Summary

These five criteria are the key to determining whether a product can be successfully marketed, and form the basis of much of the rest of the book:

1. The product is easy to distribute.

2. The technology is simple.

3. People view the product as unique.

4. The benefits are obvious.

5. You can sell the product at about four to five times the cost of manufacturing. (Clearly

Part I - Before you start

You need to ask yourself questions like how much time and money will it take, can you obtain the needed money, how can you defend your idea, and how much market information is necessary to start.

Important points:

• You must be willing to drop ideas when new information becomes available.

• Establish a timetable with specific goals. Dedicate at least 10 hours a week to new projects, and aim for steady progress.

Financing

• Spend as little as possible.

• Look for investors.

• Banks and investors often require the entrepreneur to invest their own money.

• Management must have business experience. It doesn’t have to be you, but it’s necessary.

• Self-employed people are bad credit risks.

• Fixed expenses hurt, rather than help, your chances of borrowing money.

Funding in the transition period - when you’ve started to sell your product, but before it is a certain success, and perhaps isn’t enough to run the operation with, yet - is difficult. You need money to scale the operation up, but orders may not cover it. You can borrow against orders, and try and improve your cash flow by getting down payments for orders, and cash on delivery. Selling receivables and getting credit from suppliers are other ways to generate cash flow.

Financing sources:

• Bank loans. Loans are tough to get, though.

• Commercial finance companies: more willing to take on risk, but also higher interest rates.

• Government loans (Small Business Administration).

• Specialized loan programs. For example, the National Association of Female Executives has loans for women starting companies. Contact your state’s small business office for information.

• Investors - enquire at your local chamber of commerce.

• Venture Capital. They tend to invest in larger projects with big upside potential.

Drop your Paranoia

Don’t worry about people stealing your idea. It’s better to get help and advice by discussing it with people, and find out sooner, rather than later, that there are potential problems. Worry about someone stealing the idea once you’ve actually started selling the product - people are unlikely to steal an unproven idea.

Patents usually aren’t worth the time and money. Protect your idea by keeping a notebook so that you can prove you were working on an idea - write down your ideas and thoughts in a dated sequence, and include notes on who you discussed the idea with, and when.

The US Patent Office has a document disclosure program where you can cheaply send a description of your product.

Copyrights are cheap, and might be useful if some portion of your product can be copyrighted - a graphic design, for instance.

If you need a patent, consider applying for it yourself.

Professionalism - know what you’re doing.

“Before you can sell an idea, first you have to sell yourself”. You need to create a positive impression with a good attitude, and demonstrate that: you appreciate others, persevere even when things are tough (although “the line between perseverance and recklessness is quite thin”), welcome suggestions and listen to both advice and criticism. You also need to show that you are the kind of person that “gets things done”, and keep in touch with your contacsts.

Things you need to know:

• The industry margins, which can be found in the “Almanac of Business and Financial Rations” (which is an expensive book - see if your library has it).

• Cash flow through chart. A chart showing what portion of a sale is spent where (manufacturing, sales, etc… and profit).

• Manufacturing techniques. Knowing how to mass produce a product can be very important to its cost to the end consumer.

• Similar products that you can use as ‘market research’ - how many units do other products in the same industry sell, how are they priced, and so on.

• How to create an attractive package.

• Marketing data - how large your target market is, how products are distributed in that market.

• Rules and regulations concerning your product’s industry.

These are good sources of information: your local library, sales people and manufacturers representatives, small business assistance groups like the local chamber of commerce, packaging suppliers, and even retail stores.

Being able to present an idea as a complete package is good. Materials include a drawing of the product, how the product will be used, how it might be advertised, and a model or prototype if you have them. Consider getting a talented art student at a local school to create attractive artwork if that’s not your strength. Your idea ‘package’ should also include market information about pricing, your target market, competitors, and other relevant information.

Part II - Go/No Go decisions

You have to evaluate your potential for distributing the product once it has been produced. If you can’t distribute it, it won’t fly. The four questions you need to ask:

• How much product support is needed? A small time entrepreneur can’t finance the big advertising campaign that may be necessary for some channels.

• How big is the market? The market being, in this case, the market that you can reach through the channels you can afford.

• How long will it take to collect receivables? Pay attention to cash flow.

• How should the product be designed? Design for the channels you pursue.

The easiest products to distribute are those that are for a small market where the customers are easy to target, the distribution network is concentrated, and the market is relatively open.

If you’re having trouble, try changing your strategy a bit, by rethinking how to change your distribution to work better by being creative.

Product appeal - will customers buy?

Products should meet three criteria:

• Its benefit is obvious and quick to grasp.

• The product differs from others.

• It’s significantly better than the competition.

Free or low cost market research

• Ask friends.

• Give a little bit of money to neighbors or people you have some connection with for their participation in evaluating your product.

• Pay an industry insider a consulting fee for information.

• Run advertisements for the product to gauge response.

• Interview store owners.

• Go to trade shows.

Other considerations include whether the product can be packaged effectively, whether the price/value ratio is acceptable to consumers, whether the product is in an established category, or if it’s particularly suitable as a promotional item.

Manufacturing

You have to face reality and make the numbers work, because costs that are too high could wipe out your profit margin. A rule of thumb is that a product’s manufacturing cost should be about 25% of how much people are willing to pay for it, but that depends on the industry.

A good way of estimating manufacturing costs is to find a similar item and find out how much it costs to make.

Be sure to remember to include packaging costs.

If it looks like your product can make money, you need to determine if you can create a prototype, which you should always create before going further and going ahead with manufacturing.

After the prototype, you should get firm price quotes and create a small (10s to 100s of units) production run. Don’t invest heavily in this step, just enough to see if things work.

Inside contacts

You need contacts in the industry. They can give you valuable advice with history lessons about similar products, design advice, suggestions about manufacturing and distributing your product, and most likely have connections that may be useful in turn. Some good ways to meet potential insiders in your chosen industry include trade associations, chambers of commerce, and industry magazine articles.

If you meet the right person, you might even consider asking if they’d be interested in investing. It’s better to do this after you’ve actually executed on creating your product - at the idea stage, if it’s a good idea, they may be more capable of running with it than you are.

Selling the product

If you’re beyond the go/no go decision, now you need to prove that a product can sell. These are your goals:

• Financial: break even.

• Manufacturing: spend as little as possible per unit.

• Sales: 50-250 units.

• Market research: determine the ideal price, packaging, name, necessary features and distribution network.

• Scheduling: 3-15 months.

At this point, you’re really going into business, so it would be a good time to incorporate in order to shield yourself from business liabilities. Liablity insurance is also a good idea.

Good places to start trying to sell a product are fairs, flea markets, trade shows, small, locally owned retail stores, and mail order. Certain types of non consumer products are better sold through sales people who already work in the industry. Eventually, you’re going to want to find a distributor, because it’s the only way to scale your distrubution.

Be willing to make adjustments in your product, rather than drop it, if it doesn’t sell immediately. Try tweaking the price, packaging and distribution channels.

Evaluate

After your product has started selling, you should stop and evaluate, before you try and take things to the next level, rather than charging blindly forward. Have a good, objective look at the price, packaging, perceived product benefits for consumers. Reevaluate the key decisions from the go/no go phase.

Problems can be discouraging, but it’s still possible to be successful if you make some changes.

• Target - refine your target to a smaller, more well-defined niche that is easier to deal with.

• Clarify the benefits of the product.

• Improve your communications, find out what your customers want to know and tell it to them in a way that’s brief and informative. Have someone look at your package product for 10 or 15 seconds, and see if they ‘get it’.

• Look at what it would take to lower your costs.

• Take a second look at your distribution strategy.

• Think about your product’s packaging and promotion.

The Transitional Period

This is the period when your product is doing well, and moves from having a few sales, to a steady, established business, where sales aren’t just coming from your direct efforts. It is often the most difficult period for a business. If you’ve been carefully planning and evaluating as you go, it should be easier. At this point you should have enough data to further refine the plan utilizing hard numbers, and then use this data to examine how you can grow.

Nine reasons why entrepreneurs fail

1. Bad or nonexistant distribution plan.

2. Inadequate help from industry insiders.

3. Spending too much.

4. Targeting too large a market.

5. Product benefits unclear or vague.

6. Not investing enough time and energy in sales.

7. Not planning for the transitional ‘ramping up’ period.

8. Bad product packaging.

9. High manufacturing costs.

Links

Author’s web site: http://www.dondebelak.com/

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