JoeWaisman wrote:It pays to know a bit about the person you sell out to as well. Again...not speaking from experience but analysis: Consider Jonathan Buford who created the "happy kitty" adult toy. It was unique, and innovative. He was in Asia (Hong Kong) I think and sold the product at a wholesale per unit price to a guy in the US who wasn't able to do much with it. The product sold a little bit, and the inventor made some cash, the US guy who bought it in bulk and warehoused it lost most of his investment. Why?
I think knowing the full story in this case would be a better example. Hi, I'm Jonathan Buford.
The fact is that no one made any money in this case, and that a lot of potential return was lost.
Initially, the adult toy company was founded by 3 people, Mike (the distributor and investor), myself, and the 3rd, the missing person from the anecdote, was Phillip, the Salesman. Mike and Phillip were based in the US and came to HK for sourcing and sales presentations to retailers. I lived in HK doing children's toy product development at the time. All three of us were new to the adult toy industry, but it seemed like a good opportunity since the market was not innovating (this was back around 2005 or so).
So, in my spare time I had been working on concepting and making rough prototypes of what became the Happy Kitty. Mike and Phillip came over one fall for the toy show, and I told them about what I was working on. Phillip thought it was a great idea and Mike did as well, so we set up an arrangement that was mutually beneficial to all of us and Mike agreed he would invest in the venture.
I quit my job and worked on this full time, this is where I *made* money in the above story. I even generated enough marketing hype to get an interview in Wired online (http://www.wired.com/culture/lifestyle/ ... 5/12/69788
) which drove 50,000 unique visitors to the web site within 2 months. For $35,000 investment, I was able to develop, test, tool, and manufacture the first batch of 2000 Happy Kitty units. The cost per unit was around $10 ex factory, I did not make any additional mark-up. So, for $15,000, I developed, prototyped, and did the shipment inspections.
To be perfectly honest, we never found any issues with differences in race during the testing that was done, however, this first batch of 2000 was only intended to be a sales sample batch and to settle early purchases. The plan was to have Phillip go out to the wholesale buyers and sell the product, generating additional orders which would allow for us to improve on any feedback from customers.
There was an issue with the performance of this first batch due to the production elastomer material having an impact on how well it was able to move. The result was that the movement was restricted and not as noticeable as the early prototypes. The solution to this was to increase the power available by moving to a rechargeable battery in the next order, but we never even had that opportunity since Phillip never went out on sales calls.
Mike and I discussed what to do, and he wanted me to come to the US to do sales, but there was no additional budget for this. At that point I had no option available to me but to find consulting work to pursue to make ends meet since I had quit my job expecting that our company was adequately funded.
I never did ask or get anything from the sales of that first batch, and based on my estimate, Mike made most or all of the sunk cost back from those sales.
So, perhaps still a similar lesson, but I wanted to at least set the record straight as the story told above leaves out a few key facts. This was my first startup, and I use it as an example that product does not equal sales. In this case Mike and I both were hamstrung by a partner that did not follow through. We were trying to start a company with too little money, and so did not have enough runway available to handle any issues that did arise.
Probably, if I were to go back and make a change to the whole story, I would have started with something that was not quite as innovative that would still have some edge to it. Something that would have been more consistent between the prototype and production. The second part would be to double the amount of initial investment that was secured, or not do it at all. We just didn't have enough resources to handle a change in plan, and I think each venture has a pivot or change in plan along the way.
If anyone has any questions or comments, you can find me on twitter: @jonbuford.