5 Questions That Must Be Answered Before Attempting to Fund or Launch Your Consumer Product

I am constantly amazed at the naivety of first time entrepreneurs and inventors when it comes to the due diligence they must conduct in order to get their idea, concept or prototype to market. Even with the amazing information tools at hand in the 21^st century, so many still try to fake out the marketplace by taking shortcuts. This is the equivalent of death by neglect. 

There are 5 questions that must be organized and perfected before a new product can be considered ready for preparation of a fully documented, well-crafted, customized Business Plan.

Question 1: Do you have a production quality prototype built, a unit that can demonstrate the full functionality, features and benefits of your product? 

This provides the base template of everything that must follow in pursuing accurate assumptions on which to base your strategy for investment, marketing strategies, sales model and financial projections.

Question 2: Have you assembled and distributed Release Packets to multiple manufacturing/production sources? 

The Release Packet is the blue print and content map that producers will utilize to conduct proper time, assembly protocols, manufacturing standards required, and estimate production costs for your products build out.

Question 3: After choosing the factory that provides best service, lead times and quality control, have you been given a dead-net Cost of Goods to produce your item in mass production volume? 

Dead-net Cost of Goods means cost to produce, package, handle, ship (by ship and container if off-shore production), freight-customs-duties, local freight from port of landing to your destination for product fulfillment, all inclusive. This is the real Cost of Goods that is the first and most crucial element necessary to create an exciting, well-documented Business Plan.

Question 4: Have you created a Sales Model that works for your enterprise, and for all up-channel re-sellers of your product? 

Different Consumer Product categories must utilize Sales Models that factor many variables into the pricing equation. Some product categories require heavier Sales promotion budgets (Cosmetics, Skin Care, Toys, Games, etc.). Others require strong levels of store support for display, co-op advertising and point of purchase signage (food, drinks, oral care). Limited distribution, exclusivity models are built on a low volume, high retail model. 

Question 5: Why is the Sales Model so important, and why do so few Entrepreneurs devote enough time, energy and research to perfecting this crucial building block of their Business Plan?

The second half of this question is easily answered: Some do not know how to detail their Sales Model, some do not want to put in the effort, and others do not understand the process required to achieve investment, licensing opportunities, partnerships or sales traction in a brutal marketplace.

The Sales Model (based on Question 3: Cost of Goods) is so very important because it is the “alpha” assumption that supports every declaration built into a Business Plan. If the cost to produce, and thus the selling basis for a product cannot be torturously defended every other element and assumption included in the plan will fall of its own weight. Investors will see this immediately and bail.

 I write this after a particularly busy month of reading and hearing elevator pitches for projects that have been almost uniformly under-vetted. Some of the concepts might have even been commercially viable. However, when I ask these 5 questions and hear crickets on the other end of the phone line, I know I am not dealing with a serious, committed, driven entrepreneur, and I am not alone. Every other investor, venture capitalist, licensee and buyer I know experiences the same disappointment when exposed to plans built on quicksand.

Customizing Products and Services Presents Entrepreneurs a Great Way to Bootstrap a Business 

We live in a world where mass production and scalability have enabled consumers around the world the opportunity to enjoy a wider range of Consumer Products and Services than ever before. Large scale production drives down prices. Items that were once luxuries are now within reach of masses of consumers on every continent.

Overwhelmingly the benefits of scale and industrialization are beneficial to society. Jobs, distribution opportunities, global trade and finance have all thrived in large part because of the benefits of a consumer driven world. The Benetton sweater or MAC cosmetic that is purchased in Denver is the same as a unit of either sold in Sydney. 

There is a downside to mass production, a downside that presents opportunities for those seeking to position their enterprise successfully within the whirl of this hyper–competitive consumer marketplace. Most mass produced products are impersonal. They offer value, utility and uniform performance features. They do not, however, differentiate themselves significantly from competitors. This is where the creative and craft minded producers can maximize their offerings. 

Hermes purses and scarves are famous, but simple examples of a Brand that has been built from scratch, painstakingly over time and by being extremely protective of distribution channels for their limited production, hand crafted products. Hermes controls the price and design of each unit produced with a discipline that borders on fanaticism. When a design becomes popular and demand soars, the family owned Company caps production far short of maximum sales potential. This is a classic example of a limited distribution strategy that serves to increase Hermes’ product desirability among discerning consumers. 

Ferrari automobiles, Zegna menswear, Piaget watches, Tory Burch fashions and La Prairie Skin Care and Cosmetics are other examples of Brands that have created world-wide franchises by avoiding any taint of a mass production model. They sell service, customization and personalized product that elite customers demand. The strategy does not need to be limited to exclusive couture brands, however!

The Branding and Marketing Consulting firm that we manage utilizes many different forms of personalized service or customized product assembly to differentiate our clients. In order to be able to compete with behemoth, multi-national brands a new company must be able to identify their Unique Selling Proposition (USP). A better ingredient story or a better mousetrap design will not suffice. 

Recently a prospective client approached us with a Perfume concept. The Fragrance world is huge and brutally competitive. The perfumer we met with was keen to commercialize a range of scents, mainly by utilizing generic top notes. We spent a good deal of time trying to define a USP that would differentiate her product, while creating a niche she could occupy. The final, agreed suggestion was to sell a value added personalized blending service with each offering customized, value added and unique to each client. There are a number of added special service features which insure that the Brand will be perceived as unique by her “alpha” clientele.

We have utilized one form or another of this strategy for Gourmet Food products, Toys, Cosmetics, Wellness regimens, Service Providers and many other client projects. An important feature of this strategy is the opportunity to bootstrap the product or service when limited resources are at hand. Local sales can be leveraged to regional sales and beyond. The enterprise can be grown at a pace that is more easily handled by thinly resourced entrepreneurs. 

Red Bull, Snapple and Arizona Iced Tea did not start as national and international brands. They were bootstrapped. They found holes in saturated, developed marketplaces and they filled niches. This model is available to creative entrepreneurs who are driven to compete, but understand that they must deal from a different, smaller deck of cards.

Trying to Win on Low Price Is Always a Losing Proposition for Small Consumer Product Marketers 

Last week my Consumer Product Development and Marketing Consulting firm reviewed a multi-use child safety line of merchandise targeting the Juvenile/Infant category. This was a start-up Company with modest sales. The products were well engineered, nicely packaged and offered consumers fine features and utility.

The ownership group partners were keen on selling Wal-Mart and other big box stores. They had undergone a long, slow kabuki dance with the Bentonville giant for months. The hang-up, as always, was pricing. The merchandise staff at Wal-Mart wanted significant packaging changes, AND, significant price reductions.

If their demands were to be met, the product margins would be deflated to the point of no profitability. 

We see this situation all too frequently. There is an understandable lust on the part of new Companies, start-ups and Entrepreneurs to push their goods into national chains as quickly as possible. The law of large numbers would seem to insure that this is the quickest path to gaining deep market penetration and profits. Alas, for small businesses, this is almost always not a successful strategy. 

By the time we met with this Juvenile Product manufacturer they had exhausted much of their available resources and were not close to receiving the hoped for purchase orders from any of the big box stores they had approached. A decision they had taken to try to compete on a low price Sales Model was boomeranging on them. They simply could not compete with high volume producers on price. Having a better mouse trap is great if the item is positioned where quality, product performance and Unique Selling Proposition can be beneficial. This is typically in specialty stores, independent and service oriented retailers where product can be well displayed and detailed to consumers by knowledgeable staff. 

The opportunity to grow a Brand and penetrate a market category first locally, then regionally and finally nationally is usually the safest, most prudent strategy for new Consumer Product Marketers to utilize. Unless Sales Promotional Budgets are large, and they rarely are for start-ups, the turtle will beat the hare in this type of race. Marshall your resources! Maintain your margins! Allow for needed Sales Promotion, Marketing and Branding support that will be required to support your products. 

We work with many small and micro-brands and start-up Companies. Focus and discipline are often the most difficult traits for these anxious, ambitious Entrepreneurs to harness. Advising them to avoid a low price strategy seems to go against the grain of accepted business orthodoxy. However, unless large scale production volumes can be employed to drive down costs, do not get involved in selling on low price alone. 

Many multinational Consumer Product Brands sell by initially employing an Exclusivity Strategy. They will introduce a line in limited distribution at high price points. As Sales traction takes hold, the product is introduced in different mass market Branding concepts at lower price points in broader distribution. It is always easier to come down in price than to go up. The Exclusivity Strategy creates consumer desirability for a product. Calvin Klein, Liz Claiborne, Estee Lauder, General Motors, Nine West, Diageo, Fortune Brands, Procter & Gamble, Unilever and many other great Consumer Product Marketing giants repeatedly use this technique. 

Being small actually offers the advantage of nimbleness. Large enterprises do not move fast. No matter how successful, when bureaucracies grow they become sclerotic. Use agility, quickness and energy to your advantage. “Float like a butterfly and sting like a bee”, as Muhammad Ali so famously chirped when describing his boxing style. Do not allow large Companies production scale and low pricing to dictate your margins. It is suicidal to attempt to compete on their field of play.

One Mans Junk Creates Another Mans Fortune

Similar Opportunities Exist Almost Everywhere for the Ambitious 

In 1989 a Canadian college dropout named Brian Scudamore stopped at a McDonalds to grab a cheeseburger. While waiting for his food order he noticed a dented, beat up old pick-up truck inching though the parking lot. The bed of the vehicle was loaded with assorted junk. The doors of the battered, rusting vehicle were adorned with a hand painted sign that proclaimed that the owner hauled junk for a fee.

The food order came. But Brian Scudamore quickly lost his interest in lunch. He started to see a business opportunity in the cadaverous, misshapen lorry. Out of work, not a particularly interested student, just stumbling through life without much purpose, Mr. Scudamore was worried about his future prospects. The visit to a fast food restaurant, and the accidental visual encounter with a junk hauling service truck lit a fire in his imagination and suddenly he was full of energy and possibility.    

Now here is where the story gets interesting. For here is where most people continue to dream. Brian Scudamore did something different, he acted. He thought to himself: “Who would have thought that there was money to be made in junk”. The more he considered the opportunity the more he realized that he had hit on a novel business model opportunity.

Everyone he knew had junk. Most of his family and acquaintances tried to hide the stuff away in attics, garages, storerooms. Mini-warehouses were being built everywhere and he knew that business was booming. He started asking people about their piles of old junk and found that people would get rid of the stuff if there was a way to do it conveniently, safely and affordably. 

Mr. Scudamore bought an old, but clean used truck for $700. He had it neatly painted and a sign professionally designed and placed on the doors. He posted hand bills, placed business cards in businesses and supermarkets, advertised in the Yellow Pages (yes, they still had phone land lines and used phone books then) and quoted prices from a fixed list. When he made the first run to a customer he had invested less than $1,000 in the Business Start-up. 

Customers were advised that each load would be separated and recyclable materials would be handled accordingly. Anything that still had value would be given to the poor. Most importantly for busy working people, his new junk hauling firm would schedule and maintain an accurate appointment schedule. 

Brian Scudamore was his firm’s first junk hauler. But even in those early days, he was thinking long term. He never arrived for an appointment in jeans, sneakers and a torn tee-shirt. He always met his customers in a clean, identifiable uniform. He knew little about Branding and Marketing but he was already perfecting those essential Business practices. 

The Company Brian Scudamore founded is known today as 1-800-Got Junk. This Entrepreneur has created a business model where there had been none. Yes, there were people everywhere that would pick up junk. However, no one had seen the opportunity to standardize, professionalize and fully commercialize the hauling of unwanted stuff and turn this innocuous service into a national enterprise. 

1-800-Got Junk was quickly a success. More trucks were bought, crews added. Demand for the service outstripped the Company’s ability to expand. Because of his limited business and educational experience, Mr. Scudamore knew he needed professional management assistance to grow his Company. He hired Business Consultants that advised that his greatest growth opportunity was to organize the business using a Franchising Model. 

Today there are hundreds of 1-800-Got Junk Franchise owners spread across almost every American and Canadian city. The service is standardized. Branding, Marketing, Service Sales, Customer Service, Advertising and Billing follows a classic Franchise model and is exactly the same for every Franchisee. Brian Scudamore has created a Business opportunity that supports each of his franchise owners, their families and employees. He not only is a successful Entrepreneur, he creates other successful Entrepreneurs. And he is very rich. 

A used pickup truck, some tools, labor and hustle have earned many a man a decent living. Odd job services, painting, lawn care, hauling, pool cleaning, snow removal, tree pruning are only a few of the services that can be commercialized and generate income for those willing to Market themselves, be on time, sell a needed service for a fair price and perform as promised.

I know women who have taken their passion for baking, cooking, party planning, sewing, sketching, engraving, quilt making and pet care and turned these, and many more skills into income earning opportunities. They often start small and locally. They are willing to Market their product, service and themselves. 

Very few of these Entrepreneurs will see their work evolve into large enterprises like Brian Scudamore’s 1-800-Got Junk.  But they have the satisfaction of getting up every day and knowing that they control their destiny and there are no imposed limits on their ability to prosper and achieve as much success as they are willing to work for. 

Every media outlet today beats a constant whine about the lack of jobs and opportunity. And it is true that the traditional job models have been creatively imploded by globalization, technology and rapid changes in skill requirements in order to succeed in this new emerging world order. But the pundits are wrong that opportunity is limited, or as some claim, eliminated. It is simply to be found using fresh outlook and ambition. 

Unfortunately for many, ambition has been eroded from being coddled by an entitlement mindset. We do not allow children to fail, or lose a contest. Everybody is a winner. We all get a prize or a medal whether the reward is deserved or not. It starts at the youngest ages and encases too many for the rest of their lives.

 The “Occupy Wall Street” protests are currently spreading around the world. Brian Scudamore was an unemployed, under-educated, scared kid in 1989. He probably fit the mold of the present day protesters. He could have sulked, complained, blamed or whined! Would the world have been a better place if he had become a professional dissident instead of creating wealth and opportunity for himself and others? We all know the answer to that question. The “Occupy Wall Street” crowd knows too. Someday most will acknowledge the truth, if they stumble onto a dose of ambition.

Weave a “Freemium” Business Model Element Into Your Consumer Product Marketing Strategy

A 21^st century term applied to a decades old Marketing Concept, Freemium has become one of the most popular vehicles for Consumer Product entrepreneurs, Software designers and Marketers to utilize for increasing sales and distribution of their products. The concept in its most modern form is a spin on the Gift-with-Purchase promotion designed by Estee Lauder Cosmetics in the 1960’s and King Gillette with this safety razor and blade refill strategy first used in the late 19^th century. 

The word “freemium” is a portmanteau, combining the two aspects of the Business Model, free and premium. The idea is to offer a hook, a free good or service to the consumer, with the Sales Strategy being to up-sell the recipient of the free offer to a premium product or service. This concept is powerful, simple to execute and provides excellent results. 

The most compelling word in Consumer Product Marketing is “free”. Who doesn’t want to receive something for nothing? Watch retail store traffic when samples or tastings are being provided. Customers flock to the in-store demonstrator providing the free samples. Politicians make their careers by providing seemingly free benefits to constituents. 

The word “premium” is evocative of a better lifestyle, luxury product or enhanced version of a staple product. Most people aspire to add luxury to their environment. A bigger flat screen television, a finer French Perfume, imported rare Extra Virgin Olive Oil or Italian-made shoes are basic examples of the types of products that consumers trend toward as incomes expand. People drive a small Kia automobile for transportation. They drive a Jaguar because they want the premium Features and Benefits that Jaguar Marketing details in its Advertising.

 Recently we had a client who was attempting to Market a web-service to the portion of the population who were nearing retirement. Our Product Development team collaborated with software designers to create a free “Club Feature” to entice visitors to the web-site to join instantly. We waived the annual $95 Membership charge. Once aboard, Members were offered a menu of Premium Services, also at Club Member Discounts. The result was an amortization of costs against a broad field of income generators. The site was profitable almost from the date it went on-line. 

The Estee Lauder inspired Gift-with-Purchase transformed the Department Store luxury Cosmetic industry. Competitors quickly jumped on this creative Sales Promotion bandwagon. However, Estee Lauder enjoyed the most important element in Consumer Product Marketing and Sales; a first mover advantage. The GWP concept launched the Brand into an orbit that has never been lost. 

The Gift-with-Purchase (GWP) Promotional Strategy was followed by the Purchase-with-Purchase (PWP). The GWP offers a free sampler of an assortment of complimentary products. The premium is the minimum purchase required to obtain the GWP. If you do not believe that this technique works, just stand in a Department Store Cosmetic department anywhere in the world when a Beauty Product of Fragrance vendor is offering their GWP. 

AOL used a “Freemium” program for years to launch and expand their dial-up internet service. Displays offering free software containing AOL set-up data were ubiquitous in stores and supermarkets. The “freemium” was typically a 90 day no cost teaser trial with a fixed monthly service rate kicking in automatically after the gratis period ended. This model worked magnificently for AOL for a number of years and made the Company the “alpha” service provider that most internet customers initially utilized. 

Variants of a “freemium” Marketing Strategy are constantly being utilized. Wellness products, Weight Loss Products, Cosmetics, Food and Drink Products, and a wide range of Consumer Services employ some form of a “freemium” in their Brand building Marketing Campaigns. Infomercials often offer a free trail size of the product with the client paying only shipping and handling. Of course, these offers are almost always accompanied with a Negative Option Feature that kicks on automatically unless you remember to opt out.

Free offers work, but in order to provide goods and services there must be an income stream generated by the give-away. Smart Consumer Product Marketers and Services Providers have learned to craft Marketing Programs that include a free offer with a premium up-sell link. Freemium’s have been around for decades, only the word is new.

The Lessons Still to Be Learned from the Great 19^th Century Retail Pioneer Frank Woolworth 

There are many great business icons for us to emulate as we study history and the paths successful entrepreneurs chose as they left their marks on various enterprises. In the world of retailing, the name Sam Walton has become legendary. The Lazarus family created Federated Department stores which included the Bloomingdales, Filene’s, Burdines and Bullock’s groups of stores. JC Penney and Julius Rosenwald (Sears, Roebuck & Co.) built national emporiums that supplied the needs of the middle class. Frank Woolworth is certainly worthy of being included in this pantheon of all-time great retail innovators. 

Almost forgotten today, Frank W. Woolworth not only built the hugely successful 5 & 10 Cent store chain that carried his name, but created a business and sales model that was revolutionary for the 19^th century. Woolworth worked as a clerk in a New York state dry goods store as a young man. At the time, fixed pricing was not the norm, barter was common. The young clerk, anxious to open his own store, noticed that as goods aged they were marked down to 5 cents and placed on a table in bulk. Sales of these items always seemed to surge when they hit the mark down table. 

Utilizing $300 he borrowed, Woolworth opened his first dry goods store where every item was marked at 5 cents. The store was almost an instant failure. The young retail rookie was unfazed. He and his brother Charles studied the dismal performance of their first outlet and quickly seized on several business principals that they had not adequately addressed.

The Woolworth brothers regrouped and opened another store in Lancaster, PA. They began to buy goods directly from manufacturers. They studied real estate and traffic to choose a more visible store front location (one of the earliest implementations of the now common adage, “location, location, location!). A key element of their success was to expand their selection of goods and pricing range to include 10 cent merchandise.

These simple strategic changes made their second store an immediate success. They quickly expanded regionally and then nationally. Virtually any town of any size had one or more Woolworth outlets by the early years of the 20^th century. 

Frank Woolworth was once asked for the secret of his retail success. His response was, “I am the world’s worst salesman, so I must make it easy for people to buy”.

By applying simple, but novel retailing principles, though revolutionary for the time, this merchant created one of the great retail franchises of all-time and became one of the richest men in the United States. 

By the middle of the 20^th century the dime store concept had begun to fade in popularity, supplanted by the growth of large mass merchandise discount chains. The Woolworth name is mostly gone and forgotten, however, the chain lives on today as Foot Locker.  

Frank Woolworth was a great entrepreneur. He devised pricing, merchandising and purchasing models that were innovative. These basic principles of retailing, which seem so ordinary today, are still basic to successful store operations in all sales channels. His example of simplifying and making the purchasing decision much easier for the consumer are excellent examples for aspiring entrepreneurs to follow when developing their business models. Keep it simple!

The Invention of the Safety Razor

gficke@msn.com.

Mercenary soldiers have been used by nation states since Biblical times. The Romans used Goth mercenaries to fight Hannibal and his Carthaginian army. The English used Celtic warriors to defend them against the Vikings. The British used Hessians during the Revolutionary War here in the United States. Mercenaries have enjoyed a very mixed reputation as long as government entities have utilized this soldier-for-hire service.

If there were an Entrepreneur’s Hall of Fame, Wayne Huizenga would be a charter member. Most people recognize the Wayne Huizenga as being the former owner of the Florida Marlins baseball team, and the current owner of the National Football League’s Miami Dolphins. These are the types of gaudy baubles a billionaire entrepreneur collects. However, his success came from the most elemental business: trash hauling.

Most people with but a small slice of this type of achievement would be completely satisfied and content. Not so with Wayne Huizenga!

During the 1990’s a number of examples of new business terminology cane into vogue. Among these was the term Business Model. The usage of this term has become so capricious that the original definitions and intent of these two words has been diminished and confused.