Stop shopping for source. Go straight to the source because we never shop on Alibaba. We’ve never shopped at one of those market places. We go there, we do get ideas, and we meet people, but we do not buy there. We go directly to the source.

Overstock. You have too much inventory, you can’t move it, and you can’t get the price down enough. The other thing is please pay attention to your expiration dates. Get stuff out of there and get new product. Cost basis pricing. You should all be better at market-basis pricing. You all should know that. I get a lot of people who come from, “This is my invention and it costs this to make. I need to double that.” Don’t do that, time wasters. There are so much things that suck us in and waste our time. I have a whole bunch of things I called on Product Launch Hazzards time wasters, like people you shouldn’t hire and things like that. One of them is you shouldn’t hire into your procrastination point. The thing that sucks you in the most for me is financial data. I could spend all day doing spreadsheets as a designer. I know that sounds crazy, but I could. That’s not okay. That is not the best use of my time. Think about those things that are wasting your time.

I want to make you aware of what you’re unaware about, and this is the thing. Sourcing in Asia is one set of risks, sourcing around the world is one set of risk, but they’re just as bigger risk right here in the US. There is slave labor going on in every state. California is the worst. There are jeans being made by those that are being made to do it against their will. This is not a joke. It is on the rise. It is getting worse and worse. It’s going to happen even more as we have material tariffs and tariffs coming in. It’s going to happen even more. You must walk into those factories. You must know. You must go to your sources. Please pay attention to this because this is a very big risk area. Some of you think you’re making these wonderful, healthy, beautiful products. Isn’t that great that you’re making these amazing products that are going to help the world and be more sustainable? I applaud you for that, but if you were to find out that that was happening, wouldn’t it devastate you? Please make sure you’re aware. Check the transparency. Don’t just trust, verify. Out-design, out-source, out-profit. This is our asset-building formula so that we can be designed to sell for more.

You talk about the me-only being the preferred method, but you also talked about make sure you have competition. How do you remedy those two beliefs?

Me-only means that you have a gap. There is an opportunity gap in that competition. You want to have competitors, but you want to find that sweet spot of opportunity that is relevant to the consumer that the consumer isn’t getting that she completely wants. That’s what you’re looking for. That’s the only territory. It’s not blue ocean. I want to be clear about that. Blue ocean is scary. You’re out there all by yourself. There are sharks. It’s pretty scary out there so you want to just be in that gap, that little pond.

You talk about going straight to the source, you don’t use Alibaba. You may do investigation there, but how can you be sure you’re going straight to the source if you’re limited on budget and can’t?

It’s hard when you’re starting out. This is like step two. You will buy on Alibaba or you will buy from a sourcing company, and you will do all that. As your product is taking off and as you’re developing and designing your own, you want to be in that factory when they’re working on it. You will know and you will just contact and say, “I’m coming in. Can you give me an escort?” Usually the factories and everything will take care of you on the ground. You just got to get there. They’ll feed you every night. You don’t have to worry about that. They’ll transport you. Sometimes, they even pay your hotel. You may not have to worry about any of those things, but just getting to China or getting wherever your sources, and then getting there to work on the development on the ground with them because there are lots of decisions that are made right there.

I have a question about the market research. When you want to make sure that a product is going to sell, but you have your own design with the patent and everything, how do you put it out there?

If you’ve got a patent filed, you’re covered. This is where that too many secrets come in. You’ve got to let go enough of that privacy and secrecy to be able to get feedback. Remember, most people are never going to make it. They’re not going to take action. You are not revealing it to other Amazon sellers when you’re testing it. You’re revealing it to a consumer who desperately wants to buy it quickly on Amazon. She does not care about hacking this and figuring out how to make it herself. With the right audience, it shouldn’t matter. You should be excited to share it with them because the feedback is going to be so much more valuable than the secrets. Once you’re patented, you’re fine. Provisional is enough.

Hi, my name is Morrison. I have two questions. My first question is that you should not get into too many niche markets, don’t spread yourself thin. The challenge I’m having is that I cannot find a niche that I can find enough unique products or selling points to sell in. I am spread through many markets and I’m doing okay.

This is something that you need to talk to an expert in. This is one of the things that we would need to strategize for you because I haven’t found a niche that doesn’t have an exciting market explosion yet. I still haven’t come up with one that I can’t figure out where needs are being unserved. There are always people who are not getting what they want. You may be seeing that niche and saying, “There’s not a lot of opportunity.” That’s because there’s huge gigantic gap that people don’t understand and don’t know in that marketplace. That’s what you want to look for first. Secondly, it’s okay to be in relevant product areas like furniture, home accessories. They’re the same buyer, that’s okay but I would get competent in one, make sure you’re comfortable there, and then move on to the other and knowing that you would have this grouping. We had a client who was in coffee, and coffee and tea drinkers are totally different. You don’t have the same market that you think you do. You’re not going to market to the same people. Keep that in mind. It’s more about the consumer and not the product categories that appears on Amazon.

Second question, I import from China and do all that, and I strictly sell on Amazon, eBay, and my website. How can I transition into wholesaling to chain stores, giants, or whatever?

Prove it. If you’re selling well on Amazon, you have an opportunity. It has to be a unique product. It can’t just be the same thing that they can already get from a distributor. You’ll also need a collection. This is a big brand key collection. You want to have a grouping of products in that category. Let’s say you want to sell to a sporting goods store. In the sporting goods store, you want to make sure that you’re going to have a grouping, a collection of products. If they’re going to take the time to make you a new vendor, then they need to make sure that you’ve got enough that’s a value to them. Make sure you have a good collection that is based in a very core and a couple of strong me-only things that they cannot get from their current suppliers. Prove it on Amazon first because the first thing they do is Google you and check Amazon. They’re checking you out that way too.

I am a toy maker and toy inventor. The first toy that I invented over twenty years ago was our most popular toy, but I never got a patent or trademark on the name, it’s like Kleenex. The name of our toys is used by everyone. Luckily, we’re still the biggest and most popular. Our brand is known. Is there anything to do about that now?

I’m not a lawyer and I’m not an expert in any of those things, but I would say now is the time for you to take that knowledge because you had been the longest selling toy maker with a great design and a great process. Take that information and make something new that’s incredible. You’re always going to be ahead of everyone else because you have better information.

In addition to selling online, we sell in a lot of retail stores as well. I’m curious if you could give any insights as to pricing and how you price your products. Typically, we try to do some basic market research, figure out a price point that will sell. Retailers want 50% to 60% margins.

It’s tough to encapsulate that because it’s different in every product category. There are lots of variables based on the size of the product and all these things and based on the stores. When you’re selling into club, all I can tell you is clubs are magic. Costco is magic because they only put 15% margin on top of it. You have a lot more room to work, but they also have higher quality standards. You have a balance of those things. Here’s what we do. We look at a product and if we were to do this product in very large volume, container loads every single month, and if we were to get efficient, right now we’re using tooling and we’re doing a little bit more hand work then we would be doing.

PLH | Asset Building

Asset Building: You’re always going to be ahead of everyone else because you have better information.

At its most efficient can it be 20% of what the market retail will bear. If we’re there or close enough to there, then we say this is worth doing. Your costs of goods and all of that landing and everything needs to be around 20 to 25% as its most efficient point, not what it is today because it takes time to get in there. You’ll be accepting less margin for a while. On your growth path, if I had more money investor, I would be able to make these efficiency improvements and you’d be able to see this better profit margin return. Those are things you want to think about, but it’s about 20% to 25%. If we can’t make it there, it’s not a mass market product. There are so many layers of costs. It’s crazy. That posted side is about twice as long for that industry.

I’m a patent attorney. When you have a client come in, how do you advise them on when to file a provisional application? It seems impractical to do it on everything. How you decide what to file on or what not to?

This may not be very legal and I’m going to be cautious about it, you would be the adviser to that. We are a little more liberally generous about filing provisionals. We file after the initial design process is done but before we make final samples. Sometimes we break up our sample-making into facilities or we make it ourselves because we do want to keep that privacy for a little while. At the moment that we’re going to go into the factory and have them make one, that’s the moment we file a provisional. That’s our process there. We are very liberal in profiling the provisional. In other words, we may file more than we intend to, but as soon as we see this one’s not going to fly, it’s not getting past the market, it’s not what we thought it was, we just abandon it and move on to the next thing. It is cost factor you have to think about, but for us it’s worth having it. It’s important to start there.

How would you go about protecting the IP for product that is formulation-based?

I’ve never done it with the formulation before. We’ve done a process patent like a method patent, but we don’t work in formulations. We don’t work in food or anything that requires FDA approval because I’m so impatient to take that long so I don’t have an answer for you there.

For people who are interested in design and all that stuff, do you have any resources, books, classes or anything, even if it’s just enough for us to know how to hire for that?

Join us at Product Launch Hazzards on our weekly Office Hours. Connect with and find out more about Tracy in our Experts Directory and in our Resources Library.

Important Links:

Love the show? Subscribe, rate, review, and share!
Join the Product Launch Hazzards community today: