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Archive for November 12th, 2008

Alternative Marketing Strategies Successful Entrepreneurs Must Consider

Wednesday, November 12th, 2008

by: Geoff Ficke

The hundreds of entrepreneurs, inventors and small businesses that approach my marketing consulting firm each year with new product ideas all confront the same, basic hurdles in attempting to achieve commercial success. Issue number one, they perceive, is how to fund the project. Issue number two, how to market their product.

Let’s review the marketing options. Invariably, the bulk of the entities we work with approach marketing with the belief that they need to immediately place their product in big box retailers. This is a laudable long-term goal, but almost always would be the kiss of death for new products and startup companies.

Big box retailers are exceedingly demanding in requiring huge levels of logistical support. The technology required to simply process orders, data entry, shipping, receiving and billing is highly technical and specific to each chain. The software and systems required to communicate with these giants can be prohibitively expensive for new, small vendors. These are just the logistical hurdles. The sell-through and marketing challenges are much more difficult to conquer.

The alternative to running off to Best Buy or Wal-Mart is to utilize “guerilla marketing” strategies to mitigate expense, lower risk and insure that the new product has a fair opportunity to achieve success. In recent years we have begun to use a “backdoor strategy” to push products into big box store distribution without confronting the up-front challenges that are so daunting for new companies.

Here is an example. Recently we had a dentist approach our consulting firm with a very novel stylized toothbrush. He had deduced from his dental practice that people typically did not brush for three minutes, twice daily, as recommended by the American Dental Association. They really did not know how long they brushed, but the gum and tooth problems he was confronting in his patients indicated they were not brushing enough each day. His new toothbrush was cleverly designed to address this deficiency in oral wellness.

The dentist typically wanted us to create a marketing strategy for the toothbrush that would place the units on mass-market store shelves for the launch. We explained the difficulties, risks and expenses involved in such a strategy and why he should consider alternatives. This was when we described the “backdoor” option.

Big box chains have local and regional management structures. Most people believe that all new items are purchased through home office buyers or merchants. For example, Bentonville, AK is the home office for Wal-Mart. Troy, MI is the buying office for K-Mart. JC Penney is bought out of Plano, TX. Walgreen is located in Deerfield, IL. The Kroger Company is located in Cincinnati, OH.

Each of these, and other national chains in every retail category, have local managers that have the authority to bring product into their doors on a local basis. Few people realize this. These local, regional managers can cut purchase orders and by-pass the national buying process that can be so vexing.

We packaged the novel toothbrush, had our graphic designer create a pop-up shelf display with a header card, created sales collateral and presented the item to the regional manager of a national drug store chain. He was responsible for 36 stores in two southeastern states. He loved the item and even commented, “we love to show the home office that they miss on too many neat products”. We left the meeting with a hand written purchase order for 144 pieces of the toothbrush for each store.

To support the launch of the product we wrote copy for a 30-second television spot with a tag for the drug chain. We went to the local cable television studio and they produced the spot for nothing, in lieu of our buying a small cable spot schedule. The dentist, in his smock, was the on air expert detailing the product.

The product was shipped to the 36 individual stores and the regional manager had forwarded a merchandising directive to each store manager. He advised the product was scheduled for delivery, end cap display was to be provided and that there was cable television buy to support the launch. We hired a college student to get to the stores and make sure the merchandise was prominently displayed and rotated.

Every few days we checked in with the regional manager and he provided sales updates. Within a week, he was able to project turnover and re-order needs. As soon as we secured re-orders, we had the regional manager call the home office with his sell-through report. Within two months we were invited into the buying office for a corporate presentation and to plan a national product launch.

We have used this “backdoor approach” a number of times with different products in different retail channels. It works. Local managers love to take successes, their discoveries, to the home office to prove their mettle. Our clients are in a much stronger position to negotiate terms with national retailers when we have already proven sell-through success on local, test market basis. It also enables us to extrapolate chain wide sales projections based on hard numbers, not best guess assumptions. This is a powerful strategy and many more entrepreneurs should take advantage of this approach that mitigates their exposure.

Licensing, bootstrapping, partnering, joint venturing and receivable financing/factoring are other alternative strategies that can be employed to launch new products. The most successful entrepreneurs overturn every stone to find the one route that will get their idea into play. Keeping all options open is essential if you are to realize your goals.

How to Start a Gourmet Food Product Business (Or Any Product) on a Shoestring

Wednesday, November 12th, 2008

by: Geoff Ficke

The first issue we see nascent entrepreneur’s almost universally attempt to address is the perceived need for working capital. When we ask how much investment they believe is required to get their product to market, they never can justify what they identify as their magic number. I have yet to read a business plan that can justify the assumptions that are utilized to support the capital investment being sought, ever, and I read dozens of business plans each month.

My consulting firm reviews hundreds of new product ideas every year. Many have wonderful commercial prospects. However, almost none of the entrepreneurs offering these opportunities for funding have considered all of the possible avenues available to launch their idea. Funding is the “Holy Grail” in the eye of most entrepreneurs, and yet, a capital raise is the single hardest route they can attempt to utilize.

Investors, unless family or friends, demand a very high level of due diligence before they will stage a capital investment. Strong management, a clearly identifiable Unique Selling Proposition (USP), first mover advantage and a 35% return on invested capital kicking in between months 24 and 36 of operation are the basic guidelines typically utilized when underwriting opportunities. These are standards that very few entrepreneurs and inventors can achieve.

There are many ways to “bootstrap” new products or services before seeking a financing round. They are not glamorous, more like the old parable of the tortoise and hare. These strategies require the oldest trait known to inventive man: simple hard work!

Here is an example of a product that we recently “bootstrapped” to a successful market launch, and subsequent funding relationship. I received a call from a gentleman who owned a construction business. After initial platitudes, he advised me that he had created the world’s greatest barbecue sauce. We receive a lot of food products for review, and every single one is accompanied by the old bromide, ” it’s the best in the world”. I was wary.

Mr. Barbecue Sauce sent me a box of his three sauces to sample. They were very tasty. I advised him that the taste was surely excellent and potentially commercial but that he would have to utilize more of a “guerilla” marketing strategy than his hoped for investor funding round. We wrangled for several months. He approached other consultants and food industry experts before finally coming back to us and agreeing that he needed to utilize a “plan B”.

We contracted to write and execute a business plan for the launch of the sauces. We engaged the services of a dietician, a licensed food product private label source, a graphic designer and a packaging resource. We perfected the label statements and content values of the product. Then we conducted a focus group, obtained testimonials for attribution, and prepared sales collateral.

When the product, packaging and sales materials were market-ready we approached independent and regional purveyors of high-end gourmet food products. These types of retailers are much easier to work with, barriers to obtaining shelf space are small and they are keen to enjoy exclusive distribution of select items. Each door that was initially opened agreed to a schedule of product samplings. We set up a table on an aisle end cap, cooked top quality sausages and asked shoppers to choose which of the three styles of sauce they would prefer on their taste sample. We had an inventory of product on the end cap gondola with a special introductory price.

The results were gratifying and confirmed our assumptions that the barbecue sauces were truly commercial and consumer acceptance would be strong. The samplings lead to strong initial sales, but much more importantly, in subsequent weeks repeat sales began to grow without the aid of sampling.

Geographically, the client fanned out to the nearest markets and repeated the same limited, controlled roll out strategy. The results were always the same, a bit of a cult product was beginning to germinate.

For most of the first year of distribution we utilized the “tortoise and hare” approach. We then identified a gourmet product trade show in Orlando, took a stand and sampled the sauces just as we had in the first local gourmet products stores in the owners hometown. The difference is this instance, was that we were sampling, and taking orders from retailers from all over the United States and internationally, key decision makers in the gourmet product industry. Also, because the product was positioned as a gourmet foodstuff, price points reflected the sauces higher perceived value and the products were not buffeted by mass market discounting.

The entrepreneur had invested some reasonable amount of his own money, but this was mitigated by the go-slow approach we had undertaken. His initial sales funded the controlled rollout of the sauces to additional regional markets. He had not diluted a single percentage of his ownership by taking on investment partners. The growing order book from new retailers and repeat purchase orders were valued by his bank and he was introduced to the merchant bank division to establish a line of working capital.

Mr. Barbecue Sauce came to us with the notion that he needed $350,000 to fund the launch of his enterprise. As we initially quizzed him, he realized that he would really need to raise more like $1.2 million to realize his goal. By being open to alternative ideas, he avoided a huge pitfall that most entrepreneurs fall in too: raising $350,000 and failing is expensive, raising $1.2 million in order to insure success is cheap.

In this case, Mr. Barbecue Sauce was fortunate that there was an alternative strategy readily available to customize for his product. He mitigated risk, limited financial exposure, test marketed the product, extrapolated market potential based on real sales numbers and enjoyed the secure knowledge that the product was commercially viable without being at the mercy of investors demanding strict performance markers be constantly achieved.

Most entrepreneurs with truly commercial projects have many more options available to them than they ever consider. It is amazing how few projects are really fundable, and yet, investor funding is almost always the preferred route they choose to undertake. “Bootstrapping” is almost always the last alternative considered. Successful inventors, entrepreneurs and small businesses will always do whatever is legally necessary to achieve success. Anything less is the equivalent of dreaming.

Golf, Pet and Hunting Products Share an Amazing Entrepreneurial Quality

Wednesday, November 12th, 2008

by: Geoff Ficke

My marketing consulting company reviews hundreds of new product submissions every year. We specialize in consumer product development. The items we analyze run the gamut of product categories. The most creative, prolific and many times, the most commercially exciting are golf, pet or hunting and fishing products.

The reason I have come to believe that there is so much creativity in these areas is passion. Golfers, pet owners and outdoorsman are among the most ardent aficionados in their interests in these hobbies. They will spend almost any amount of money to improve the benefits they derive from their chosen pleasure.

Golfers are manic in their desire to improve their games. We receive numerous training devices, stroke control, bag accessories and novelty golf products annually. Each entrepreneur seems to have developed their innovation based on a perceived need they have identified from their personal play experience. The result is a flood of truly novel devices, some very commercial, that pique these golfers creative juices.

Hunters and fishermen have similar passion for their favorite pastimes. Hunters are driven to get closer to prey, obtain better shot sight lines and get more shots with their rifles or bows. They invest heavily in any gizmo that offers the promise of more action while on the hunt. Fishermen will go to abnormally heightened lengths to catch more fish. Exotic lures, fish finders, bait scents and rod accessories that are new, and offer the angler a possible advantage over the fish are must have items for the tackle box.

Pet owners are especially unique. People that will share the interior of their homes with one or more pets are indeed committed. Recently we introduced a new pet product at the largest pet trade show in the United States. The casual observer could easily imagine the types of products that would be featured in such an exposition. However, walking the show floor was an education. To view the luxury, comfort, fashion and expensiveness of the thousands of specialty products on display was staggering.

Entrepreneur’s that we have worked with over the years are always most passionate when they are trying to commercialize a product that they created to fill a need that they have identified in an important area of their life. Whether it is from employment, a hobby or sport in which they participate or from their household experience, the best ideas seem to evolve from the inventor’s life experience. Passion is to the entrepreneur as fertilizer is to agriculture, essential!

The pet category is huge and growing, There are over 70 million licensed dogs and 45 million cat owners in the United States alone. A niche product that creates demand among these pet lovers has huge upside potential. The market in this product category can be penetrated relatively easily, if the item is truly unique.

Products that are commercially desirable in the categories of golf, hunting, fishing and pet care/accessories also enjoy huge international distribution potential. Distributors, partners and licensees are available for country and continent distribution pacts. These parties will buy the products in bulk quantities from inventors and handle in-market sales, warehousing and business operations.

In many product categories there are 800-pound gorillas (competitors) that present daunting hurdles to new entrepreneurs. The golf, hunting/fishing products and pet product areas are much more sliced up. They have lower barriers to entry and the main players are typically more specialized in their product strengths. This provides greater opportunities for entrepreneurs to secure shelf space and promotional features.

The time has never been more exciting for the market to absorb truly fresh, innovative new specialty products in these and many other categories. The inventive mind, driven by zeal for a hobby or identified need, can be successful and significantly change the course of their life while providing real product performance benefits to consumers of their inventions. The best time to move is always now.