Free-Enterprise Friday

(Continuing the sharing of my failed and successful experiences at getting a new product created.)

To be a wholesaler or not to be a wholesaler - that is the question.

Generally speaking, if you have no intention, desire or ability to run a retail store, and you are creating your own product, you want to begin as a wholesaler. What this means is that you will sell your product directly to retailers or other companies that would in turn sell your product to the customer. You can always add a retail license to your company, so my advice is to start off as a wholesaler and build from there.

However, if you are a wholesaler, you can NOT sell directly to the customer. Nope, to be able to do that you need a retail license.

Another time I will go into how you obtain a license. Right now, we are still in the planning stages after determining that your product idea has feasibility.

I determined that since I had a product I would like to sell, but I didn't want to deal with customer support, on-line orders or all of the other details retail stores deal with, I went the wholesale route. That decision cut my projected expenses significantly. It also makes it harder to advertise or market your product.

Once I figured out that I was going to be a wholesaler, I knew that I had to offer my price to retail chains for about 1/2 of the cost they would sell my labels for. So, for example, if I know that no one would pay more than $10 for my labels, I would need to make certain I could sell my labels to retail chains for no more than $5 per pack. Otherwise, the retail chain will sell the product for more than what I think customers would pay.

No retail presence = no sales!

Since I had a pretty good idea that customers wouldn't pay more than $10 for my labels, I went about making certain I could sell my product for $5 or less per pack and still cover all of my expenses AND make a small profit.

I think that ideally, you want your profit to be enough so that if you manage to sell 1/2 of your stock, you have enough money to reorder a full supply from the manufacturer. This is not based off of extensive research or fact, but it is based on my own experience - so therefore it is completely subjective. I ordered a large number of my product to be manufactured in order to keep my costs down, so it would take a while before I would need to reorder.  If the rate of demand for my product continues to grow steadily, this formula will work until I decide I need to order a greater bulk from the manufacturer.

But to start off, this seems like a decent short-term goal for my company to have.

Let's say you have a product that costs $10,000.00 to make 5,000 of them. You need to make certain that you have cleared at least $10,000.00 by the time you have sold 2,500 of your product, so you can order more without ever being out of stock in your warehouse.

This may not be possible to do when you first begin your company, but it should most definitely be the first goal you make for your company. This is what will get your company from the red to the black financially.

Free-Enterprise Friday

(Continuing the sharing of my failed and successful experiences at getting a new product created.)

Once I received feedback from the Innovation Institute that my product idea in their opinion had a Mixed Feasibility score, I had to seriously consider their advice and decide if I was going to pursue this product or scrap it.

One of the concerns mentioned in my review was that I was selling the product for too much. After all, removable labels with an educational graphic can be home-made. They wouldn't be as nice or durable, but I had to find a price that would be "worth it" to these crafty-type moms too. Crafty-type moms are part of the demographic I am selling to, so I have to consider how to make my product appealing to them. The fact that mine were done by professionals would not be enough to get parents or teachers to plunk down $25 for 30 labels when they could make shoddy ones for 1/4 of that. So, I had to go back to the financial drawing board.

First, I looked to where I could cut costs. My cost sheet had items like Advertising, Storage, Packaging, Manufacturing, Internet, Legal, Office Supplies, and other miscellaneous costs. The greatest expense is manufacturing, so I began there.

NOTE = The manufacturer of my product also handles the packaging.

Was there a way I could decrease the per unit cost without sacrificing quality? Yes! I could increase the number of labels I ordered from the manufacturer. If I asked the manufacturer to make 5,000 labels instead of 1,000, I could reduce my manufacturing per unit cost significantly since the company I deal with decreases the per unit price the more I order. If your manufacturer is unwilling to offer discounted prices based on quantity, then you need to find another manufacturer.

Now, 5,000 of any product is a lot. You will not sell all 5,000 any time soon unless you get very, very lucky. You should plan on most of them sitting around for a while. With that in mind, depending on the nature of your product, you may not be able to store that many without added costs. However, in this case, labels don't wear down or take up much space, so I can easily store a large number without fear of damaging the quality of my product. I won't have to pay extra for storage or maintenance. Increase number of product manufactured = check!

Another significant savings would be to offer fewer labels per pack. Originally, I had designed 30 different labels. I reduced that number to 20 to further decrease the per unit price. Now, I had 20 labels per pack. Decrease number of labels per pack = check!

My wholesale price went from $12.00 per pack to $4.50 per pack.

Next week I'll explain wholesale versus retail prices and how I calculated profit.

Free-Enterprise Friday

(Continuing the sharing of my failed and successful experiences at getting a new product created.)

After you have narrowed down who may manufacture your idea into reality, you have to take the next step: spend a little money.  Not to develop your idea or to hire a lawyer. No, not yet. You want to find out if your invention has merit.

By this stage, you have already bounced your idea off of your trusted friends who are willing to tell you like it is, and you have found a manufacturer who gave you an estimate you can live with. But you don't want to spend thousands of dollars making a product just to discover no one wants to buy it, right?

I highly recommend you check out Innovation Institute for what they call a "Preliminary Innovation Evaluation Systems Report" or PIES.  For ~$200, their experts will review your idea and provide a break down of 45 criteria to determine the feasibility of your idea.  These criteria range from "Societal Criteria" - safety, environmental impact, to "Business Risk Criteria" - functional feasibility, investment costs, to "Demand Analysis Criteria" - potential market, potential sales.

I have no affiliation with Innovation institute. I just know it was the best $260 I ever spent. All you have to do is fill out their online form, and mail it in with the check. Within 4-6 weeks you will receive a personalized and detailed assessment of your idea. To give you some background, this company has been using variations on PIES since 1979.

According to their vast experience, 80-85% of all ideas submitted receive a Not Feasible rating.  10% receive a Mixed rating, and the other 5% are Feasible.  For those 5%, they will offer to connect you to the right channels. My idea fell into the Mixed rating range, and they still gave me contact information if I should decide to pursue this idea anyway.

There are questions they ask that forced me to dig deeper into my intentions and projections than I would have otherwise. How much did I project to sell in a year? I dunno! How much will I spend on marketing? I dunno! What will my return policy be? I DUNNO! But I should have an approximate idea, and this process helped me to get my head out of the clouds and look at this idea realistically.

My report was the expert constructive criticism I needed. According to their findings, I would need to reduce my cost significantly if I was going to appeal to my target customer.  If I couldn't find a way to reduce costs without sacrificing quality, then I didn't have a feasible invention.

And all I had to spend to get that critical information was $260.

Free-Enterprise Friday

(Continuing the sharing of my failed and successful experiences at getting a new product created.)

I finally had an idea of a product I wanted to create. Now, I had to gather information. What products were similar to it on the market? Who manufactured those products? And the big question: How much will it cost to make it? There are other questions regarding materials, labor and quantity, but first I needed the basic figures to see if I could make my product and then sell it at a reasonable price.

Some of my earlier ideas were immediately shot down due to the fact that in order to make them I would have to sell them at outrageous prices. But, man oh man, when the cost of laser technology ever drops, BAM! - my ideas are gonna soar! Okay, not really, but you get the idea.

I used two tools to find a manufacturer for my creation: the Internet and the Better Business Bureau. I found a ton of businesses (either through the Internet or on packages of similar materials) that could potentially manufacture my product, so I narrowed it down to businesses that were in my time zone to avoid any complications with telephone tag. That narrowed the list to a manageable amount. I went to Better Business Bureau and found a few that had "satisfactory" ratings. I checked out their websites to see if their Internet presence was impressive or not. Those that looked professional, I called, and the second one answered the phone. Winner!

I gave the manufacturing company my specifications and asked if they could do what I needed and give me an estimate. Done and done! Most manufacturers will give you a discount based on quantity. The more I ordered - the smaller the per unit price. If the manufacturer doesn't offer this, then as the Miracles sang, "You better shop around".

I called two other places, and I had all three send me samples of their materials to see if they were up to snuff. Again, if the manufacturer isn't willing to work with you on these requests, then you need to check elsewhere. I put those samples through the ringer. I had to make certain it would pass all possible tortures our family would put it through. I found the right manufacturer at the right price, so I needed to go to the next stage... to see if this product would sell.

Next week I'll talk about what happens after you think you have found a potential manufacturer.

Free-Enterprise Friday

(Continuing the sharing of my failed and successful experiences at getting a new product created.)

You know when you are at a restaurant and can't decide between the steak or the pasta, so you ask the person you are with, "Which one should I have?" They suggest one, and suddenly, the other one looks irresistible. Well, that is exactly how I felt when those I trusted told me that my Pick Up Palz idea was the idea I had to explore further. There were so many rejected ideas I had that I thought were so much more relevant and just plain cooler than this one! But this was the idea that had other people excited, so I knew I was on to something special.

The funny thing is you can immediately tell when a new product idea generates excitement in others versus apathy. But, it can be a subtle difference. Sure, you could have an idea that other people hear and say, "That's a terrible idea." But, that's not the most likely scenario. Here are a couple of conversations I had that illustrate the difference really well.

Apathetic audience:

Me - "So, I have this idea for a [insert new idea here]. I wanted to know your honest opinion of that."

Trusted Person - "Wow, that sounds like an interesting idea." After some thought, "How would you manufacture that?"

Excited audience:

Me - "So, I have this idea for a [insert new idea here]. I wanted to know your honest opinion of that."

Trusted Person - "Wow, that sounds like an interesting idea. You could do this with it or that. And, you could try this! OR better yet, you could do something like this!! How would you manufacture that?"

You can see the difference in the way they talk about the product. Do they try to change it to make it suit their needs? If so, pay attention. This is where you are hearing the possible flaws and uses of your product.

But, I knew I had a great idea when the majority of people I talked to could see themselves using it. Once I realized I had my idea, I had to look into the practicality of getting it created. In other words, how much would it cost to make. ooo. fun.

Free-Enterprise Friday

As promised, every Friday I will share with you how I messed up, succeeded, flailed, failed, and triumphed to reach my goal as a Mom Entrepreneur.

My goal was simple. I wanted to create something, have it made, and be able to use it to solve my specific problem. I didn't go into this venture expecting riches, accolades, or reknown. Although, don't get me wrong. If those things should happen, I wouldn't shove them away. But I wasn't motivated by those things. I just had a need that I wanted filled. If I had to make it myself to get it, then so be it.

Sometimes the best ideas come from necessity (I think I read that somewhere from some guy). Anyway, the place to start is with what you know and what you know is lacking. Once you think you have hit upon an idea, share it with a couple of people you trust will give you the hard truth. Not someone who enjoys ripping you up, but a trusted friend who will lovingly point out where you might have erred and succeeded.

The first idea I had was rejected by the two people I trust more than anyone - my mother and my husband. It was hard to hear the truth about my original idea: it would be too expensive to make and therefore too expensive to buy. But, I'm getting ahead of myself.  Don't worry about cost, practicality or logistics of getting your idea made. Just let your mind open to the possibilities first. For those familiar with the concept, this is the "brainstorming" stage. Focus in on what you know and begin brainstorming ideas.

You see, it was because of my first failure that I was able to come up with my second and third failed ideas that lead me to the successful forth idea.

Free-Enterprise Friday

I am going to dedicate Fridays posts to sharing little tid-bits of amature-business wisdom with the two people who asked masses. This will not be a post advertising my specific company. You can always read my company blog for that thrilling information. However, if you are thinking of inventing a new product, I can share with you exactly how NOT to do it I did it. Hopefully by reading this, you will see something that I have missed, or get inspired to create that product you have been obsessing about for a while. So starting next week, I'll begin with the beginning!