Archive for October, 2010
I always told myself that if I ever made a a billion dollars I’d carry around a wad of $100 bills. Everyone I interacted with – the barista, the bellman, the librarian (yes i would still check out books even if i was a billionaire) – I’d tip them a $100. Kind of like that montage from Dumb and Dumber.
We’ll I’m probably never going to have a billion dollars. But I do have about a billion Clean Bottles in my garage (according to my wife’s count). And there have been times when I’ve taken a few extra around town. When someone has done something nice for me – whether it has been the fedex guy who took care of my packages or the guy at Staples who hooked me up with copies – I gave them a bottle.
The response has been totally amazing. People’s eyes light up when they see that I am giving them a bottle. And then their eyes pop out of their head when they see me unscrew the bottom. Then I tell them the whole story about how I invented it and how I dressed up like an idiot and ran around France. And usually by the end of the story they are hi-fiving me or something.
A lot of times I see these guys later on and they tell me how its their favorite bottle, or how their son or wife loves it. It feels SO good to have surprised someone and totally made their day, especially when these people are probably not used to getting thanked at all.
I was thinking about this and how happy it makes me and I thought “what if I gave some other folks some Clean Bottles and had them randomly give out a few to people as a ‘thank you’ or an ‘atta boy’ or something like that?” Thus, the idea for the Bottle Fairy was born.
Every month I’m going to send 8 bottles to a few loyal Facebook followers. I’ll also hook them up with a Clean Bottle t-shirt and other schwag. They can keep a few bottles for themselves but the other ones they need to give away to someone who deserves it.
Maybe its the guy who you passed on the bike ride and who was huffing and puffing but still hanging in there – hook him up!
Maybe it is the lady in line who let you cut in – hook her up!
Maybe its your co-worker who helped you out with a project – hook him up!
All I ask the Bottle Fairies to do is to snap a photo of the recipient with the Clean Bottle and share the story of why the person deserves it. They’ll then send it to me or post it directly to my Facebook page and I’ll share the stories with all of you.
So even if I can’t tip people $100 bills at least I can put a smile on someone’s face. And for me, way more than the money, that is what Clean Bottle is all about – making people smile.
I can’t wait to hear the stories!
Hey guys – this is my second post about things to understand when starting a business. I’m no Jack Welch but I figure that if I can share my experiences it may give you something to think about.
My first post dealt with doing a bottom-up analysis so you can get a real sense for your market size.
This post is all about understanding your sales channel. What does sales channel mean, anyway? Is that a new TV station? Is it like the Food Network but for sales people?
“Sales Channel” basically describes how your product gets from you to the consumer. With Clean Bottle, for example, I have 3 different ways to get the product to the consumer.
1) Sell directly to them through the internet. It goes from my Dad’s garage (I got him to do all the shipping because the alternative was for me to move in with him to save money so I could afford a shipper) to you.
2) Sell to a bike shop who then sells to you.
3) Sell to a distributor who then sells to a bike shop who then sells to you.
Before you start a business you need to figure out the different ways you will sell your product to the consumer, and what % of sales you can expect to come through each area and what each type of channel looks for when deciding to buy or not buy your product.
The way I did this was to call up a bunch of companies that sold products to the cycling industry at basically the same price point as me ($10). I asked them how much they sold on their website, vs to stores vs through distributors.
What I found was that about 60% of their sales were through distributors. This is because bike shops don’t want to deal directly with a lot of different manufacturers, especially for lower price point products. This makes sense – a bike shop is a mom and pop operation that has hundreds of different products from dozens of different manufacturers. Do you think they have time to call Pearl Izumi for shorts, Capo Forma for gloves, Giro for helmets, Sidi for shoes, Oakley for sunglasses, Sock Guy for Socks, Dumondtech for lube, Powerbar for bars, GU for gel, Accelerade for energy drinks, etc . . .
Hell no! Its the same reason we all love to go to Amazon.com or Walmart. In one store we can get all the products we want, from diapers to books. So, many bike shops rely on distributors to buy most of their product. Distributors are kind of like the amazon.com for bicycle shops. They stock thousands of different products that bike shops can buy at wholesale prices and have them all come in the same order. The distributors also offer free shipping and generous terms (ie you don’t have to pay them until 60 days later) so it is easy for bike shops to do business with them.
I also found that there are only a handful of major distributors out there. So, for me to be successful I would need to make sure I made it on the catalogue of a few of these distributors.
Before I started Clean Bottle I had never even heard of a distributor. And as I started talking with bike shops and realized how important they were, I just said to myself “oh, my product is so awesome that they will just want to stock it”.
You see, distributors have questions that are entirely different from the ones that consumers will ask. They largely don’t care how cool or different the product is. They really care about how much money they can make from selling it relative to the overhead it will take for them to stock it.
I spent about a month calling various distributors before I finally got a meeting with one. Here is how it went.
me: “Thank you so much for taking the time to meet with me. I have this amazing product, it unscrews at both ends so you can actually clean it”
distributor: “how much does it cost”
me: “only $10”
distributor: “so I can’t make very much money on it. We do $500M in sales, I would have to sell a million for it to matter”
me: “but its really cool!”
distributor: “we already sell water bottles.”
me: “but its really cool”
distributor: “how are people going to know about this product. What is your ad budget?”
me: “I don’t have any money to spend on ads but I did buy a giant Clean Bottle costume”
distributor “how many other products do you have?”
me: “just this one, but I may make it in black in addition to blue. Does that count as a new product?”
distributor: “as a rule we don’t deal with companies that just have one product, it takes a ton of time to set you up in our system and it isn’t worth it if you are just selling one product”
me: “but this product is really cool”
distributor: “do you have any existing customers?”
me: “no, I was hoping you could help me with that”
distributor: “call us back when you’ve sold 20,000 bottles and have 8 different products and sell to 200 of our customers.”
me: “did I mention how cool this product is? It UNSCREWS FROM BOTH ENDS”
As you can see – this is very much a Catch 22. Distributors want to see sales and multiple products and customers before they will take you on, but you need them to get all these things.
So, I had to pitch my product directly to bike shops because it was difficult to get in to distributors. This is how these conversations went:
me: “I have this really cool product . . .”
bike shop: “Looks cool. Which distributor can I buy it from?”
bike shop: “You know, I have so many other products, where am I going to put this?”
me: “just take out some of those other water bottles”
bike shop “How much money can I make on this?”
me “it retails for just $10”
bike shop “okay, so I can’t make much money off of it. You know, can you call me back later, I need to figure out how I can sell this $3000 frame and when I have some free time I’ll think about stocking your product.”
All the consumer cares about is whether the product solves a problem they have at the right price. But, stores and distributors often make purchase decisions on a totally different set of criteria.
So, before you launch your business you need to sit down and make a list of the different channels you need to sell through and what each of these channels look for. My list would go like this:
Distributors (60% of sales)
1. How much money can I make relative to the time I have to work to set it up?
2. How many of my customers are asking me for this product already?
3. How cool is it?
Sell to bike shops (30% of sales)
1. How much money can I make off of this, and can I make more off of this bottle than from selling other similar products?
2. How easy is it for me to buy this product? (ie, can I get it from distribution)
3. How cool is it?
Sell directly to consumers via the web and at events (10%)
1. How cool is it?
2. How affordable is it?
As frustrating as this process sounds, I am ultimately lucky that the bike industry is fragmented. By this, I mean that most bike shops are independently owned as opposed to one or two chain stores that make up 90% of the bike shops out there. And I have the option of selling directly to shops rather than going through a distributor. So, if one bike shop says no to my product, that doesn’t mean that others won’t say yes.
This is another important point. If you are selling a telecommunications box to cable companies, or a piece of equipment that fast food restraunts then guess what, you only have 5-10 potential customers. You better be VERY sure that a few of them will definitely buy the product before you go build it.
So to summarize, before you start investing time in your invention, understand how you will get the product into consumers hands, who needs to buy the product from you so that it can ultimately be sold to consumers, and what they look for when they bring on new products. And sit down with these people before you get too far along so you can see if you have a chance at winning their business.
As for how we did, I’d probably give us a “B”. I did take the time to understand the different channels but I could have done a much better job at speaking to them beforehand.
Luckily, I was able to land a distributor and we now have about 10 distis in 8 countries. But it was much more difficult than I anticipated to land that first distributor.
Thats all from me. In the next post I’ll talk about how to price your product.
Thanks for reading!
Hey all – this is my first in a series of posts I’m calling “Lessons Learned”. I read a lot of business and self help type books. They all have their merits but they all seemed a bit too theoretical to me (manage you cashflow!) or a bit to obvious (never give up!).
What I wanted to with these posts is try and share some very real world, applicable examples of what I learned as I launched Clean Bottle.
I certainly am not an expert and have made my share of mistakes. In fact a lot of these posts will be about mistakes I made so that people can learn from them. I’ll use specific examples so that you can see in a concrete, non-theoretical way, what I did right / wrong and how you can use it should you decide to look into starting a business.
Alright – today’s post is about sizing your market. Understanding your market size t is really important. If it is too small (you are selling 6 fingered gloves, for example) then no matter how much ass you kick you won’t be able to make any money.
But a lot of times people can be way too optimistic about their market size. I wasn’t so naive to not try and do a market analysis at all. But at first my market size analysis was “Hey, everyone needs water and most people use water bottles to carry water. So, my addressable market is about 6 Billion people. Even if I only get 10% of that market I can sell 600 million bottles!” Talk about optimistic.
Then I tried another way, narrowing it down a bit to the cycling market. “1 out of every 3 people in the US use a bike. That is 100 million people. If half of them use water bottles when they bike I can sell 50 million bottles!”.
Both of these analyses were giant FAILS. It is really easy to find the total number of people in the world and then assign a random percentage that you think will buy your product. That is called a top down analysis. It is also called stupid.
A much more robust analysis is a bottom up analysis – where you figure out where your product could be sold and then look at sales of comparable products to try and build up into how many units you will sell. A decent overview of top down vs bottom up is found in this article: http://www.ehow.com/how_4877969_estimate-a-market.html
So, let me take you through the right way to do a bottom up analysis of the potential Clean Bottle market in the US.
1) Where are bike bottles typically sold? If I talked with other companies that made bike bottles I would find that almost all of those bike bottles were sold through bike shops. Bike bottles sold in bike shops. What a revelation.
2) How many bike shops are there in the US? With some research I’d find that there are about 5000 bike shops in the US.
3) How many of them would stock my product? I could draw up a sample or a prototype of my product. I know people are hesitant about sharing design ideas. But believe me, you should definitely take the risk of sharing your idea FIRST, before you spend a lot of money and time to develop it only to find that no one wants it or that it is too expensive. You can have people sign confidentiality agreements if you are really wary.
I would survey at least 20 shops to see what percentage would carry Clean Bottle. If I found that 4 would carry them, then I would cut this number in half, at least, just to be conservative. This is because even if 20% of all shops would sell Clean Bottle – how am I going to reach all of them to even tell them about it and convince them to stop whatever they are doing and purchase the product (that is another post)? And how often is it the case that people say they will do or buy something, but never do?
So, out of 20 shops, maybe 1 would buy the product. That means that Clean Bottle could be sold in about 5% of bike shops, or 250 shops.
6) How many water bottles does each shop sell in a year? That is an okay question, but since Clean Bottle is a premium bottle, and is priced that way, the better question is to ask each of them “how many premium bottles, such as camelbak or polar do you sell in a year?”. That will tell you how many people are willing to pay $10 or more for a bottle.
So say the bike shops say they sell 150 premium bottles a year. The smart thing to do is to haircut that number when thinking about how many Clean Bottles I could sell to each store.
You should probably haircut that number at least by 75%. This is because i am competing in the premium water bottle market, so I will have to likely convince someone who would have bought a camelbak to buy a Clean Bottle instead. Now, i have a different feature, so that helps, but still there are only a certain number of premium bottle buyers out there. So, lets say i could sell 25 per shop per year
Now, I take the 250 shops and multiply it by 40 bottles and I get to 10,000 bottles. This is my bottoms up analysis.
10,000 bottles is a lot different than 100 million or 600 million, right? But these assumptions I am making are still fairly aggressive – I have to get into 5% of bike shops (which is a lot) and then get 25% of the premium bottle sales in those shops (which is also a lot). So a lot of things still have to go right. But this bottoms up analysis will be a lot more accurate.
You can then take a ‘worse case’ estimate where I only do half of that number, and a best case estimate where I do double that number.
This is a very hard analysis to do. It takes a lot of time and a lot of effort. And it takes a lot of guts to make a very honest, unbiased assessment on the viability of your product. It is very sobering to go from 600 million bottles and dreaming of driving in fancy cars and swimming in Clean Bottle shaped pools, to working your tail off to sell 10,000 bottles if eveyrthing works out right.
But, you are going to find out this number one way or the other, so it is better to find this number before you invest time and money into a product rather than after. Then you can weigh this potential benefit against the costs and make the right decision before you spend money and time, rather than after.
Overall, I’d give myself a B- when it came to market sizing. I did look into the number of bike shops and made some simple attach rate assumptions. And I did show the product to shops and did my best to understand the market for other premium bottles. But wasn’t nearly as robust in my analysis as I laid out here.
So – whatever product idea you have, create a simple prototype or mock up and get out there and do a good, conservative bottom up analysis! Its free and it will help you understand how much money you could make and then you can decide if it is worth the investment.