Wednesday, February 04, 2004
{Did we have class on Monday?}
Well, we did have class on Monday, but not many folks showed up. So if you weren’t here, you need to see a sample of the project, and get the project handout.
Today we’re going talk about evaluating marketing opportunities, so we’ll kind of cover it again. It’s not a problem; I want you safe more than anything. But if you miss a day, it’s a good idea to photocopy somebody’s notes. But, mainly, what we had on the board was the outline.
{I don’t know if you remember me, but my name is Julie, the president of the Student Senate. Next week we’re going to have student advocates. And what that means is that we’re going to have members of the Student Senate, or any members of the student body, meet to talk with our legislators. This is were we talk about things that concern us in the student body and also about life in general. I was wondering if you wouldn’t mind taking a look at these forms, and fill them out. It’s a questionnaire, and what were asking questions like whether or not the alcohol level should be raised, things like educational funding… We tend to think of it not as an increase in tuition but more of a student tax. They’re saying no rise in taxation, but they’re raising our tuition. But if you have an opinion on this, please make your voice known. And so I’ll just pass these out.}
Ok, anyone that has a test, you can set it up here; anyone wants a sample project, you can get them up here. I’ll pass out a marketing outline for any of you who have missed class on Monday.
When you turn these tests in, I will try to get them scored and get them back to you the next class time that we meet. And I will have recorded your score. I did one this morning for my night class. And one of the tests that I scored, she made her marks outside of the circle, so you want to keep your marks inside the circle. There was only one that she actually got wrong, but somehow or another, she screwed up and got twelve out of fifty. We don’t want that happening. I checked the scantron key against her test, which took way more time than I can really devote to this. But we don’t want that happening. So make sure that you’re answering question one with question one, and make sure that they lined up properly. On test number three, she scored forty-six, so I don’t know what’s the deal. But I can’t be going back and correcting these manually.
The Howl Thing Opportunity
All right, today we’re going to be talking about a market opportunity. And this is an experience that I had with an invention that I worked with. And we’re going to talk about the decision that I ultimately had to make. And when we do this, we’re talking about a go or a no go situation. We have to look at the numbers and how that equates to dollars and determine whether or not to move forward.
What do you see when you look at this? How would you describe what I’m holding in my hand?
{It’s a piece of flex tube.}
Flex tube, very good…the technical name for this would be flex tubing. When I look at this, I see a children’s creative toy. And so this is my prototype, which is really just a piece of extension vacuum cleaner hose that I bought from the hardware store. And the only reason I bought it was to make some samples so I could survey and show it to people, right. I could show them how it works and what it does. And I wanted to get the name of the manufacturer off the box, so I could write to them and get a price. A little later on, I went to the library got names of the manufacturers from the Thomas Register. And I was able to contact several in America and one in China. And the one in China was less than the ones here. As it happens, there’s a company in Lakeville that makes this stuff, which I didn’t know about. But I went to visit them and got a quote from them.
The product costs…essentially for a minimum order of 500,000, was ten cents each. And that was for the primary product. These come bundled with several hundred together with a kind of shrink-wrap around it. It wasn’t packaged in anything else other than there being a cardboard piece on the top and the bottom to keep them clean. What this is is a creative children’s toy…and I like that term. But it’s a sound-making thing, and these samples don’t really work all that well, because I’ve used them all to often and they leak air. But as you can hear, they make this whistling howling sound when I whip it around over my head. So you kind of get the idea. I’ve actually gone into classes too many times and banged it on my desk. Anyway, how I came across this…it’s not patentable, so I sole it from somebody else. If you went to any lawyer, they would tell you that it’s just a piece of flex tube, you haven’t invented anything, right? It’s clearly not patentable. What I can do is come up with a name and I can trademark and copyright and register my artwork and my name and that stuff, which we’ll talk about in another class. How I discovered this…my wife and I, when we first got married, we couldn’t really go for a decent honeymoon, so we went to Madelyn Island and that was kind of fun. We had stayed in some old dorms that had been converted to a hotel, and that was kind of our honeymoon. So a couple of years later, when we had some money, we decided to take a trip to Europe. And when I married Nancy she had a child, Ben, so our goal was to buy him a gift from each country. And I just recently used his Swiss Army knife that we bought him from Switzerland, he doesn’t even know that I have it, but it got mixed in with my shop stuff somehow. When we were in Germany, we bought him some lederhosen, and as the typical boy, he wore them once to take a picture, and never wore them again. He wouldn’t be seen dead in those things. I think we might still have them.
But from France, we bought him this. And he played with it and loved it. It was his favorite toy. His friends would come over and go, “Where’s that twirling thing or that howl thing, which was the term they came up with the most. So I thought, “Well, great, let the kids name it. That’s a great name” So that’s kind of where this came from. Now, the story about how I discovered it is kind of unique. My wife wanted to go to France, but I didn’t want to go to France. I had a very bad experience there, I had gotten sick drinking some bad water one time in Switzerland, and then we went to France and I had a bad experience. Previous to that, when I had first gone to Europe, after I graduated from high school, my AFS brother was studying there, and he took me to across the university campus. They told me not to go near the university property at the time, because the French were hostile and upset with the Americans about the Vietnam War, even though they got us into the war. Well, anyway, he insisted, but I said, “No, no…I was warned by the consulate not to go there.” And he said, “No, you’ll be fine, it’s fine. I never get hassled…” So we took a shortcut through the campus. And, sure enough, this group of students saw that I was an American, and they spit on me and called me a ugly American capitalist pig, which proves they don’t know anything about capitalism. So I’ve had several bad experiences in France. Plus, if you don’t speak French, the people are really rude to you, which wasn’t a turn-on for me. So I didn’t want to go back to France even though there are a lot of nice things to see there.
But she had dreamed of this her whole life, and she wanted to go to a French restaurant, so I said that we would go. So we found this little town on the boarder of Switzerland and I said we’d go to France for one day. There was a church there that I wanted to see, which had a really great pipe organ there, and some really nice stone work. So while she dallied at the restaurant, I went to see the church. So I left her in the restaurant, and the restaurant had this little walkway, and on the other half of this restaurant was this gift shop. And, of course, there was a mall between the buildings, much like the mall out here, that was between the buildings. And that’s where the pedestrians would walk back and forth. So it was nice, because they were able to draw tourists from the church into their restaurant. Well, as I left the restaurant through the gift shop, I see these two young French guys take out of a cardboard box, next to the cash register, one of these things and it looked like this. I have since lost the original. But we bought three of them, because they were cheap. But these kids pulled these out and walked over to the church and went by every window making noise with these things. And, of course, there’s people in there doing confessions, and tourists. But those kids were laughing and having a great time. I kind of reminded me of when my first wife and I went to Oxford, and we were blowing up balloons in the library and making squeaking sounds from them. We were just acting really stupid, you know… And then my wife accidentally popped one, and I thought that was pretty cool, because everyone jumped, and the librarian gave me this dirty look, and then I popped mine. Why people do things like that, I don’t know…but we were having a good time.
And, so, I looked at that tube they were selling and I thought, “Wow, that’s really cool. You could make a band with one to three of these things. Moreover, wouldn’t be cool to have five people doing it.” And you could twirl them faster or slower or use different lengths. There’s actually a whole lot of physics about it makes this sound, so there’s some science to it. So it’s actually a creative children’s science toy, isn’t it. And I walked up to the cash register and asked the girl how much? And she gave me that look that the French usually give you wondering why aren’t you speaking French. And I said, “Franks?” and she told me it was x amount of Franks. Well, I did some quick math in my head and figured it was about $5. Well, that’s not bad, so I bought three of them. And I brought them home and Ben played with them; and he did some pretty creative things with them. He would have marble rolling contests; and I would have never thought about this, but they would roll marbles down through the tube, and then he would aim it to hit other marbles or see who could go the furthest. They did a lot of fun stuff with water with it too. I actually came home one day from teaching and there was water dripping down from the ceiling, and I’m thinking, “Oh, my God, the bathroom is up there, I wonder if I have a leaking toilet?” Then I could hear Ben singing in the bathtub. He die if he knew I was telling this story in class, by the way…he’d kill me. Anyway, I could hear him singing in the bathtub, and I’m like, “Ben, what the hell is going on?” Well, he’s in the bathtub with this tube hooked up to the facet, and he’s spraying himself and having a great time while getting more water on the floor than in the bathtub. But he had a good time with it. And his friends would come over and enjoy it too. But he had this big football that we kept all his toys in; and they would throw everything out on to the floor until they found this. He Man, and all that other stuff, those didn’t matter, because this is what they wanted.
So, I’m looking at this going, “This is a marketing opportunity…” This is what my dad would call a profitunity, and I could make some money. This is easily marketable, I could advertise it, I could put it on TV, we could have it as a premium item for cereal, because I used to call on General Mills, and I knew how that worked, and I knew all of those people. It could be on the back of a milk carton thing, where kids could order. Right away, as a marketing guy, I knew I could sell it. There are a lot of places where I could do this. I talked to my neighbor, and my neighbor at the time was an elementary principle, and he said we can put it in the school catalog. That’s a school exercise, because there’s a lot of lessons you could learn from this. The day cares would buy them, and I thought that was pretty cool. For the school catalog, all you would have to do is take a picture of it, and it doesn’t cost me anything, and they would put it into the school catalog, and if orders come in, they come in. I mean, that would have been real easy. But I could also sell them in circuses, parades, and, of course, toy stores. And, by the way, KB Toy, which is where this came from… one of my students bought this after they heard my lecture, they had seen this at KB Toys and wanted me to have it, including the bar code and all of that. And this one was made in China. This is called the Five-Tone Twirling Pipe, which isn’t nearly as good as my name, The Howl Thing. But they put a little funnel thing on the top, which really doesn’t effect the sound, and they have a bright color, and they wanted me to see that. It also had a little tag on it, which had some instructions and the price on it. So KB Toys has sold…by the way, KB Toys has just filed for bankruptcy. Whether they got sued because of the Howl Thing or whatnot, I don’t have a clue, but I guess they’re going out of business.
Anyway, nobody was selling them here in America. I had seen these in Europe, I checked and I couldn’t find them anywhere. By the way, one student came up to me after I had given this little lecture and said, “Rusty, you’re wrong, they are for sale. You can find them at the Explore Store at the science museum downtown, where the business venture school is now. And we were members at the time, and I had been in and out of there many times. I mean, I used to spend hours with my kids looking at stuff. And I said, “No they’re not. I’ve been in that store many times.” But he had seen them in there. So I went down and asked them for one. And the lady said that they keep them in the back room. But you can’t play with it here. And I said, “Oh, why not?” And she said, “You cannot do that in here.” But she said that she would get me one. This one had a bigger funnel. And I said, “Now, this is a toy.” And she said, “No, this is a scientific instrument.” And I’m like, well, it had a bigger funnel and a smaller end so you could fill beaker bottles with it and whatnot. But it did the same thing. And when I started to do this in her store, what did she say? Well, she got upset and said, “if you want to do that, sir, you must buy the product and take it outside.” And then she immediately took it from my hand. It was rude how she treated me, but she took it from me and put it back into the box and put it back in the back room. So I could understood why they didn’t have it out on display.
When I had surveyed people, everyone thought it was a neat idea. They thought it was good, and people thought it was kind of neat. There were a few guys that I talked to who said, “Well, I wouldn’t pay anything for it, when I could just go into my garage and cut some off myself.” So there were just a few negative responses. But a lot of people saw it and thought it was neat. They liked the instruction page that I was going to include. But I also surveyed retailers. I went out and talked to toy store owners and others who sold toys. And every single one of them thought it was a great idea, but it’s got to be holed for a pegboard, you got to have a couple little staples that hold this piece of cardboard, the header, onto a poly bag, because they didn’t want people doing this in the store. And I was all right with that, but that would raise the cost dramatically.
This header, by the way, is a two color, black and orange; and this header costs about three and a half cents each. This poly bag costs about a tenth of a cent, the instructions cost about 1.5 cents. It was imprinted on two sides and then folded. So it was a folded legal sized paper and then folded up to fit in there quite nicely. The staples cost like…I don’t know, maybe fractions of a penny per package. And this was going to be packaged by shelter workshop. Does anyone know what that is?
[Like a cottage industry for homeless people?]
Yeah, exactly. I had donated some merchandise and helped to promote this company that I ran across. They were in free space that they were given by a business who moved out of a property, and they couldn’t sell it. It was down off of East Hennipin Avenue in kind of a tough neighborhood. And they had moved into a new facility out in the suburbs, so it was better to take a tax deduction and donate the property to a charity than to try selling it. And what they did is they took handicapped people and gave them jobs. And their biggest client was General Mills, and their second biggest was Pillsbury, and the third was Green Giant. And they sorted coupons. Imagine going to work every day and sorting coupons? Well, they all have to get sorted, and they all have to get back to the manufacturer. But that was mainly what they did. But they did other things as well. So I call the guy and I said, could you receive my bulk product, store it for me, and then break it down into smaller packages, and ship it out with my shipper. Because I wanted to operate out of a desk. I wanted my brief case and… I had a little room in my home where, by this time my daughter Courtney was born, and so her crib was there, and underneath the changing table would be my office. And it’s like I don’t want to take up a whole lot of space to do this.
By the way, I would have student reps selling the product. And this is something I learned from ______ when I was in the ad specialty business. They would hire students; and they would advertise in all the school papers, and say “marketing internships” or “marketing opportunities summer jobs” And you would go there and get a fancy title, ok. You were a marketing vice president or something like that. But, basically, you would just go out and sell something. Well, if you’d go to your hometown or wherever you grew up, and you go back there and you sell to the restaurants that you used to eat at, and your friends and neighbor. And they knew that you could use this as a good reference and a good thing to put on your resume. But they knew that in the next year that you would probably take a different job, or graduate, or whatnot. They would keep all of those house accounts, however, when you left. So the company would reorder two, three years down the road. And in every box, they had reorder information.
So, I’m going to have standing copy on how to get a hold of me printed. But as a student rep, you would get a truck…and I kind of learned this from my bean bag chair friend, Mike, who sold the bean bag chairs down in Texas. I load you up with a truck, let’s say like a small van, and you take a bunch of them and claim a territory. Well, let’s say that in the summer, you want to go to Texas. I draw on the map 35W, and that’s your territory for that summer. So you’re going to go down and visit all of the Gulf Coast from Mustang Island all the way to New Orleans. And let’s say that she wants to go to the Northeast coast, and he wants to go to the Northwest, and she wants to go east, and someone else has a friend in Colorado that he wants to visit. So I divide up the country. And as soon as all of those territories are claimed, then I don’t need anymore students, right. And they head off and they get a commission.
And the commission on this is about ten cents a unit. And, so, if you’re heading down 35W, one of your first stops on the left side of the road when you get into Iowa is going to be Casey’s general headquarters isn’t it. I’ll be here selling to Target and Holiday Station Stores. By the way, Holiday looked at this and was pretty impressed. They were thinking that they wanted to buy some. Because initially, you go out and you talk to potential clients, right. I had a relative who was in the toy business, and he worked for Pacific Toy. Has anyone ever heard of them? They are a rack-jobber; but Pacific Toy is a company that has sales reps all over. And my uncle had been a rep, so he knew about the business, and he told me how it works. He told me they would love this, and that they would buy a lot of it. And he said that he thought they would order something like 500,000 and 1.5 million per year. Well, ultimately, my most optimistic sales forecast was looking at selling five to seven million in a given year. And if I went global with it, it could even be bigger, right. But that was only for national sales. And some of those were kind of optimistic figures at first, and so I scaled it down a little bit.
But Pacific Toy would have liked this. And what Pacific Toy does is they go into whatever store you have and they sell stuff, basically, on consignment. So whatever is in your store that is on display they replace. And then you get a bill for what they replace. And he said that it would be a perfect item for them and that they would love it. So I’m like, “Ok, I think this could work.” And I could see several other places as well. We could sell this to the circus, and to parades. I had a friend who did vending in the parks and all of that. He was also interested in it. So I’m seeing some markets here. Obviously, the specialty market would have worked as you can put an imprint on this. Now, in this case, you would have to flatten it in the press, so it would be molded differently and it would cost a little more. But you could have a nice imprint on there, so Hertz could give them away with your car rental, or Target could give them away, or anyone who would want to give them as a gift. For company picnics and things, can you see what my thinking was there?
So I’m getting excited about this; I mean, literally, I’m not sleeping at night. I’m bugging my wife; and my wife is like, “Well, yeah, move it forward.” And she asked, “How many to you think you could sell to your reps?” And I said, “Easily, 250,000. And once they’re gone, I’ll get the reorders.” So I mean that’s a good thing. Now, if you’re smart enough to force me into a contract, where you get the reorders, that’s fine, but then you have to service those reorders, don’t you. So, anyway, I’ve got the jobber doing the packaging… For the packaging, he was going to do that for like six cents apiece. He didn’t need to make a lot of money on it; he would store the bulk boxes, and they had UPS coming in everyday, and they had a nice loading dock, and they had plenty of space. So I’m getting all excited about this thing.
Now, I go out on my survey; and I survey the retailers and they tell me that they want to buy these in 144 units, and why 144 units? What’s so significant about 144?
{That’s one gross}
Right, that’s one gross, that’s a dozen dozen. That’s an old English thing, and how retailers were used to buying stuff. So that meant I had to package 144 to a box.
So I custom created and ordered a box. And, basically, what I did was I took my prototypes, and I figured out how many I needed on a piece of paper, and then I figured out how tall they were, and you also needed to stuff some foam pellets or paper or something on the top, fold the box over and ship the thing off. So this needed to be white; it needed to be waxed or coated, and it needed to be a pretty strong box. Because if Holiday Station Stores are going to buy them, they probably want to put them outside, don’t they. And you’re going to get some wind and rain, and your circus venders would also want them in a nice box. By the way, the ones that I had bought in France came out of just a plain cardboard box. And I’m a marketing guy going, this needs a label, this needs a box, and this needs some nice stickers on the box. So I had checked with 3M, because we used to sell bumper stickers to a local suppliers, and this same company makes these stickers for 3M. It’s a self adhesive backed material. So I just buy a plain box, and as I need them, they just stick these on. So I think I had to buy initially 10,000 sets 4.
There was one, two, three, and four… And those were 2 or 3 color. Basically, the cardstock, here was crème with orange and black. So the crème color would show up through the pumpkin. And this, by the way, is hangman a big old scary oak tree. And I want to launch this on Halloween. That’s my launch time. Why Halloween, by the way? What’s so significant about Halloween? It makes the noise, there are a lot of Halloween parties, it’s a good Halloween kind of party favor thing, and it ties in with the name. But why else? What’s significant about the date in the sequence of the year for Halloween? When’s the big toy season? Christmas; it’s right before Christmas, isn’t it. So I have beaten many of my competitors for the budgeted dollars for toys, because my product is already in their store. Now, I might repackage it, and some retailers will want Christmas packaging, right. And so my product is in the stores at Halloween and through the best shopping time of the year. And I would promo up to that season.
And by the way, I would have it in cartoon books, and comic books, and the National Junior Scholastic magazine, or whatever. I like the name, you can do some fun things with advertising, it’s creative, it gives it a kind of scary feel, and there are other options as well. By the way, I can have revitalization within my selling season by calling it the O’howl Thing for what day?
[The O’howl?]
The O’howl Thing for St. Patrick’s Day. Have any of you been to the St. Paul Patrick’s Day Parade? I mean, there’s the Edina Realty brief case marching patrol there…they do all kinds of goofy things. Can’t you just see the Howl Thing Family group going down the street, and so and so’s daycare…and these things can actually be orchestrated into music. One of my neighbors was an elementary education teacher, and she got all excited about that. As a matter of fact, my wife was a little leery at first, but because this neighbor was so excited about it, my wife kind of got all caught up in it. She like, “Yeah, that’s really cool; and every grade school will want these, and the preschools will buy them, and teachers will have their Howl Thing bands, actually, didn’t you say that you had a friend named Libby Larson from your high school?” Which is Minnesota’s most famous composer, “You could get Libby Larson to write a symphony, a Howl Thing symphony.” And I’m like, “Wow, this is cool…” So my instruction sheet would share some of that, right. Also, the signs would give them some ideas.
And by the way, if you buy one or two, and you like it, you can order more and get quantity discounts by calling what? You call the 1-800 number. And the retail people don’t really mind that as long as it’s for customer service and fulfillment of multiple sales, and they’re making money on their sales, right. If you’re advertising and promoting a product for them, and they’re making money with a good margin, they’re going to continue to sell it. By the way, what’s the retail margin on this? Well, retailers told me they wanted thirty cents per unit. If they couldn’t make at least thirty cents on this, they didn’t want to deal with it, and so you kind of have to build this into the price.
Oftentimes the price is cost plus, isn’t it. That’s one method of figuring price. So it’s a build up of what your profit… And so I figured if retailers want thirty cents, I should get thirty cents profit. And then we have a dime for the sales rep and we have a few other costs, here, but it’s looking good.
But how much would you pay? I did survey over 170 people, which isn’t a huge scientific number, but it was big enough for me to move forward. What would you pay for this?
{Well, are you’re talking about the price then or the price now for this thing?}
Well, it doesn’t really matter; inflation wouldn’t really affect the price of this thing. People see what we call a price point, what is your price point… They see it as a value. There’s a certain dollar value that you’re going to reach into your wallet and think it’s worth it. So, what do you think it’s worth? What would you pay for it in today’s dollars? Ok, no more than five dollars.
{_______________}
Ok, in a stadium or somewhere, but they would have to pay for the right to sell there, like the Shrine Circus… My dad used to help the Shrine Crippled Children’s Hospital to raise money, and they sold a lot of stuff, so they would probably charge a few bucks more. But KB Toys, Holiday, Target…how much would you pay?
Remember, I told you that I paid $5. Well, I’m thinking, originally, with odd/even pricing $4.99. And I’m thinking I can make some serious money doing this. Now, I started figuring out that if I sell a million of these, and I can get almost $5 for them, I’m going to make some serious bread, here. I mean I’m only paying a dime. By the way, marketing is real simple, isn’t it, buy low and sell high…it’s not very complicated. So, I’m getting pretty excited. But when I did the survey, guess what the price came back to be? With the mean, median, and mode…people looked at this and said that’s a two dollar item; I would give you two dollars for it. There were very few people who said they would be willing to pay $4.99. Now, I was willing to pay $4.99, and the French kids were willing to pay $4.99, but they’re not going to sell very many. When the student came back from KB Toys, what do think the selling price was? It was $3.99. So who ever manufactured this had figured some costs, and figured that they had to get this much for it, the retailer has to get this much, I have to get this much for a commission, I need this kind of profit, and that’s what they ended up with.
Well, when I did my price point survey, the price point survey told me that I could sell a lot of them at this price. If I raised the price to $3.99, you’ll still sell some, but it would be dramatically less. So $1.99 is my goal to get it in at that price. And I think that even today, this would sell very well at $1.99. So now we’ve got to start looking at our costs and talking about costs. This, by the way, is the Five Tone Twirling Pipe, and it says on here to play carefully, and don’t hurt your friends. I came out one day on to my deck; and I had a twin home in Inver Grove Heights with a walk out basement. And my kids had been in the basement where the toys were and they dragged this out. And I saw one of my kid’s friends going like this to my dog, trying to beat my dog.
{See, I thought that, and that’s the first thing I thought about.}
Well, you need to put the warning on there, probably, and… And that kind of entered my mind, a little, at first. But when I surveyed people, and I went door to door for many of my surveys, because I had a lot of people who had kids who lived in Inver Grove Heights, right. And I talked to moms and dads, and I talked to school principles and teachers. I talked to our physics staff here, and our music staff here. Well, when I talked to most of the people, they said that they would pay $1.99 or they would see this as a $2 item. And they didn’t see a problem with that. No one even mentioned that someone could get hurt with it. This product, here, by the way, was made in China. And the bid I got from China was about 4.5 to 5 cents per unit. Now, that order of 500,000 and if I had to pay shipping and customs charges, but that’s adding in all of those costs, and getting them shipped to my door, that’s about what it would have cost. The guy in Lakeville wanted a penny more than the guy in Ohio. The guy in Ohio wanted ten cents. So the guy in Lakeville wanted eleven cents, but I could pick them up, and the shelter workshop had a truck, so that guy said, “Rusty, you’ve really done a lot of good things for our company. If our truck is down there, we’ll pick it up for you, and we won’t charge you a penny.” So that’s nice. So, now, I’ve got three multiple sources. I could place my big orders with China, which would take awhile, but I could place the next big order from Ohio, and I could have refill orders done here. And the guy here was actually willing to store a certain amount of multiple colors. He really liked the idea of multiple colors, and the guy in Ohio like doing black. He really liked doing black. He’d make other colors, but that meant he had to kind of move his machines around and reset them. That’s why the minimum order was 500,000. This guy down here was already doing the multiple colors. So virtually every day, he had a full spectrum; he had some really bright day-glow colors and he had some really cool green. That’s how I got the O’Howl Thing idea; it was actually from him. This is official Irish Catholic green, and I went “…ok.”
So it’s looking good; I’ve got a few bucks tied up here in some expenses. I think I could price at $1.99. We’ll put the bar code on there, the bar code costs just a little bit more than I expected. But how much is a box going to cost? Has anybody bought boxes before?
[Yeah, and it depends on how many; that’s the first thing they’ll ask is how many.]
I didn’t want to buy that many; I was talking about dividing 144 into 500,000…does anyone want to do that math real quick? It’s not a lot….
….that cardboard, it’s going to cost a little more to get a die-cut box, isn’t it.
[Is this off the shelf or is this custom made?]
No, it’s custom made box, because I want to fit 144, and I want it this height. And no one had, in my local area…if I had gone out east or out west or somewhere, I might have found an off-the-shelf box.
[Well, they’re going to be at least $1 a piece…]
That’s what I was thinking. I bought some boxes before. We used to make memo pad holder stuff where we hot die stamped on melted black Plexiglas the company’s name, and it just held some sheets of paper in there. So we had boxes that this guy made for that. And I think I paid $ 0.25 for those, and they were real thin. So, I’m thinking a buck, at the most two. Do you know what the price came back at? It came back at $ 10.00 per box.
{What?}
Yeah, you go out and buy packaging…it will blow you right out of the water. You’ll be surprised. Oftentimes the packaging costs more than your product. That coffee cup…the packaging costs more than the product, and by a lot. That can of soda, the packaging costs more than the product. Packaging is expensive, especially if you clear cellophane wraps, and you want fancy stuff. You have to buy a lot, and that’s a part of the risk where you have to spend some of that money up front, don’t you.
[Was this box going to work as a display, too?]
It’s a display box with a pop up header…it’s a display box, and so that would increase the cost. And I thought, “Well, even if it’s a display box, and we have to add another buck to the cost, I’m thinking maybe three or maybe four, maybe even five.” And if you divide five dollars over 144, that’s not that much per box… But I call up the guy, I give him the information, I send him the stuff, I go see him. Then I got a quote back in the mail, and open up the quote, and I literally fell out of my chair. My wife said, “What is the matter?” She thought I got a letter in the mail saying that my mom had died or something. And I said, “No, this quote came back at over ten dollars a box!” And I have to come up with the labels, so that doesn’t even include any printing, right. I have to have the labels stuck on to it yet, so I’m like, “Whoa, that screws up the $1.99 thing, here…” So I’m starting to get a little worried about how this is going to play out. It’s a good thing I haven’t invested any money into it at this point; I just had some time and energy into it.
So I call the guy back and I said, “You know, I’m going to have to do my librarian at the college, Don Langworthy, who was here for years. He’s going to have to go on the Thompson Register and find this. And I’m going to have him help me do a nationwide or a global search, so I can buy an off-the-shelf box here, because this is crazy.” And he said, “You go ahead and do that, but I guarantee you that your shipping costs will negate any savings that you have. And you have to have them shipped from the sheltered workshop.” And he said, “Unless you can get Northwest to give you free airfreight…and that’s not going to happen. Or, if you sell an ad specialty to Hyman Freight Ways, and because you might have given them a good deal with the free copy, they do this free for you, and you do a trade out… But, you know, go ahead and check.” So I checked a few other places, and they all came back more plus the shipping! I checked with Tillsner, and the Tillsner quote was like $14. So I said, ok, how about if I buy this many, and I up my order? Well, it came down a little, but not enough.
[What about an alternative packaging?]
There we go…all right. So this guy goes, “Well, let me call you back, Rusty. Let me check with a couple of my clients, and let me get back to.” And he did, and he asked, “Well, would you accept a thinner box?” And I said, “Well, it’s got to be a sturdy box, but maybe a little thinner.” And he asked, “Well, would you accept a plan brown?” And I said “No.” And he said, “How about a non-coated box?” And I said “No, it’s got to be white and it’s got to be coated.”
So he said he would get back to me. He calls me back about three weeks later and he says, “Rusty, I’ve got a great deal for you, $ 4.885 per box.” And I’m like, “Now we’re talking…this is what I need. What’s the deal?” And he says, “Well, it’s a 3M box. They’ve got a line of car care products and they sell these in like the Target auto departments and in the Napa stores and whatnot, and it’s a car polish or wax product. It’s got your popup top, it’s already set for their attachment label, I mean it’s perfect. There’s a problem, though. We measured by using your same methodology and found that it will only hold 105 units.” And I said, “Well, that shouldn’t be a problem. We’ll sell them in quantities of 100 and give 5 away.” And he said, “That’s what the 3M guy said.” He says, “It’s not a problem, tell this guy, who is a marketing professor, this is genius. You pay for 100 and you get 105, you get 5 free units.” Because when I took this to a toy store in Southdale, the guy said, “That’s what I do with my employees when there’s no one in the store.” And I go, “What…what?” And he went out into the hall and started twirling this thing around over his head and pretty soon, just like the Pied Piper, people started coming to the store. And he’s going like this, “Come into my store.”
So when you walk by the store, and you see someone doing it… “Oh, yeah, I saw that on TV or I saw an ad about that, or I saw an advertisement about that on a milk carton or on a box of cereal…” Well, this will work. They get five free samples. So I’m all excited again, right. And the best deal yet, is that the 3M guy is thrilled, because if I buy a thousand or five thousand, that’s going to lower his price. And if they buy more, he’s going to pass on the combined purchases between the two of us to 3M and myself. And he’s already paid for the die cut. And that was all part of the cost there, because you could get the cost down a little bit and pay $10,000 up front for the die costs…but I didn’t have that $10,000. So I needed a pretty good price.
So I’m feeling a little better about this by now. Does anybody see a cost that I haven’t thought about? I have the instructions, we have the packaging, the sales commission, the retail profit, we’ve got my profit… Oh, we’ve got to do some promo, don’t we? So, let’s say $ 0.15 per unit. We got to do some advertising.
{___________________}
Shipping and handling is standard…I mean they expect to pay that cost. I could include the freight, but they are really not very heavy. So shipping is really not a problem.
{What about insurance?}
Oh…you had said earlier on that your kid would probably do what?
{___________}
And would that hurt? Ok, maybe a little bit. But that’s not what we worry about. What do we worry about? …Getting hit in the face and scaring you. Now, you have a permanent disability, which my wife and her lawyer friends would be on your ass. And if she were wearing glasses, what if I hit her glasses, break them, and she suffers damage to her eye? What if she becomes blind for life? What’s that cost that she can’t see out of that eye for the rest of her life? Well, I didn’t think about that. I didn’t think about that at all. I’m going back and doing some follow up survey work with the people I’ve already surveyed and say, “Now, before I invest money in this venture, do you see anything that could possibly cause me trouble here?” Well, not one guy—not one guy, and not one kid—said anything about that. But some moms started going, “Well, I don’t know…I might have to think about it. If my kid came begging, I might buy it for him, but I might end up taking it away from him.” And then I’m thinking about what did I see. When I said that to my wife, my wife said, “And I’m an occupational therapist, and I work in a hospital. I’m surprised that I didn’t think about that.” And then she thought back to when she saw one of Ben’s friends whack another friend with this thing, and she had to send that kid home. And he had a big welt on his face. Now, fortunately, it just hit his cheek. His mom called immediately and said, “My son has a big welt on his cheek.” And I had to explain what happened an on and on.
But all of a sudden it became obvious that I had to procure insurance. Oh, ok, so what’s that going to cost? I’d like to know what the insurance policy was on this, but I’ll never really be able to find that out.
{And that’s why they probably made it out of a flimsy plastic too…}
It’s a little flimsier. And the science store had that big funnel, so at least that end wasn’t as harmful, and the also had the little funnel down here.
On of my students, by the way, later on after hearing this lecture, said, “Rusty, I know how to make that product. I went home and I thought about it. Just put a foam tube on the end. And I’m like, “Wow, like insulation for pipes like I used to use for beer can coolers.” I once did consulting for a guy who was going to launch a brand of beer can coolers. He had seen the first ones…. Did you know the first ones, if you ate that material, you would die. It was actually toxic. And kids will eat anything, right. The first brand of those beer can coolers was made by some construction guys who drove Harley Davidson motorcycles and had tattoos. And they started a company in Texas. And I went to their company, and the guy warned me, “You’re going to be a little intimidated when you walk in, because six of them are Hell’s Angels. And I was intimidated; first of all, I was intimidated by the neighborhood that the factory was in, then I was intimidated by all the motorcycles out front, and then when I walked in I went, “Wow, this is like every bad movie I’ve ever seen…” And the guy goes, “What are you here for?” And I said I’m a marketing professor and I have students who are interested in your product and I need to ask some questions and maybe take a tour.” I had come down on my motorcycle; I had a BMW. And he goes, “Well, let me see your motorcycle…” So he goes outside and says, “Oh, that’s a BMW, get out of here, we’re not talking to you.” He’s like, “Get the crusher, man, get the garbage compactor!” He gave me a whole bunch of crap, and teased me about my motorcycle. Then he showed me the whole operation.
His product line was called Titties. So I knew about that foam. My client, by the way, had a white foam that was surgically ok; it could actually be inserted into people bodies. It was made in Scandinavia. He had a direct line on the manufacture and had the exclusive rights for global distribution of this product for this application. It was very nicely printable, and the problem with the black foam was that it wasn’t very printable, even though they were printing them and putting pictures of naked women on it, and college logos, and whatnot, and adds specialties applications. I saw a great product for the ad specialties market. And I knew he had been in that industry; that’s why he had hired me as a consultant. But anyway, I thought that was great I’ll put that on there.
So I sampled it, I went to Menard’s and I got just a standard pipe application, and I tried it on one that fit. And it didn’t change the sound at all. But now when it hits you it’s soft. And so, there’s the core in the middle that is hard, but… But that seemed to work pretty well. Well, of course, way back then, I didn’t know that; that hadn’t occurred to me. Is it good to share your ideas to get other people’s input? Absolutely, that’s what team building is all about. When you do a business plan it’s like writing a symphony and you need good players and you need creative energy from your players, right. Then you make it better, and….
Well, anyway, if that were the case, the insurance costs would go down somewhat. But the first quote that I got was for $ 1.05 each.
{For each unit?}
For each unit…
{Oh, get out of here…}
Yeah, that’s for each unit. I called the guy back and said, “Are you toying with my head? I mean, just because I’m a marketing professor, do you think this is funny?” And he goes, “No sir, our evaluators took a look at the risk, and we’re talking about a product that is almost as dangerous as Jarts. Has anyone ever seen the TV show, like 60 minutes, where they showed the picture of the kid with the Jart through his head? It’s a kind of lawn dart that they used to make. It looks just like a dart, but it’s much larger, and it has a blunt metal tip about this long… Anyway, some kid flipped a Jart over the fence, because he hated the neighbors, which I can relate to. And when I saw that story I could kind of relate it to my childhood. I was kind of a bad kid for a few years. We had neighbors in back of us that we hated, and used to get into all of these fights with. We used to throw rocks at each other from across the fence.
Anyway, this is what I thought about. This kid flings this Jart over the fence and it goes through a kid’s head. And, of course, the lawyers took the hospital picture, and he’s in a wheel chair for the rest of his life…and the photo showed the point protruding out the other side of his head. So when the guy says that it’s almost as bad as Jarts, I’m like, “Well…” But back then I hadn’t seen the 60 Minute piece, so just couldn’t conceive of a Jart potentially being dangerous. And I’m like, “Well…how can this be?” And he says, “No, you’re putting this over your head, you’re twirling it around… What did the retailers say? You have to put it in a package… Our guys looked at this and said, “don’t walk away from this—run. But if you want to sell them, we’ll sell you a policy. It’s going to cost you $ 1.05 per unit.” Wow… Now, basically, he didn’t quote me per unit, what he quoted was $500,000 liability policy, and I needed that dollar amount to kind of cover my equity, which basically meant that at that time in my life, I had considered that I had about $500,000 in equity, which included all my retirement, investments, and what ever that might be, my property, etc.
So the guy who is selling this to KB Toy, how big of a policy do you think he had? I’m guessing that he had a $10,000 policy. And KB Toys is going to look at this and give it to their lawyers, and the lawyers are going to say, you have to show us proof of liability insurance. If you have proof of liability insurance, and we see the policy number and all of that, then we might buy it. And until you do that, they’re not going to buy.
So I knew, right then and there, this thing was what? It’s a no-go—it’s dead. It’s cost prohibitive. Actually, I took the insurance quote and I went to my lawyer who’s on the 44th floor of the IDS Tower. And I would love to go visit him, because he would show me his video tape of the Metro Dome be built. He took one frame every day from his office window. It was really cool. But, anyway, my brother-in-law was in the real estate business, and his name was John Parson, and he did all their real estate law. And so he would give me legal services, basically, for free. Every now and then, he would bill the Mitchell corporation or the Mitchell family, but I could call him on the phone and get advice.
Well, I took it down there, and the minute he looked at it, and he saw what it did, and how it made the noise…and I was just having fun with it, while the secretaries came in wondering what was going on. The minute he looked at it he went, “You teach marketing? If I was a lawyer, I would drive by your house to see that it’s a nice house, and I would be all over your ass.” “Marketing Teacher Sells Creative Toys That Hurts Children” You can almost see the headline on the newspaper, “Idiot Marketing Professor Sells…” And he went on to say, “If I were your boss, at Inver Hills, and I knew you were messing around with this on the side, I would fire you!” And I’m like “Whoa…thanks for sharing that thought. That never occurred to me.” And he also said, “And you’re going to hire students to go out and sell these in vans in the summer? There’s going to be one lawsuit every week!”
So the insurance quote was probably in line. And he said, “Rusty, don’t walk away from this, run. Don’t ever pick this up again.” So, is this on my back shelf? Yeah. Now, maybe when I’m retired and I’m desperate, and my Signs For Sale Business has failed, I might look at it.
But can you see this guy who sold this to KB Toys? He might be living out of a van just like I wanted my students to do, right. He’s sleeping out of the van; he doesn’t have anything. Even if he went to his home, his home, which is probably a motor home somewhere or a park model, or something. But he probably has nothing. So there isn’t going to be a lawsuit of $10,000. Plus, KB Toys has a blanket, or an umbrella, liability policy.
I sold balloons; there’s nothing in the world that’s more dangerous than balloons. This toy is not even close to being as dangerous as balloons. Kids die all the time from balloons. They pop the balloon, and then they inhale pieces of the latex. So we had, with every balloon package, that went out a whole thing about how you have to train your employees to their safe use. You know, we’re going to give you these balloons, but never leave your child alone with them. I mean, we really were worried about that. We had a company that had a 100 million dollar liability policy called Oak Rubber. And we would only sell Oak Rubber balloons. But I could get them cheaper from this other place, but what is there liability policy? Do you want Cennex to get sued? You’d better have a supplier that has a good liability policy.
So, I’m looking at this thing thinking, “…yeah, this thing isn’t going to happen.” And this guy probably had $10,000 and the lawyers probably never checked it. But if KB Toys is going bankrupt, there could have been a lawsuit on this or multiple lawsuits that’s a part of that whole bankruptcy proceeding. And all it takes is one or two lawsuits, and what happens to your insurance rating? It goes up…yeah.
[Could the retailers not take it unless they saw an insurance binder?]
Absolutely. When I went back to talk to some, they went, “Oh, I never thought about that part of it, but, yeah, you had better have insurance. So many retailers would have said no. And some retailers who bought it would have had one or two bad experiences with their clients, and then they would have not reordered. So the reorder thing goes all to hell, because some of my predictions were based on reorders. So it’s like, “Ok, this is clearly a no-go.”
So when you’re researching and it turns out this way, that’s ok, isn’t it. You’ve done the marketing plan, you know the elements, you’ve worked through the steps, you’ve looked at some costs. And I don’t expect you to go into the same kind of detail that I did on this. But how long did this take me? It played out over about a year and a half to two years. And I dealt with it a little bit here and a little bit there, and I dealt with it over Christmas break and during Spring break. This summer, I worked even a little more with it. And I also took several trips to see the sheltered workshop guy. By the way, he was so disappointed. He almost cried, because his employees were going, “Hey, that would be cool…” These were the kind of people that the bus would pick them up in the morning; they would take a city bus, but if that bus driver was forty feet off from where he dropped them off, they didn’t know where to go. They were dropped off; the bus driver would pick them up and drop them off every day. If they had had a different bus driver, that was a problem. They would get picked up and dropped off; they would leave the bus and go right down the sidewalk into their apartment. And I felt kind of bad that I couldn’t give them the business, but I can’t sell a dangerous product.
[Can I ask a hypothetical question?]
Yeah…
[If the retailers would have taken them and not question about liability insurance, is it possible to set the organization up as a sub chapter C corporation and try your luck. And if you get sued, you just get sued to the extent of the corporation’s assets?]
If somebody sues Mitchell Advertising, my dad would just start another business again, right. It’s a sub chapter S…you know. So they take your file cabinets and your desk…what did I have? Now, what I could do is I could give this idea to a student and let a student run with it, and I simply get some profit sharing. I am not connected with the company in any way. You paid me as a consultant, because I know all the places it can be sold, and I can help you with that.
By the way, I had renters who lived with me, who are buyers, now, for Dayton’s. So, I mean, they got me into see the toy buyer at Dayton’s, and they got me into see the toy buyer at Target. By the way, the toy buyer at Target…oh, he was excited about this; he thought it was really cool. He wanted some with Target colors and some with the Target logo, and special Target packaging, and they got pretty excited. Once I knew about the liability, I called them back and said, “By the way, this product isn’t going to happen.” And he said, “Oh, you know, you’re right about that, but, you know, our attorney would have caught it.” And I go, “Oh, really?”
By the way, I wanted to have Hummers where I would have graphics on them, and where I could rent them out for hunting and for the prom seasons. So if you were a bear or a moose hunter, you’d get the Hummer with the hoist on the back… Have you seen those Hummers with the hydraulic hoist they use in the military? They also deck them out for hunters. And my neighbor quoted me on that insurance deal, and he said, “No, this is not going to work. Kids might rent the Hummers for prom, and that could be a big problem. But imagine a bunch of drunks, which is what most hunter are, out in the woods with an indestructible vehicle that would go anywhere. They’re going to come back wrecked; they’re going to wreck stuff; they’re going to do property damage…” He said that’s not a good venture. So many times it’s this insurance thing that comes back to you.
I also wanted to have the ski patrol to use them. And I wanted like Blue Cross Blue Shield to sponsor, so that the ski patrol could provide you the comfort of being inside when you get injured. When I talked to the resorts about that, what did they say? “There never going to be on my property. You’re going to destroy my snow base with tire ruts. So I would never allow one of those on my hills. There’s no way!” All of a sudden this is what I call reality therapy. So you’ve got to go out and check a little bit. It sounded like a good idea, right.
Anyway, the Target story… I knew them quite well, because we had a Target buyer contact me, and he wanted imprinted bike bags. So when you bought a bike, and this was when Target first started selling quality bicycles, you would get a free bike bag. It’s basically just a clothe backpack. And we had a manufacture who had Hmong laborers, who made them real cheap. They could buy that backpack for like a $1.45, and they could claim it as a twelve dollar value. It had a retail value of twelve dollars. It was going to have the Target logo on the back. I had made up some spec samples…I thought I was going to sell hundreds of thousands of these; the manufacturer was, here, in town, and he was all excited about it. What happened was the Target buyer can’t just say yes to this, it has to be cleared with the legal department, right. So what did legal do when they saw it?
[So there would be this Target logo on the back when you’re riding down the street with your bicycle.]
Yeah, yeah… The lawyers went, “No way!” They wrote on the letter or the application form that he had… They killed the project immediately.
{Why would they have done that?}
Well, it never dawned on me, but you’ve got hundreds of kids all over the country riding around with targets on their backs.
{Oh, you mean the Target logo!}
No, Target’s logo…the name Target along with their logo, there red logo. Well, three years ago, after that had happened to me, I was disappointed. And my dad was also disappointed, because he finally thought that I was going to get a big order. And you always dream about that big order; every salesman dreams about that big order. This was almost as big as the General Mills thing in the products where they do the heat transfer logos, the little iron on patches that you get in the specially marked packages of cereal. But, no, we can’t do that. Well, about four years ago, they launched a campaign, and it’s not going to be repeated; but they bought all of these billboards, and they were custom designed billboard work that cost them a lot of money. But they had the Target logo with an arrow going through it. So when you saw the billboard from the roadside, you could actually see a three dimensional arrow sticking out of these.
Well, as soon as I saw that, I called my buddy, Greg Sorenson, who was big into the promo stuff, and I said, “I had to something rejected from Target a while back that was… And he goes, “Yeah, yeah…I already heard about it. I’m glad you called, thanks for the tip.” And he said, “We don’t want people shooting out our signage in the stores, and, basically, you’re right; you’re giving people that idea.” But because it was an ad agency that created it, it didn’t have to go through a legal department like your product thing would have to. But you do have to think about that kind of stuff.
But a foam pad might work on The Howl Thing…put foam pads on it and…
{Well, not really. Like those sock-um bop-um things, those blow up boxing gloves, which show kids how to fight without hurting each other…no.}
You know what my wife said? “You’re going to have to attach that thing on in such a way that it cannot come off, because if it comes off then you could hurt someone and that’s the problem. I still want to have a Howl Thing band if anyone wants to do that, I’ll join the band. I think it would be cute. In a controlled environment, right, in the St. Patrick’s Day Parade. And we could get Libby Larson to write the score for us.
Can you think of some other ways to distribute the product? Toy stores, grocery stores… How about today? Back then we didn’t have this thing, but today…
[Oh, the Internet.]
Oh, yeah. And that could make it global virtually overnight, right.
So you create your list of where you’re going to sell it, you create your packaging, and you describe your product and you talk about price, and place, and promotion.
{If that was made in China, how does their insurance work?}
That’s why it’s made in China. If you want to sue the manufacturer, you have to go to their country of origin. So if you want to sue this manufacturer, you have to go to China. We had a fire in the College Center building. A coffee pot was left on overnight. My neighbor is the director of safety for the State of Minnesota, and he handles all the risk management insurance stuff. So he told me the whole story, even though I worked here. A faculty member donated the coffee pot, because it was basically old, and it was made in China. So the State of Minnesota had to send their lawyers to China to try and hold this company liable. Well, you have to do it under Chinese law.
[Ok, what if you had it manufactured in China?]
That might help. The thing is, what do lawyers do? They sue everyone. So in the balloon business, we had no product liability insurance at our company. We had a general umbrella liability policy that covered people slipping or falling or what ever, because they were on our home property, right. We had to have that. If we got sued for a product liability thing, it would cover that, but it wasn’t nearly enough; it simply wasn’t enough. But lawyers sue everyone. If a balloon had hurt someone, they would sue Mitchell Advertising Incorporated, because we were the distributors; they would sue the manufacturer, and the manufacturer has the biggest pot of gold that the lawyers would go after, right. But if it had Cennex or County Seat printed on it, they would sue them as well. That’s why my dad would not sell matches. He would not sell matches. We got a subcontractor to sell matches that we got a spiff from.
But do you see how this tube has these little holes on the bottom? I never thought about that when I was actually looking at this product, but once it breaks the seal for the link, at some point it won’t make the noise anymore. So that’s kind of a product defect.
So, anyway, do you have an idea how you’re going to do your marketing plan, and how you’re going to go about it; and how much fun it is? I had a good time doing this, I really did. I didn’t make a penny, but I had some fun. And what did it cost me? Only a little time and effort. Half the time I was doing the survey, I had the kids in the stroller.
Ok, I’ll see you; it’s time to go.
[Do you remember the bongo board?]
Yeah, I had a bongo board. It was essential in helping me cure my dyslexia.
[Those things can be dangerous as hell. Not only for the person using it, but some one standing next to them; it can be like a flying missile.]
They are used in occupational therapy labs and physical therapy labs, but under controlled conditions.
[I was thinking about bringing that back.]
Yeah, but the liability thing is…
[Well, it’s always the liability thing. But I was thinking if you go sub chapter S, your liability would be limited to your company assets, right?]
Well, actually, you can be held personally responsible for an injury if you know something and so that’s not always a true. That’s gotten more complicated. Lawyers have really… I mean McDonald’s gets sued because their coffee is too hot? Look all the labels on my Honda mower.