Challenge facing Single Product Inventors

Larry: Larry Robertson here.

Andrew: and Andrew Bojie.

Larry: One more point. We’re going to talk about a scenario with a product that recently came in. We want to talk about the differences here again with our model which is very quick, very pragmatic, than the traditional way things of  doing things.

We have a client right now that has a product that he’s very passionate about. It’s actually quite a viable product. He has a significant amount of time and money invested. Andrew, I’m going to let you tell the story, because it’s an engineering story.

Andrew: Yes, when the inventor came to me at All Product Design, he showed me the item, and I said, “At this point, you should take it to AON Invent, because with the AON model you’ll never spend more than $3,249 at this point, to take the product to market. We’ll get it in front of the people that need to see it, and it’s designed to be an incredibly efficient system.

But this single product inventor decided, “No, I’ve got a way that I’m doing this. I have a couple of people in place. I’m going to take this product to market myself.” And that’s his prerogative, and All Product Design was more than happy to support him in his endeavor. So we did the design work and I think it probably cost him in the region of $1,000. It was only a small widget. We were able to do it cost-effectively and got him to the stage where his engineering CADs were ready to go.

Now, he came in for a second meeting with me, asking me for some input for the next level of development. I said, “Can I be frank with you? As a friend, can I be frank with you and just give you a little bit of a warning with what you’re about to go through? So right now you’ve spent around about $1000 with me, you’ve probably spent $2,000 – $3,000 on a patent attorney at this stage and a couple of other bits and pieces. I know I’ve already heard comments from you that this has already cost you quite a lot of money, and you have indicated that your budget is limited.

His next step with this item, which would be an injection molded item with four different components, some over-molding, and those kinds of things.  So this item, I’m estimating, my best guesstimate was his next step was going to cost in the region of $60,000 – $70,000 in tooling to manufacture these parts. Which he got a bit of a gasp from that.

And I said, “So once you spend your $70,000 on tooling, you’re now probably at about a $75,000 investment, you’ve then got a production run ahead of you. And for a minimum production run, not entirely sure of what that’s going to be, but it’s not going to be $500 or $600. It’s going to be another significant lump sum, because…”

Larry: But then at least he’s got a guarantee he’s going to get his money back?

Andrew: Well, I’d like to think it was that way, but it really isn’t. At that point the guarantee is he’s going to need a storage unit for the items that he’s just had manufactured in bulk. Now he still can’t really sell this item. Then he will need to “brand” this item, create a retail package and do his marketing, before to can begin selling his product.

Larry: So he’s going to build a consumer products company?

Andrew: Essentially, that’s his intention. He’s going to need packaging, everything branded. And get all that loaded. He’s got to pack it out as well.

Larry: Create his own distribution? His own sales organization?

Andrew: Exactly.

Larry: Design packaging?

Andrew: To get that, here’s the kicker with this item. Because it’s a plug-in for another consumer product that’s already out there, he’s at the mercy of this much larger product. If they go, and this is a product that they change up quite regularly, it’s what I would consider a fat item, so at this stage, he’s got a very, very short window to make this happen. And if that company changed the model, changed the system, at that point it’s all for nothing. So he could very easily end up with about $150,000 invested with a very narrow window.

Larry: With a small accessory comparable to a fax machine. Before it comes off the line, here comes the scanner.

Andrew: Exactly. And that’s the liability that you end up with. As a matter of fact, I had an interesting conversation with a tooling manufacturer due to a contact that you had made, and this gentleman is involved with several factories that make the tooling for injection molded production. He was telling me that because of his connections, he can get that tooling manufactured for free up front. He would still have to pay it back as the product goes to market. But up front he wouldn’t have to find the $100,000 or $150,000 that we hear of people having to put out in their design. He could get that molding done upfront for free.

So you can just imagine how many products this gentleman has on the market then, because he’s got a direct access. And the answer is none. And it’s not because he doesn’t have ideas. But he told me, even though he can get the tooling done essentially for free, that he would never try and take a product to market himself, because of all the things we’re talking about in that situation.

Larry: The risk.

Andrew: Exactly. There is a massive risk! And then after that we get into the area of if you’ve got your item, and let’s just say that you have been able to find your investor, or had the necessary funds to get your product to market, and you’ve branded it and you’ve got all of that together. If you’ve managed to do all of that, you’ve still got tremendous difficulty getting into any major retailer because you’ve got one item.

Larry: Retailers don’t buy single item They buy lines or assortments. I don’t know of a single major retail chain currently, Andrew, that is even willing to entertain single-product vendors, which presents an additional obstacle for single product inventors planning to develop their product on their own and then taking it to market themselves.

Andrew: Right. And here’s one of the reasons I was made aware just in the last few weeks. If you’re selling an item to one of the large retailers, that buyer is held accountable for his or her purchasing decisions. So, if the product that he signs off on, does not hit the stores on time or consistently replenished as it sells…

Larry: The buyer could lose their job, because that’s unacceptable. You have to stop and think about it. The buyer in a retail chain is responsible for the return on inventory investment, they’re responsible and accountable for the sales, the profit, and also for it being in stock all the time. And 8 out of 10 stores being in stock is not acceptable. 9 out of 10 stores being in stock is not acceptable. And stop and think about this. If you were in the position, if you were a buyer for a large retail chain, would you purchase a product from an unproven company, knowing full well that if they trip and disrupt your in-stocked percentage, that you could lose your job over that, would you even consider that for a moment? And the answer is obviously no. There’s a myriad of reasons. And I think on an upcoming blog, what I would like to do is I’ll bring in one of our friends that’s a buyer from the retail chain. And let them tell their story. I think this would be very insightful.

Andrew: Yes, I think so.

Larry: As a matter of fact, let’s do that on an upcoming episode here in the next couple of weeks.

Andrew: We appreciate your time, and feel free to contact us with any questions. And let us know subjects that you’d like us to handle.

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Andrew: Thank you.