Real life business problem
 

An associate of mine just invented a unique product that we will be bringing to market soon. This is a real life situation we are struggling with, and not a fictional scenario created to start a thread, but it does segue well with topics we routinely discuss here.

################################################## ##########################

The product is unique, trademarkable and patentable. I guess you also need to know that it is a highly useful consumer product, but is a non-essential. We will have a registered trademark momentarily, but the patent application will have to wait due to financial constraints. Even if/when patented, it will be hard to protect as minor changes will allow similar knockoffs to be sold against our original groundbreaking design.

We want to produce the product locally and will be able to make a decent profit at our targeted selling price (factoring local wages into our cost formula) for "a while" until whomever steals/modifies our design produces the product overseas using lowest common denominator wages.

We estimate "a while" to be perhaps 6-9 months. With the lower overseas wage cost in place, competitors will be able to make a profit at our cost level and we will be out of business shortly thereafter. This is a viable product we estimate to have a 3-4 year growth potential, and then sustained plateaued sales for many, many years thereafter.

We already know that we can produce and import containerload quantities of the product for pennies on the dollar overseas, still sell at our originally intended price, while dramatically increasing our profits and protecting ourselves against lower cost competitors. Knock-offs will occur, but at least we will have the lowest cost production factor covered and will be able to compete on a level playing field costwise.

The conundrum is that we want to create the numerous jobs involved here instead of in Asia.

I think this is a problem many US businesses face today, and I would like to get the groups input as to how we might protect our ability to keep long term production here in the US.

Patent seems the only way, even if you were to produce overseans it would be a matter of a few months while they reverse engineer your design.

A conundrum indeed.

Two things spring to mind. 1st, are you doing apples to apples labor cost wise? We should be able to out produce developing countries' workers.

2nd, I hate to say this, but think Barney. You need to create a premium brand awareness if possible. Anyone can make a purple dinosaur, but only one has the correct spots - and most people know it.

It might be unseemingly, but I think you've got no choice but to keep an import plan as a backup. Even importing, you're keeping the sales and engineering here, as well as the profits.

Pete

sadly I think you are swiming up hill

what I would do is fly over to wherever you could source it from and "sell" the product to one of the biggest potential manufacturers as a "personal investment"

This will raise private capital for you and insure you a reasonable, continual and quality controlled supply.

buying production time and struggling with quality control could make your entrepreneurial work worthless in no time

then take your profits and invest them in the local community to supply jobs

manufacturing here in the US something that is not time sensitive or high end niche will leave you with at a financial handicap that you will not overcome

depending on the complexity of production look to mexico
They can assemble (if applicable) for you, probably not manufacture

Over the years I've trademarked several items, but patent law is a field where I have little experience. Are you thinking if we produce overseas without a patent, they will tend to produce and sell against us because we didn't protect it?

Good points.

-- If we produced here, yes we were thinking initially of higher cost "boutique" quantities to test market, and then a full ramp up.

-- If we initially went overseas, full investment and large quantities to hit economies of scale, and especially to hit container-load shipping pricing is needed.

-- Still, when you do compare apples to apples quantities, the shipping savings stateside are more than eaten up significantly higher wage costs. Our numbers show Asian production wins, but we may be missing something.

-- In a sense I think we have the "Barney factor" to a relatively high degree, but I've been there before with new product launches where we both won big and lost big. Naturally, we always thought we had the best idea since sliced bread going in to the rollout :D.

Great, Nooner. Encourage him to do what is killing this country, when the man is trying desperately to keep the work here. This is precisely what we're NOT supposed to be all about.:rolleyes:

Dave

Mossy, I don't know what to tell you, but I hope you are successful. Thank You, Sir for making efforts to employ Americans.

Dave

The "swimming uphill" metaphor crossed my mind and makes me wonder if "non-essential consumer goods" really can be produced here long term. At any rate, our intent is to find a way to approach the same cost per unit produced here as opposed to there (Asia/Mexico).

This is the part I haven't thought through. I can visualize what paying a next door neighbor does to the local/national economy, but I'm not sure what happens when the production dollars and return freight go to Saipan or Sonora.

best of luck to you whatever direction you take!

I honestly don't want to start that fight, but this is my point. We are caught in what looks like an inevitable situation of producing here (which I believe is the best ethical answer) and sacrificing long term viability or producing there to insure profits, literally at our working neighbors expense.

I love the product differentiation concept, the "Barney factor" as above, but in a sense that admits we can't succeed without a marketing "gimmick" or whatever you want to term it.

The one thing I believe is that we "invented" something new, here in the US, but once divulged, the lowest cost producer will be the one who simply takes the idea and wins the battle.

I know I know but facts are facts

The problem we have in these regards cannot be corrected from the bottom up. That approach will simply keep the major corps unchallenged. Do you know how hard it is going up against the Nike's of the world? It almost can't be done.

Thanks to all who have contributed.

I'm meeting a mentor in a few for lunch who owns a large office supply chain.

I remember about 6 or 7 years ago he started traveling to Asia to buy office products. At first he purchased several container loads of just 10 SKU's. I remember leather Executive office chairs, black and mahogany leather sofas/loveseats as might be in an upscale office or waiting room, 2 and 3 drawer file cabinets, basic office chairs and desks, etc.

He told me years ago that he would make as much on those 10 SKU's as on 100+ other SKU's in his showrooms. Naturally, he expanded his selection over the years. He kept his stores open and most of his sales force, but I'm sure his domestic suppliers laid off a few.

At any rate, I'm off to get his take on my situation.

A product's image is what sells, the product needs distinction so as to crystallize an image. It is not gimmick it is differentiation.

A patent at least gives you some basis in the law, although the process is time consuming, hence the "patent pending" notation.

I doubt it would stop the Chinese, note the reference that nine ou of ten users of Microsoft programs are illegal copies, even within their government.

As for protection, I prduced a 900 page workbook on a forthcoming telephone networking standard and it had "Copyright my name" on every page. While attending a conference on this subject I had a professor from IIT tell me how much he admired my work and that he was using it in his classes. IIT never paid me a dime.:rolleyes:

Good luck, but I see two opposing goals:

1. Make as much $$$ as possible.
2. Employ American labor.

One has to give, the choice is yours.

Is it possible to produce your upscale product here in America and then compete with yourself with cheap Chinese knockoffs? Then play your best hand?

I'm sure your mentor will be far more help than myself.

Chas

That's a good point, but there are also other things to consider; regulation, taxes, cost of shipping, importation, etc., etc., etc.....................

I'm just glad to see he cares enough to make an effort. So many would have never even considered option #2.

Dave

Just out of curiosity, what advice did your mentor give you?

Chas

Well, it was depressing.

He now travels to China every 3 to 4 months on buying trips and purchases almost everything he sells by the containerload direct from the producers. He buys large enough quantities of some items that they are "private branding" the items to reflect his store's name. As his quantities grow they are even beginning to private label the smaller quantities based upon his overall growing volume. He buys almost nothing from his former vendors here in the US (although their products are now mostly manufactured overseas too). He just now cuts them out of the equation by going direct to the source.

His advice was that I accompany him on a future buying trip where he would make some introductions that he thinks would help me.

I drove home after lunch feeling ill about the whole revelation that we probably won't be able to pull off producing here in the states.

Thank you.

I've always placed a great deal of stock into the advice of a mentor.

I learned a lot from mine, only I never developed the appetite to bet it all on the last card.

He was a gambler, I prefer a calculated risk.

Chas

Interesting note, we can't build small cars here because of the high cost of labour. So GM now pays assembly line folks $14 /hr instead of $28/hr. Total savings on the cost of the new Chevy Scion - $173.

Care to join us in the race to the bottom? I would happily pay that extra $173 if it meant someone getting a decent wage.

The strange twist to all of this is I am acting as a "middle-man mentor" to the product inventor, who is a close friend, and who's now moving into a more entrepreneurial phase of his life. My role here actually will not encompass production, but the marketing function, but I'm trying to look out for him there as I have a little production experience plus the mentor I visited.

At any rate, using himself and his family, my friend believes he can produce cheaply. So I asked him if he was OK when the first 100 orders came in? He answered yes. The first 500? Yes. The first thousand?

And there I could see he was stumped because he knew that was his ramp up point where he would need to pay, train and manage others to produce.

We went through the exercise of estimating what that would cost and he realized then and there he had been pricing himself too cheaply (almost at zero). Additionally, he's reluctant to put a cost on himself if he is only managing and not hands-on producing (an error many new business owners make).

So, he's still going to forge ahead and I'm still going to do what may turn out to be some pro bono marketing work. I can't help myself because first, he's a close friend, and second, the thrill of bringing something new to market is like pure adrenaline to me!

I don't know if it's against forum policy, but I will post a link if allowed when we roll out.

I hope you do post a link as you've piqued my curiosity. I also wish your friend and yourself the best of luck.

I can also appreciate the enjoyment you derive from bring a new product to market. Developing the better mouse trap and then closing the deal is the fun part. And the more challenging the mouse trap is, the more fun it is.

Chas