BusinessQ Roundtable: In the market

From left: Rushford Lee, REDKOR Brands; Eric Child, FiberFix and Spark Innovation; Jerry Hancock, Sub Zero Ice Cream; Randall Bateman, Snow Christensen & Martineau; Jeanette Bennett, BusinessQ Magazine. (Photos by Dave Blackhurst/Utah Valley BusinessQ)

From left: Rushford Lee, REDKOR Brands; Eric Child, FiberFix and Spark Innovation; Jerry Hancock, Sub Zero Ice Cream; Randall Bateman, Snow Christensen & Martineau; Jeanette Bennett, BusinessQ Magazine. (Photos by Dave Blackhurst/Utah Valley BusinessQ)

Four experts sat down with Utah Valley BusinessQ Editor Jeanette Bennett to talk marketing solutions. These four experts produced tips about product development. Spoiler alert! Don’t you dare be slow or perfect.

Jeanette Bennett, BusinessQ: What are the first steps of product development? If you have an idea, then what?

Eric Child, FiberFix: The first step we take is to get something viable into the market as quickly as we can. Even if it is just local ACE Hardware stores, we try to get it in front of consumers and see how they react and get feedback. We quickly create a product with the least amount of features just to see if people buy it. You can do all the market research you want, and your friends and family will tell you it’s awesome, but until you actually have people pull out their wallet and spend money, you don’t know if the product works.

Rushford Lee, REDKOR Brands

Rushford Lee, REDKOR Brands

Randall Bateman, Snow Christensen & Martineau: That is so crucial. I have clients for whom “perfect” becomes the “enemy of good.” By the time they finally get around to having a perfect product, somebody is already in the market and has the foothold. If they would have just launched the good product, it could have worked. Save perfection for 2.0. People who liked your first product will buy your improved, second-round product.

Child, FiberFix: The window of opportunity is shorter than you think it is.

Bateman, Snow Christensen & Martineau: Get in with a good product, and then use the revenue from that to make it perfect. Then go huge and scale it.

Child, FiberFix: Almost every idea we thought was totally unique, there was a similar product that hit the market about the same time. People think alike. If you’ve made a logical step with innovation, someone else has, too.

Jerry Hancock, Sub Zero Ice Cream: There are timelines and histories of products, including liquid nitrogen, which we use to freeze ice cream in front of customers. There was a chapter in a book in 1898 about liquid nitrogen ice cream, and then nobody did anything until Dippin’ Dots, which was the first commercial product to use nitrogen with ice cream. Liquid nitrogen wasn’t produced in large quantities until the space program. One article in Popular Science in 2004 spawned the retail side of it. I knew the science and now I needed to know my customers. I look at product development as either trying to create a problem or solve a problem. We had a burrito shop, and it was not doing well. We asked what the customers wanted, and they said ice cream — customized ice cream. How do you make ice cream more custom? That was the problem now. That’s the genesis of our product development and why we tried using liquid nitrogen.

Bennett, BusinessQ: How do you balance the desire to get into the market quickly while still having your marketing, legal documents and customer research ready to go?

Rushford Lee, REDKOR Brands: Good question. Once you’ve got a product you think will work, you need to communicate it in a way the consumer will understand. With the research we do, we ask open-ended questions. “What do you think about this? How would this work for you? Why would you use it?” We try to understand the emotions behind what people say and do. It’s not just their answers — it’s their voice. Then designers take the emotions and figure out what that looks like graphically with websites, packaging and other visuals. You have to talk to consumers in their own language and in their own voice.

Bennett, BusinessQ: How do you deal with the catch-22 that a retailer won’t carry your product without a sales history, but then you can’t get sales history until they carry you?

Child, FiberFix: It’s about making yourself look bigger and more experienced than you are. It’s about building a story for the retailers. For instance, with FiberFix we started selling through a handful of local ACE Hardware stores. Then we convinced the ACE buyer to bring us to their national show to sell to 200 stores. Then based on that sales success and the fact that ACE is a recognized name, we got a shot at Home Depot and Lowe’s. It’s about building a story, so by the time you’re presenting to them, they feel like you are for real.

Bateman, Snow Christensen & Martineau: Starting small lets you work out the kinks in your distribution and manufacturing. Everybody wants to get into Walmart or Home Depot, but if you are not ready, it will destroy your business. With Walmart’s contract, the product has to be there in the way they want it, where they want it, when they want it, or you get crushed. To small clients who say, “I want to get into Walmart,” I say, “Not yet. Get it into smaller stores. Make sure you have everything down, so it’s running perfectly before you go to the big stores or it will literally destroy your business.”

“Starting small lets you work out the kinks in your distribution and manufacturing. Everybody wants to get into Walmart or Home Depot, but if you are not ready, it will destroy your business.” – Randall Bateman, Snow Christensen & Martineau

Child, FiberFix: With most of the big retailers, you have one shot. If it doesn’t work, you’ll never get that shot again. You have to make sure that when that opportunity comes, you are actually ready for it, you’ve worked out the kinks and you’re ready for primetime.

Bateman, Snow Christensen & Martineau: You’re far better starting off small. Sometimes with big-box stores, your margin is so razor-thin you aren’t making as much money as if you’re working with specialty shops. It’s about figuring out the niche for your product. Ask yourself, “Is this something I need to sell a million of per year? Or is this something I can do well selling 10,000 a year?” Find the right niche for your market and don’t betray it. I know a lot of successful businesses that have never sold to a national retailer. Find that market consistent with your brand. If you are trying to sell a high-end product, Walmart is not the place. If you are selling a low-end product, Macy’s is not the place.

Child, FiberFix: We look for products that are mass channel, but that’s not every product. There are a lot of products not right for mass channel. They are right for the specialty or maybe even purely online. There’s nothing wrong with that. It’s a good business.

Hancock, Sub Zero Ice Cream: When Orabrush was trying to get off the ground locally, the research showed that only 8 percent of people will buy a tongue brush. That sounds discouraging. But then one person said, “But 8 percent WILL buy it!” It’s about perspective.

Bennett, BusinessQ: What do people need to consider when deciding between getting into a retail store or building an online presence?

Randall Bateman, Snow Christensen & Martineau

Randall Bateman, Snow Christensen & Martineau

Child, FiberFix: The barriers to building a business online are lower. The speed to market is faster. The problem is that online is driven by marketing dollars. The minute you turn that faucet off, your sales drop. I like retail because if you build a relationship and a brand within a Home Depot, a Target, or a Bed Bath & Beyond, you can have that account for 20 to 30 years. You’ve built an annuity and you can continue to build out that brand. If you’re selling with your own website or through Amazon.com, it’s completely dependent on how many marketing dollars you’re willing to throw at it. It’s very hard to build a sustainable brand online. I’m not saying it can’t be done, and it’s not like you should do one or the other. You should focus on retail and online with every product.

Bateman, Snow Christensen & Martineau: Some products are better to start online. If you have a product that needs an explanation, that’s better online. Having a video is good because people see it and then go to the stores and say, “Oh yeah, I saw one of those on a YouTube video.” Then they’ll buy it.

Child, FiberFix: There are a lot of products that are better suited to start online. But we feel like if you want to gain that sustainable long-term play, you’d better be looking for retailers.

Bennett, BusinessQ: How do retailers feel about competing with sales online?

Child, FiberFix: Ten to 15 years ago, most retailers raised that concern. Now that’s much less of a concern. They’re starting to realize that you building an online brand actually helps them. The only time that becomes a problem is when you have retailers online that are undercutting them. They have to make sure online pricing isn’t undercutting strategic retail channels. But if you can avoid that, retailers prefer a strong online presence. It generally helps their indoor store sales.

Lee, REDKOR Brands: We have educated consumers, and we have educated buyers who look at new things all day long. They might not know why one looks professional, but they know it does. And they push away the ones that don’t. We help our clients create a brand that feels like a brand. If we put their brand against top national brands, it looks like they fit. It looks good enough. The story is good enough. The “why” is good enough. Buyers don’t want to take a chance on a product. Their job is on the line. They read and study and look before they decide to buy. You have to look like you are a top competitor. Somebody small can get away with looking big. Fat Boys has their products all across the United States. But if you look at their facility in Logan, they’re just a little company. But they look top-drawer. Along with having a great idea, it’s got to look right.

Bateman, Snow Christensen & Martineau: There’s another important aspect, particularly if you have a product geared toward younger buyers. The No. 1 reason millennials purchase is what the reviews say online. I have staff who will not buy anything without hopping online and saying, “It’s got four and a half stars. OK, I’ll buy it.” Or, “It has three stars. I’m not going to buy it.” You could spend all the money in the world on advertising, but if there are not reviews on your products, they’re not going to touch it.

Hancock, Sub Zero Ice Cream: It’s changed everything. I had a lady call me from California, asking me about our ice cream. I told her where our store was near her. She looked it up on Yelp and said, “I’m not going to go there. It only has three and a half stars.” And I said, “Do you know how hard it is to get four stars on Yelp? They filter out some of your best reviews.” I encouraged her to just try it. You’ve got to convince people sometimes.

Child, FiberFix: It is frustrating because websites and social media platforms are manipulated in certain ways. Even on Amazon.com you can manipulate your ratings or hire people to do that. You can do all sorts of things to boost your product. So you never quite know if what you’re reading is legit. But people put a lot of stock into it, so you have to spend the time and money to do it right.

Lee, REDKOR Brands: There was a belief that people would always go to the internet on their computers to look something up. Now people look things up on phones, especially millennials. They’ll be sitting there looking at a product, reading the reviews and deciding to buy all while sitting there on their phone.

Hancock, Sub Zero Ice Cream: What’s important to know about reviews is that you shouldn’t hide from them. If you get a bad review, it can be mostly discounted if you just respond to it.

Child, FiberFix: That’s hard to do on Amazon. They don’t allow you to contact users. If they did, you could clear up a lot of the confusion with the product.

Hancock, Sub Zero Ice Cream: On Yelp you can reply on the thread publicly. Then it shows up that you responded to it. Or on Facebook they do the same thing. I don’t usually delete anything on Facebook. I just respond to it so people can see the response.   

Bateman, Snow Christensen & Martineau: You want at least one mediocre review. If someone has perfect fives, then I discount that, too, because I think his mom and sister wrote the reviews. If they are a 4.7, I think, “OK, that’s legit.” If you get anything with volume there are going to be some 1s and 2s, because there are customers out there who nobody can satisfy. If they won the lottery they would complain that it’s not big enough.

Lee, REDKOR Brands: I like to read the 1s and 2s. I want to know why they didn’t like it. A lot of times their reasons don’t matter to me.

Bennett, BusinessQ: What are some of the common mistakes people make between the steps of having an idea and then bringing it to market?

Child, FiberFix: The biggest is over-engineering the product, spending too long in revisions, and not getting to market fast enough. You see so many companies that want to raise money, raise rounds, but never get anything to market. And by the time they do, the opportunity is passed.

Bateman, Snow Christensen & Martineau: If you have an idea and it’s patentable, get a provisional patent filed immediately. Then get a good rendition of the product in a limited market so it’s selling. Clients will call and say, “I wish it would do this,” which may not be what you planned for 2.0, but you think, “Hey that’s an easy fix. I can add that.” You can get a lot more feedback if you get to market as quickly as you can. That’s number one. If you are first to market, everybody else looks like they are copying you. Even if you were the first to create it, if somebody else beats you to the market, it looks like you’re copying them.

Hancock, Sub Zero Ice Cream: The patent laws have changed. It used to be first to invent, but now it’s first to file. Filing is important.

Lee, REDKOR Brands: I was vice president of sales and marketing for this company. The CEO walked into my office and shut the door. He said, “Would you just go sell this thing? Sell 10 of them. Today. Sell something.” We went to sales and said, “Sell 10 of these by the end of the day. The first guy who does gets $200.” They sold 10, the guy got his $200, and sales started to go up. Up until this point, the engineers had been saying, “We can’t go with this one — it’s not good enough.”

“You can do all the market research you want, and your friends and family will tell you it’s awesome, but until you actually have people pull out their wallet and spend money, you don’t know if the product works. ” – Eric Child, FiberFix & Spark Innovation

Child, FiberFix: You don’t know what’s wrong with your product until you go and sell. You might think you know what’s wrong with it, but you could be completely wrong. The things you’re worried about, the consumer is not worried about. They’re worried about x and y, and you don’t have those things. The more feedback you get, the quicker the process, and the better off you’re going to be.

Bateman, Snow Christensen & Martineau: One of my biggest clients got started when one came to the other and said, “Can you build this for me?” “Sure, why?” “Well, I just sold 10 of them. I need someone to help me build it.” So they built 10 and now they are a very large company. You’ve just got to get started.

Child, FiberFix: At Spark Innovation, we work with inventors and license products from early stage. We put to work all the lessons we learned with FiberFix. One of the mistakes I see is when people get married to their idea. They can’t let it go even if it doesn’t work. They have to convince everyone they have a brilliant invention that everyone needs. They cannot accept when it doesn’t work in the market. You’ll see people mortgage their homes or pour in life savings.

Hancock, Sub Zero Ice Cream: I feel like that. I just remortgaged my house.

Child, FiberFix: You’ve got to find a market for your product. If there’s not, don’t be married to it. Let it go. Move on.

Lee, REDKOR Brands: Even billion-dollar companies move forward with unproven products sometimes. We have big clients who hire us to research products to see how they will do. And sometimes, they’ll still move forward and say, “Your research has to be wrong. We know this will work.”

Bateman, Snow Christensen & Martineau: You hope it’s one of those rare individuals who can feel the market. There are very few who can.

Bennett, BusinessQ: Once you know your product is going to work in the marketplace, how do you figure out pricing?

Eric Child, FiberFix & Spark Innovation

Eric Child, FiberFix & Spark Innovation

Hancock, Sub Zero Ice Cream: We take our cost of goods and then fit it into a metric to get a rough idea. Then it’s a matter of moving the number in between $2.69 or $3.69, for example. We try to be competitive, and we also try to get the margins we need. Price has an effect on frequency. In the past, our sizes were a third bigger than competitors, so people would say, “You’re expensive.” Last year we changed our sizing across the board because we found that although we were competitively priced, our small was somebody else’s medium. We realized we had to change that. We took our kid size and made it the small and kept the same pricing. Now we’re appropriately priced.

Lee, REDKOR Brands: Perception is reality. But reality has nothing to do with perception.

Child, FiberFix: If it’s a specialty high-end product, there is some psychological value in pricing it high. It suggests to the customer that it’s a high-end product. In a mass retail channel, if you have too high of a margin, you will get undercut. We try to figure out where our cost structure will be on the product long term at high volume. We base our margin on that high-volume pricing and we stick to a pretty standard 100 percent markup with a 50 percent margin. Then we find the next psychological pricing break. There’s not a lot of psychological pricing difference to the consumer between $12.99 and $14.99, but there is a big difference between $14.99 and $19.99.

Hancock, Sub Zero Ice Cream: A smart barrier to entry is that price point.

Child, FiberFix: Everybody can produce what you are producing, and they can probably do it for about the same cost. So if you are getting an 80 percent margin, you’re just tempting competition to come in and steal the market from you.

Bennett, BusinessQ: How much should you worry about the competition?

Child, FiberFix: A lot!

Lee, REDKOR Brands: You’ve got to have a story and look like you’re better than them. People will pay a little more. A high-end ice cream like a Häagen-Dazs is going to be more than $1.99. And if it isn’t, you figure it’s not going to be as good. We did a test where we put some fantastic chocolate in a cheap box with a low prize point. People thought the chocolate was bad because it didn’t taste like what they expected. Then we put a low budget chocolate in a nice package. They didn’t like it either because it’s doesn’t taste great. We expect the price and packaging to give us a guideline as to how good it is.

Hancock, Sub Zero Ice Cream: It could be the customer, too. If the person is used to crap chocolate, the good stuff doesn’t taste good to them. I watched a blind taste test on wines. The budget shoppers didn’t appreciate expensive wines because they were used to the cheap stuff.

Lee, REDKOR Brands: You have to know who your customer is. We ask our clients, “Who do you think your customer is? What does he or she look like? If your customer walked in this room, what would he or she be wearing?” Maybe the person walking into your store doesn’t want budget ice cream. If you provide it, he’ll pay $2 more for it. A lot of people make mistakes because their customer is not who they thought it was.

“You have to know who you customer is. We ask our clients, “Who do you think your customer is? What does he or she look like? If your customer walked in this room, what would he or she be wearing?” – Rushford Lee, Redkor Brands

Hancock, Sub Zero Ice Cream: In figuring out our customers, our pricing and our product, we realized that we could be in high-end retail or we could be like a Baskin Robbins and have lots and lots of stores. Our competitor has fewer stores at higher unit volume, and they charge twice as much. We choose to believe that ice cream is a family thing. If somebody can get out there with $20 for the family, then they’re going to come back. If they have to spend $50, that’s a bit tougher.

Bateman, Snow Christensen & Martineau: All of this is amplified when you start talking services vs. goods. A good is a good. It sits there. With services you have additional dynamics of what people expect to pay. I have to explain my billing rate to a startup company or someone who hasn’t used legal services before. They’ll say, “My brother-in-law is an attorney, and he charges half what you do.” I explain, “With my expertise and area of practice, your brother-in-law is going to spend three hours researching something I already know. You’re going to get charged six minutes of my time versus three hours of his time.” On the other hand, I have to justify to large corporate clients why my rates are so low. They are used to dealing with attorneys out of New York, Los Angeles and Chicago who are billing twice what I am. In Utah we tend to be more cost-sensitive than other places. We have a lot of good attorneys in Utah, and that holds prices down. Whenever you are selling a service, it’s harder if you have a wide range of clientele. If you are Chem-Dry, the owner of a small home is going to balk when you charge $50 a room. But if you’re doing service for a $3-million home at that price, they’re going to wonder, “Are you competent? Are you going to damage my carpet?” It’s a delicate balance.

Bennett: BusinessQ: How do you figure out where you fit in the marketplace and protect your position?

Child, FiberFix: We have an analogy we use about competition. Think about a fortress, with a moat, wall and swords. Distribution is the moat. If you own distribution you have this giant moat that dissuades people from attacking you. If you have the retail channels tied up, they figure, “What’s the point? We aren’t even going to try.” That’s the ideal barrier. The next one is innovation, which is the wall. You’re going to get more engagement there. They’re trying to knock you off, which means you have to knock off yourself as you innovate. Protecting yourself at the wall is always a little messier than keeping people outside your moat, but remember that a nice barrier to competition is to keep innovating. If you stay with the same product line for 20 years, somebody is going to knock you off. If they break through both of those barriers (moat and wall), then you pull out swords and start fighting man to man. That’s IP. Everybody gets bloody and nobody wins. But you still have to have that IP sword in case they get through the other two barriers.

Bateman, Snow Christensen & Martineau: With IP, you can make an improvement that your competitors don’t have. And then you can attack with that.

Child, FiberFix: You are going to get competition. It’s a fact of life, so prepare for it and know how you are going to defend it. You can have issued patents, and people will blatantly knock you off to the letter. And they don’t care because they know how the legal system works. They want to see how willing you are to fight. How much money, resources and stomach do you have to fight?

Jerry Hancock, Sub Zero Ice Cream

Jerry Hancock, Sub Zero Ice Cream

Bateman, Snow Christensen & Martineau: A lot of people will say, “I don’t want to get involved in legal.” But there are times you need to sue somebody, especially if you’ve got patents being infringed. Once people know you’ll fight, they’ll respect your patents. You don’t want to create a perception that you’re litigious, but you do want to create the perception of, “We won’t back down. We will go after you.” I actually sued Ms. Lori Greiner before I even knew who she was. I had never seen “Shark Tank.” She had a product we thought infringed on one of our patents. I was trying to serve her, and it was really hard. I thought, “This is bizarre. Who is this woman?” Somebody said, “You don’t know who that is? She’s on Shark Tank.” You have to be willing to assert yourself periodically.

Hancock, Sub Zero Ice Cream: That’s one of the hardest things today. You have to start with CPAs and you have to start with legal. Today it’s so critical. With us everything is contractual. We have to disclose anything we do with the FTC with every single state every year. We are audited every year. There is heavy compliance.

Lee, REDKOR Brands: We were involved with a case with a client who had developed a product, we made the packaging, and it was selling really well. Somebody sued our client out of New York state over similar packaging. We were really nervous. Then we looked at it and said, “There’s nothing the same here on our packaging. It’s a nonissue.” Within a month there was a ruling of no infringement. We went to dinner after all this with the lawyers on the other side. They said, “This is just what we do. We’ve got about $10 million a year and all we do is throw it at whoever is remotely eroding our space.” I asked, “So you knew you didn’t have a case the whole time?” They said, “Yeah, but we want everyone to know that if you come close to our markets, we are going to get you.”

Bateman, Snow Christensen & Martineau: That’s not ethical. The Supreme Court recently made an adjustment that makes it easier to get attorney’s fees for baseless litigation. I think that’s a good thing because 90+ percent of litigation is legitimate at some level. But there are some that are not legitimate. And that shouldn’t be happening.

Bennett, BusinessQ: What final advice do you have for BusinessQ readers about product development?

Bateman, Snow Christensen & Martineau: I’ll share the old saying of “fail fast.” Get it done quickly. Get it to the point where it’s good. Get it in the market. If it’s going to fail, the sooner you know, the better. If it’s going to be successful, the sooner you know, the sooner you can work on the new and improved version.

Hancock, Sub Zero Ice Cream: Test, test, and when it’s ready, test again. What I mean by that is use your customers as guinea pigs. For four years we had our Sub Zero store here and it was a test bed. The other thing is risk. If people don’t risk enough, they don’t have enough skin in the game. Then they are not going to succeed because it’s too easy. You’ve got to risk or else it’s too easy to quit.

“If people don’t risk enough, they don’t have enough skin in the game. Then they are not going to succeed because it’s too easy. You’ve got to risk or else it’s too easy to quit.” – Jerry Hancock, Sub Zero Ice Cream

Lee, REDKOR Brands: There are a lot of great ideas. A lot of them don’t get to market because they simply don’t understand the consumer. We do work for a Mexican restaurant chain, and we found that the same menu from six different places in the country didn’t work here in Utah. It’s about understanding the consumer. Also, make sure you look like you are top-drawer. It makes a huge difference. A great idea can fail when it gets to the marketplace because nobody understands it. You’ve got to have the right message and the right story. Know why you created the product and why it looks the way it does. People are emotionally drawn to that.

Child, FiberFix: Start selling now even if the product isn’t ready. Market feedback is one of the most important parts of product development.

Bennett, BusinessQ: Thank you for sharing your product development experiences with us!

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One Response to "BusinessQ Roundtable: In the market"

  1. Mary Ann Carlton says:

    This is a great round table article. Loved it.

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