Tracy Hazzard Designed 250+ Products Resulting In 1 Billion In Revenue From Costco To Amazon From The David Aladdin Show With David Aladdin
The amount of products that we could shift over to the digital world is amazing. With new metal technologies and ceramics coming, surely it is the time for our business to grow. The CEO of Hazz Design, Tracy Hazzard, joins David Aladdin to talk about secrets on product commercialization and how a team could design, develop, and source many products in a limited time. Tracy is a ghost designer of 250+ consumer products generating almost $1 billion online and at retail. In this episode, she discusses how to deal with certain situations involving commercialization decisions. She also explains brand building, design focus, and patent protection and emphasizes the importance of understanding the original core and identifying the expression of our brands.
Listen to the podcast here:
We’re heading into the fourth quarter. This is the AMZ Secrets Show and your host David Aladdin. We are at the International Command Center Outpost 46, Podcast 46. I built the show to jump past the basics and into the frontlines of Amazon. Let’s be the Elon Musk of Amazon. Let’s be visionaries. Let’s push ourselves to hit our limits and exceed our own expectations.
I oath to understand the person, their strategies, their secrets so that all of us can build leaner and better businesses. Our sponsor is AMZ Secrets’ Keyword King, a new tool in the cyber VIP platform that allows our community to create the most relevant, powerful keyword combinations while filling that 5,000 character level in your Amazon backend.
Thus, giving you more relevant traffic and ultimately more sales per day and also a big announcement coming soon. On the show, we’ve got a special guest. Her name is Tracy Hazzard. The CEO of Hazz Design, ghost designer of 250-plus consumer products, generating almost $1 billion online and at retail. She has an Inc. Innovation columnist, co-host of WTFFF?! 3D Printing Podcast and the co-inventor of 37 patents. That’s a lot of stuff right there.
It is. I have a long career already.
Can you tell us a little bit more about yourself?
I went to design school. I have a degree in Textile Design from Rhode Island School of Design where I met my partner and my husband. He is an Industrial Designer. We’ve been designing together for years. We love this. We love to design. We love to figure out what next product is going to be great. It’s my superpower.
I noticed that you have 37 patents. Before jumping too far ahead, the first time you filed out a patent, how long did that take? How long does it take you now?
We don’t always do it ourselves by any means. We’ve invented something for a patent in hours. We’ve also taken years to go through and come up with something and refine it and get it to the stage at which we were ready to file a patent on it. It just depends. We invented something around podcasting. We kept tossing around the idea that we talked about it. We’re like, “We could do that.”
All of a sudden, we said, “This is valuable,” and filed it within days. It just matters on what your purpose is and what you’re going to do. We practice something we call intentional invention. We don’t invent or file a patent for anything. We have no intention of taking it to market. We must take it to market or it’s not worth filing.
Patents themselves are expensive to file. Even protecting them is way more expensive. Have you ever had to protect one of your patents?
Absolutely. Against Palm Computing and IDE are the largest design firm in the world. Back in the early 2000s, we had a patent infringement case against them. We settled because you don’t want to take it to court ever. We got lucky with the PR and the fact that Palm Computing wanted to go public. We got lucky that they settled quickly.
Are you allowed to disclose how much the settlement was for?
It was like nothing. It was just for royalty. It was they’re going to stop infringing but what it did for us was it enforced that our patent that we had was the patent, it was valuable and it allowed us to then license and then eventually get our business acquired because of it. Otherwise, it would have completely invalidated our entire business.
A lot of the readers have patents and what value does that bring for the business in terms of acquisition? Did it substantially elevate your business in the acquisition process?
It depends on how good they are. We practice something we call patent fortressing. When you have a core patent in the middle of it, we circled it in every way possible that somebody might infringe on it and we just filed a $130 provisional. The expensive part is us breaking your patent. It’s like patent hacking. We go through and we try to break it in any way possible that other manufacturers are going to do it and then circle your patents. Now you have a portfolio of patents, which makes it way more valuable. We’ve done that for about three clients over the years. They tend to go for about 3X because of that.
I filed a few patents myself and it’s a very tedious process especially if you’re doing a lot of it yourself. Let’s talk about the products that you’ve been designing. Where’d you start off initially?
We’ve been in the mass retail world for most of our careers. I started working for a textile company and then working for Herman Miller. I started out on the commercial side of things. Herman Miller is the company that makes the Aeron chair that everybody sits in on all tech companies. It’s like the iconic chair. I was there when they designed and developed it.
I had this great experience of understanding the product development process. Translated into wanting to do it faster. The cycles are a lot faster at retail and that’s seemed appealing to me. After we closed our business and got it acquired, the one that we went up against Palm Computing on, then we just started working in any possible way with mass retailers. That’s how we did it.
What year was that?
We would have started most of our mass retail work about 2002. We’ve been doing it a long time. We did some before that but it was like, we were selling our products into mass retail and it wasn’t ghost-designing for other people.
Technically your first project was the Herman chair?
My first project was a bunch of automotive textiles. There’s a Chevy that still has my fabric on it. That was my first project out of school but my first mass retail product was our stylus pens for our handheld computers were our own products that went into mass retail. That was my very first product. My first product on Amazon was, ironically, an office chair.
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We were ghost-designing a bunch of chairs for somebody, they decided to start selling them on Amazon and that was a new thing to be, for them to supplement their brands. Most companies that sell to mass retail only care about the high volume. We sell an office chair into Costco and it does hundreds of thousands of units. When they decide that they want to do what is basically going to be 14,000 units a year on Amazon or something, it’s like nothing to them. For them to decide to do that, that was progressive. It shows you the power of Amazon at that time.
Did you get into Amazon really early in the game?
We did. When you’re working for underbid brands, that happens.
When you’re an employee of a massive company, you’re just like, “They can do it but I can’t do it.” Eventually, at some point, you figured out that you could do it yourself.
I did but I decided not to. That’s the interesting part. We don’t do it. We don’t sell our own products on Amazon. We do it for other people. There was the main reason for it. I don’t want to be in the algorithm business. I want to be in the design business. I prefer to be on the supply side. I prefer to figure out what people should be making, helping you get that made, get that sourced, get that out there and stay behind the scenes.
I haven’t brought in a guest yet that is on that side. You talked about you guys do all of the design of the product. What advice do you have for our readers in terms of designing? Let’s say if we were designing our own products, what would you recommend we do?
A massive amount of research. 7 out of 10 new products fail. We have the reverse of that. We have an 86% success rate. Our products, 13% of them weren’t successful. That didn’t mean they didn’t sell units. They just weren’t successful by my standards. It’s one of those things where when you do it you have to do a lot of research. You have to study the trends. You have to know what you’re looking for. Whether it’s going up, going down, go sideways, you have to look at that carefully and make sure that you’re on the rise because if you’re not, it’s a waste of time. You’ll spend all your time trying to get your rankings only to find out that you can’t compete.
I’m guessing you don’t do just exclusively Amazon products. Do you also do retail in other types of companies?
We do it all. The thing is that I’m private so I will have a huge advantage. The companies that sell in mass retail that we work with that happen to have products in Amazon believed that their brand is powerful enough to be attracted to the customers on Amazon. They don’t work that hard to get their ranking. They don’t work that hard to get their reviews. They don’t do what you do. You have an opportunity to outrank brands, which is why some people get acquired. Some private labelers get acquired but you have to build your brand with the understanding of what’s going to appeal to them to buy you out and that’s where I see it falling apart for a lot of people.
In terms of specific design, what do you recommend us not to do?
I recommend you not be safe with color. Don’t take it too safe because, on Amazon, things need to sing. They need to show up. They need to stand out. When you come in and you’re going to have some knockoffs happen. They’re going to take the safe route. Not that every SKU that you have or every color that you offer should be that. The one you work hard to list, the one you worked to be your primary listing, that one needs to sing. It needs to stand out.
You need to have something special. Not having a me-only item, that’s what we call it here. That’s where patents come in or where special sources come in that no one else can get stopped going through Alibaba. Going that route to create something that becomes me only is the best way to create longevity. You work so hard to get your rankings and your reviews and you do all of that. Why should you do all that work for somebody who’s stupid underneath you and take it away from you? You need to give yourself as much longevity as possible. That’s where the money is.
I think I do that subconsciously. I try to differentiate myself as much as possible from the other competition while being a product that people want. That combination I find critical.
The other big tip I can give you is to think about women. Women are the predominant user base on Amazon. If women don’t want to buy what you have, it will never work.
That’s a good way to try to take your product into perspective.
I tell this all the time. Whenever I give a speech somewhere, I’m always like, “Women are the predominant influencers of purchases across retail.” Everywhere, mass market, Amazon, anywhere you go, they are and even including men’s underwear. This is the running joke. People are just like, “No. That can’t be the case.” I say, “Think about it this way. When you first started to have underwear bought for you, who bought it? Probably your mom. When you were on your own, you might’ve bought it but you probably wanted a woman to see you in them so she was influencing your decision there. After that, it might be your wife, your living girlfriend, significant other, whoever that is, who buys it for you as well or who you buy it for because she likes it.” Women buy or influence most of the purchases. We’re talking close to 90% of the purchases in the world. When you look at that, you better appeal to women. It is not a niche market.
I heard one seller that all he does is he takes the object, turns it into a pink version and he finds that it’s a pretty hot type of seller thing to do.
Please don’t do that. That’s what I call it. Don’t pink and shrink. Overall, it’s a terrible failure. The products that we create, we call them making them covertly feminine. We give them some covert details that just appeal to women whether it’s a softer finish, better texture, a slightly off-black color, depending on what it is. All of a sudden, it will sell a good 20% to 25% more than the SKU in the previous version of it. A pink, it’ll have a hit but it’ll die quickly. It might work well in October but that’s about it.
Softer finish, softer black, softer everything. Design the product more feminine just because the amount of women on Amazon is a lot more than the guys that shop on Amazon.
We also want to see patterns, colors and things that appeal to us. We’re out there buying gifts for other people too. It’s not like we don’t want masculine if it’s meant to be masculine but it has to make us go, “That’s the perfect gift for my husband. That’s the perfect gift for my dad.” It still has to appeal to me to buy it, not be appealing just to him.
If possible, can you describe a product that was pretty masculine and you’ve made it slightly feminine?
I’ll go with one of our office chairs because it’s an easy one. When we first started designing office chairs, we noticed this phenomenon. You could walk into an office space and all the women would be sitting on the very front edge of their chairs and a lot of them would bring pillows from home or stuff sweaters behind their back. We dug a little deeper and I discovered that the office chair is designed for a 6’2” male. I don’t know about you but not every man I know is 6’2” either. If the chair is designed for a 6’2” man and I don’t know any women who fit that profile, then it’s designed for all the wrong sizes.
We decreased the depth of the seat. We didn’t make it smaller. It didn’t look smaller. We created a herringbone pattern, which is a very masculine pattern, like a Chevron. That’s a stitch pattern that went into the back of the chair. We turned it into an espresso color and then the most important feature we did, we took flip-up arms.
You could scooch in closer to your desk. When your legs are short, your arms are shorter and everything’s different, if you could scooch in closer to your desk, now you don’t have to sit on the front edge of your chair. Your back doesn’t hurt, you’ve got full support and you can continue to do your work. All in all, it took us a year and a half to get Staples convinced to test it.
When they finally did test it, it just sold out so fast because it was there amid a sea of black in this beautiful espresso brown color. Everything about it was appealing and the minute you sat in it, you knew it wasn’t your oversize gigantic dad’s office chair. It sold well in its test and then it went into full-line and it continued to do better than the average chair.
We used to get tons and tons of things. “Finally, a chair that fits me,” and all of these things like that but men loved it too. We would get these emails from men just as much as women where it’s finally sized right for them. They love the flip-up arms because it allowed them to game and do more computer work, whatever it was that they were up to. That’s why we call it covertly female because we built in those features but men didn’t notice the difference. It wasn’t pink.
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I’m not sure that chair is there anymore. It used to be there.
You have designed over 250 products and it generated over $1 billion. Is it just like a few killer designs that generated most of that revenue? What is the trend there?
We do have one platinum record among the group and it’s our chair that we sell at Costco. We have a lot of juvenile products, a lot of home accessories, kitchen products. We pretty much do any area except for fashion and food. We don’t do anything that requires FDA approval. We don’t do anything with chemicals. We don’t do anything that’s either too trendy, too in and out or takes too long to get approval. I don’t have the patience for it. That’s really my thing. It fits anything within that realm, fits in our wheelhouse. We’re also not afraid of oversized products. We do a lot of big TV stands and other heavy products. We’re not afraid of the sizing.
We know how to make that work, which is a benefit for a lot of people’s size and weight. It’s a scary thing for a lot of private labelers but for us, that doesn’t bother us at all. That helps because that’s a niche area in which a lot of people don’t play. I would say that out of that 250, I’d say about half of them was wildly successful in terms of they met every single metric. You don’t end up on the shelf and that’s the thing is 90% of those were on the shelf at the retailer so at Target, Walmart or Costco. That doesn’t happen unless you’re going to sell, at the lowest, maybe 15,000, 20,000 units, if it’s a one-time hit or it’s going to be hundreds of thousands of units over the course of a year. That’s where the difference made is that these were not like in and outs and they were not small volumes. They may have gone online but they went online and in-store as well.
I saw this product. I ordered it. It was a TV mount and stand for a 55-inch TV for my parents’ house and I did the setup for them. I ordered that mount from Amazon and I noticed they packaged the mount. It’s a very large mount but they designed it in such a way that it was half the size of any existing TV mount that was out there.
That’s our specialty. If you ship something fully assembled, you can’t be cost-effective. We could do a study. Quite a few of our patents are about how you take something apart and put it back together again in the easiest way possible. That’s just because of necessity because of how it works at mass retail. Every single cubic inch of space costs a lot of money because it sits on the shelf. It has a carrying cost. All of those things add to the dollar amounts of the bottom line. If you’re going to be cost-effective, you have to make it as small as possible.
In the past, we’ve been talking about choosing your products and designing your products but not designing your products to be small, even though they can be large items. Can you come up with any examples of situations where you’re able to take an existing invention or product and make it very small?
We do have a patent on a chair base that we did that with. Although we never brought it to market just for various reasons with the manufacturer. We treated it like it was a puzzle. We have this puzzle in our office that we absolutely adore and we call it the polar bear. We’ve had it in the house forever. It was Tom’s grandmother’s.
It comes in part by sliding all the pieces apart and until you put that last piece in, the puzzle doesn’t hold together. It’s like a three-dimensional polar bear. We think about that a lot of times when we’re designing something. Is that a way to do it so that somebody doesn’t have to screw things together? That’s my least favorite way and I’ll only do it in an absolute last-minute thing, requiring the user to do more work. If you can pop a couple of pieces together and then when they are together, all of a sudden it’s solid, then that’s the ideal way to go doing it. Easy to assemble, not ready to assemble. You can do that, that way is ideal.
I noticed you mentioned 3D. Let’s talk about 3D printing because you have a show specifically on that.
We do. We have a show called WTFFF?! and FFF is the techie term for Fused Filament Fabrication or 3D printing. My partner dragged me into 3D printing because we used it for a long time and we’ve been using it for years to prototype and to do other things. He begged me and said, “We got to buy this 3D printer in our office. We need to skill build. There might be something here,” and it took us about six months to get good at it before I would Instagram anything from it.
We’ve been designing in CAD at that point for over twenty years. We were like, “Why is this so hard? It shouldn’t be this hard.” Once we figured it out and realized, “We can do many things here,” we recognized that it’s going to change retail in a way that no one can anticipate. It’s going to change everything to an on-demand digital manufacturing world.
When it does, there’s going to be zero inventory to worry about. That is going to be a huge cost-benefit but the real issue is that if people don’t get started figuring it out now then they’re not going to be ready for it. It’s not going to be tomorrow. It’s going to be 5 to 10 years from now where this is going to start to become our mainstream and you’re going to realize it.
Now we think it’s just plastic junk but there’s a lot of plastic junk that you buy already from Asia and other places in the world. The amount of products that we could shift over to digital on-demand is amazing and with new metal technologies and ceramics coming on, we’re not going to be able to tell the difference except that we’re going to be able to make to order sometimes what we want.
Imagine if you had a place setting of plate bowl, cup, a mug and you broke one and you want to replace it later. You can just order one instead of an entire place setting. Imagine if you wanted it in your color, Target can have the plain old white ones in the store, which is what’s going to sell the majority of the items. You can order online and have it delivered in 2 to 3 days, green, blue or different edge detail.
All of those things are going to be possible in a digital on-demand world and they are possible now. The costs just haven’t come down yet and the mass retailers are not ready for it yet. That’s where we’re working on trying to help people learn and understand how it’s going to change the dynamic of their business but more importantly, change the dynamic of the design of their products.
We’re talking to a couple of private labelers about doing some first run in 3D printing so that you don’t have to tool for something. You can test it out, make a few hundred units, maybe even 1,000 units. Check it out and see if this is a product that you want to go forward and make in large quantities and go for the tooling on.
Two questions before I have 100 more. What printer do you use currently for 3D?
To everyone, we use a MakerBot Replicator 5th Gen.
There are a bunch of printers on the market and they’re all competing for everyone’s attention. I think MakerBot got acquired a while back.
They’re owned by another company and Stratasys. It hasn’t changed the quality of the printer. I think it’s improved it.
Did you believe that at one point I could buy MakerBot 10 and mass produce units from my house?
There’s a great little outsource company in New York that does that already. They use Replicator 2s and they are producing. The DIY Lowe’s, the home improvement store, has what’s called Lowe’s Bespoke Designs. It’s online already but it’s also a Chelsea Store where everything in it is 3D printed. It’s a test case of what’s going to be the future for them. They’re trying it out and seeing how customers respond to it. They have an innovation lab. This is a result of their innovation lab. They’re testing it out there and they’re going to see how people respond to it. Every single item is made in New York, a factory on MakerBot Replicator 2s. It’s possible to do it.
Replicator bot costs $2,000. These guys have 100 of them in a room. Is that what you’re saying?
There are the more expensive ones because the Replicator 2 you can’t get anymore. They’re older models. I don’t even know how many Replicator 2s they have but I know it’s an entire farm of them. I’ve never counted them but I’ve seen the floor plan.
Do you sync them all? Do you just hit one button and they all start doing the same type of unit?
With that model, yeah. Some of them are cloud-based and there are a lot of great software companies out there who do overnight scheduling, monitoring and maintenance. You could have one person monitor an entire farm floor of printers.
What have you created with 3D printing?
We don’t sell much of our designs. We do have one little item on Etsy that we sell and that’s just because people keep asking us for it so we have to stick it with that but that didn’t cost us a lot of money. We have a 3D printed necktie. It’s the most awesome thing you’ve ever seen. It’s dimensional and it’s very cool. It’s on Facebook, 3D Wow Tie. You can look it up, take a look at it and everything. It’s a flagship. Tom wears it to trade shows. It’s a show-off piece for us but also, every year, we do a limited-edition angel. We do a different one every year. At the end of the year, that’s our calling card. We give it to clients and give it away at trade shows for promotions and things like that.
Let’s say it like you’re building a 3D Tie. You know ink cartridges for printers are around $15 to $30. What’s the plastic cartridge for?
The plastics are pennies. This is the mistake that people think that the materials are costing. Don’t get me wrong. If you’re going to do jewelry and you’re going to do it in precious metals, it’s costly but it’s no more costly than it is to make that product. In the metal anywhere else, you would be doing it in gold, silver or whatever you’d be doing.
For the plastic, the cost is so negligible. You use little and there’s little waste. It’s more cost-effective than injection molding or other forms of plastics. It’s just that you’re not buying it in enough bulk. When you buy a roll of filament and it costs you $50, you think, “That was expensive,” but it’ll take you a year to go through it. Sometimes there are hundreds of hours of printing to go through it. It’s the design time and the design itself that is costly.
Is that done through AutoCAD?
We don’t use AutoCAD. We use Rhino here but there are so many different. On our shows, we have half a dozen so far of software reviews that we’ve been doing. We keep revealing new ones every time.
You said you were selling a lot of units through Costco. What do you think about Costco? How easy is it to get into Costco versus Amazon?
It’s incredibly difficult to get into Costco. However, if you’re selling really well on Amazon or in other places, it’s a lot easier. Costco wants to know that you can deliver, that you’re going to be a good vendor to them, that you have a good selling product. They’re going to want something unique. The next version of it might be ideal for them if you’ve got a 2.0. They want to know your brand is already selling well with customers. If you’ve got something that’s going there, that is a little bit easier but to walk in brand new, that’s hard. Still, even that will probably take you a year and a half even if you’ve got something great.
I had this guy approach me one time and he wanted to become a majority partner in my private label brand. His main strategy was, “I’m going to get you into Costco,” and I was like, “What?”
The thing is that Costco, I can tell you from personal experience, Costco outsells every single other product that we’ve ever sold anywhere. For us, it’s lasted more than in and out and that’s what happens to a lot of people. It goes in, it’s in for a couple of months and then it’s out again. For us, our product has been in there. It got put into their standard line and it’s lasted four and a half years.
That does not happen that often. Granted, we redesigned it every year, like just make changes to the style of it but that doesn’t happen that often. That’s why it’s considered a platinum record. When you say you’re the best seller or whatever, that one’s our platinum record because of that particular reason because it keeps going in every single year. Even still, I can tell you that Costco’s volume and the fact that they have such good margins, makes it much more viable, profitable and you’re able to achieve your price points with them, not taking this gigantic cut because they only take 15%.
What does the volume feel like with an awesome product in Costco?
It’s hundreds of thousands of units. Probably the smallest buy they usually do might be for a rollout or something like that. It depends on how big the unit is or its dollar price but it might be a 50,000 unit buy.
Is that a per month basis?
That would be a one-time. A rollout is like sometimes if you go into Costco in the middle of the floor, they have special and it’s like, “The furniture rollout, the fitness rollout or the pet rollout.” Even there’s pet food, there are all these accessories and all these other things, those are considered rollouts and they’re two times a year but it’s a one-time buy. They won’t carry those items in their daily unless they do really well and then they’ll say, “Let’s carry this every day.”
You mentioned your behind-the-scenes team. Does that mean you guys take equity in every project you design?
Not every project. Sometimes we do fee-based. We do a combination of fee plus royalty on anything we design but our royalties are relatively reasonable and our products definitely sound more so it’s worth it. It gives you a better chance of success. We have the odds there but we have a whole host of services we do.
Sometimes we’ll just do the market research side of things and those are fee-based and sometimes we’ll do the sourcing. We have our own team. We’re not a trading company. We don’t work like that. We have our own team on the ground. We have our own rules about how we source products. If you want to make something unique, you have to work that way. You cannot do it through a trading company whose goal is to try to sell you what they already have in their factories.
Let’s talk about your team. Do you have a team of 2 designers plus 3 virtual assistants?
Yeah, at any given time. It fluctuates depending on the projects that we’re working on. It’s just the two of us, plus one marketing assistant that we use for mostly our show. We have a team over in Asia, it’s up to three people. At any given time, we bring them in and out on projects. They have their own businesses too. It’s assembled together as needed.
We also have additional designers if we need them who do specialty things like renderings if we need them. When we were doing major productions or other things for 3D printing, we’ll bring in a technician as well. We just fluctuate based on the projects and that’s why because we keep it lean, we can keep our prices way down for the services that we provide. You hire a big industrial design firm and the reality is that you spend hundreds of thousands of dollars trying to invent the next iPhone. That’s what they’re geared towards. They’re not geared towards doing small projects or products.
You guys design the project and then you create that mold using the 3D printer?
We don’t always do it that way. Sometimes we just use our engineering staff. It depends on the project. Sometimes it’s easier to do it with the factory involved in the process because sometimes things have to be developed that way. We use our 3D printer here in our design process so that we can iterate fast, come through a lot of design choices and make some decisions about it. Our specialty is somebody coming in and saying, “We need to develop new juvenile gaming accessories. This is our category. What can you do? What should we make?” Our specialty is figuring that out and then sometimes they go to town with their own team and we hand it off at that point.
My one worry about getting a 3D printer is when I get that creative tool, I will get stuck tinkering around with it and not be productive at all.
If it’s not your day job, if it’s not part of your design process, if it’s not what you’re going to do, you’re not going to do that for a living, don’t buy one. It’s a suck you in hobby. The learning curve is high on it and even if you’re great at CAD, you’re going to be spending a lot of time working with the printer.
We say that all the time. “It’s not like you shouldn’t do it. I think it’s amazing and it’s great but don’t expect to make it a significant part of your business.” You have to have gotten a good 6 months to maybe even 9 months under your belt with it before you start thinking about, “How am I going to incorporate this in my business?”
I’d probably start building like Lego sets.
It would be a distraction.
Some expensive Lego sets. What’s your plan? Are you going to continue just designing products? What’s your scale-out method from here on?
We’re running a beta test of private labelers. We have a core set of private labelers and this group that we’re running and we’re running an a la carte model of our business. I don’t know, for lack of a better way to describe it. Your business fluctuates in private labels. I know because our business in mass retail is in the fourth quarter. It’s the best quarter of the year from a cashflow standpoint. How do you budget or able to afford us? We developed this a la carte process by which you can do a little chunk. You can get a little consult. You can get a few hours of our time to review. Are you on the right track with the product planning that you’ve done?You have to build your brand with the understanding of what's going to appeal to the customers. #TheDavidAladdinShow #DavidAladdin #podcastinterview Click To Tweet
Is this what you should be sourcing? We’ve also done a flat rate sourcing model so that for a flat rate, we can source it for you. We’ll bring it all the way and we’ll QC it. It’s included in the rate. That everything but you paying for the inventory, you still have to do that but we can do the sourcing at the time that’s best for you and then you place the order whenever you want. The QC is already paid for.
We’re working on that and if it works out well, we’ll expand it bigger. I can probably take a few extra people in there. At this point, we’re not at capacity but we’re just beta testing it. If it works out, we’ll go in a more global way. I hear from a lot of private labelers that you guys are really concerned. You’re feeling comfortable with your keywords and you feel comfortable in the listings area but the product development freaks everybody out. It’s a big cost when you decide to develop something special. Can you get more confidence in that process? Our goal is to try to help raise that confidence level.
I personally create optimization tools but I always push my audience to invent inside of their specialty niches. That’s pretty much what you do. You design completely new products or you innovate on the existing products that exist already out there.
It’s to maintain brand integrity. That’s I think what happens too often is you’re like, “The next shiny object, this keyword was good. Let me go for this one.” If it doesn’t fit your brand goal and your brand integrity, you’re going to make yourself less acquirable. Your exit strategy will be at risk for it. You might make a short-term influx of cash but you might hurt yourself overall.
There are two plays going on. There are a lot of plays going on in Amazon. The major one is let’s just sell whatever sells and then the way I like to do is build toward the brand. Regardless of the keyword selling good or whatnot, I still pick products based on the brand that I’m chasing after.
I think that’s smart. I was listening to you talk about that on your podcast especially the one when you talked about you’ve been doing this for a year and that’s your strategy. That’s a smart strategy and the reason is that you work hard to acquire those customers. You can build them into loyal customers very quickly. You don’t realize it because you think people aren’t loyal. They’re loyal to Amazon but they’re not loyal to you and that’s not true.
We’re loyal to products we like. If we’ve grown to like this product, we’re likely to trust the next product that comes from that company. You’ve built that end that in and that’s a value. It also makes it makes you more acquirable because now you have brand integrity across it and now you’re not a one-hit-wonder. No one’s going to buy a one-hit wonder. It’s highly unlikely unless your patent was amazing and good on it and it was exactly the right fit for a bigger brand to buy you out. If you’ve got a portfolio of great products and you’re constantly taking volume away from a bigger brand, you’re acquirable.
Let’s talk about brand building. What strategies do you have for the readers?
When you’re thinking about brand building, you have to have a flagship product that is the core of that brand building but it’s okay to have ancillary products around it. I’m trying to think of a way to describe it. Let’s just say your brand is about amazing coffee. You’ve got this great little coffee maker that is a part of it and maybe it’s like K-cup things. You’ve got K-cup accessories that go around and not all of them have to be originals. As long as your core and what’s the best part of your brand, what is the expression of your brand and what you’re about is the original, some of those other items can be a satellite. They can come in and they can go out as needed. They can be moneymakers.
When you start going in and you’re saying, “Okay, I’m about coffee now. Let’s be about tea,” those are two different people. Now you have to acquire another audience. When you’ve worked hard to acquire a certain type of audience likes a certain type of thing, the next thing you have to do to expand your brand and keep building that brand is to think about, “What else do coffee drinkers like? What type of person is this?
Starting to get into that and we talk about it not quite like an avatar because that’s a little two-dimensional or flat. We always color shade. We think about why she bought it. What drives her? Why would she talk about it with her friends? What coffee does she put in it? What tastes does she have? You start to think about that and she becomes a fully well-rounded person. When you have that visualization in your mind, it makes it a lot easier to choose products because you’re always thinking of her.
I agree. I don’t think the tea drinker is necessarily always the coffee drinker and vice versa.
Now you just have to like distract yourself. I might have different tastes and different quality levels that they require. Tea drinkers might be much more discerning. You’ve got a lot of confusion in it and we like to develop criteria at the end of the day. We want to develop criteria by which does this fit our brand and if you can’t check everything off on the criteria list, we don’t make that product.
I like the example you pulled out. I love to go into the details because the thing is most tea drinkers are not coffee drinkers. They choose tea as the alternative to coffee. In that regard, if you were to build the next step into tea, it would have been technically a bad mistake in terms of brand.
That’s what happens a lot of times and then you get distracted. All of a sudden you dump money into a product that you have to work but just as hard to sell instead of it being an add-on and that’s what you want. You want to add on, build on, grow it. When we were hired to develop office chairs, the company was already making desks. It made a lot of sense for them to add us in.
Even though the office chair is a completely different manufacturing process, a different set of factories, there was a lot of complication there, which is why they hired us because we already had expertise in there. We helped them jump the learning curve there but it’s logical for them. Most of them would go, “We make desks and they’re wood. Let’s make dining tables, kitchen tables,” or whatever but somebody who needs a kitchen table is a different profile from somebody who needs an office desk. Now you’ve got a whole another customer acquisition problem and that’s where people go wrong.
I am about to launch another product that it doesn’t have as much profit but I’m doing it in terms of the brand. If people buy this product, they’re going to buy the other products, which that’s where the profits are made. It’s a different strategy on it.
We call it loss leaders at mass retail. You can go in. It used to be like you can buy $5 DVDs. This is way back when. You could go into Walmart and buy $5 DVDs. It was to get you standing next to all the coolest technology and that was right there, all the new DVD players and that get you into the store. They made zero money on them. Sometimes they lost money on them but that didn’t because they sold 2 to 3 times as many of the other items that made them tremendous amounts of profits.
I never have tried this strategy out yet. For some reason I know it’s going to work just because I like the product. The problem is it’s big. It decreases profits a lot. It has the advantage of most people aren’t willing to go into it and it also builds the brand further. I guess it’s something that people should look into to consider while they’re building their brands. That it’s not always about profit initially but if it has a goal to build in your brand bigger, I say go for it.
It’s not an entry strategy. Let’s be clear about that. That’s not an entry strategy idea. You want to do it when you’ve got a product that’s already doing the core of your business for you. When you’ve got a million-dollar item in it and you’re bringing in other products, in order to keep boosting that, to keep your profit and your revenue growth happening and to not have to be profit sensitive on it, not having to bring your price down so you start to lose margin. That’s the time when you think about losing margin on an item that doesn’t matter. That’s either smaller, cheaper or whatever it might be.
Losing money on that item to help drive more sales and keep the boost on your existing item. Once you have an item in there, every month that you’re selling it, it is more profitable because of the longevity. You’re recouping the cost of the development time of your scale of time, of all of those things. You have to look at that as that all does have a cost impact on your overhead. Most people don’t calculate that cost. They only calculate the straight on cost of goods plus carrying costs and that’s it.
I used to walk into retail stores. I looked around and I’m like, “Who are these people that build these physical product businesses?” I used to be more into the software side and it just mind-boggled me because it always looks expensive to carry physical products. When it comes to scale, it becomes very profitable and it could produce significant wealth.
The margins are very low in every mass retail. Don’t get me wrong. It depends on where you are in the chain and the retailers are raking in money. There’s no question about it. When we talk about our billion dollars, that’s our client’s wholesale dollars going into that. The retailers are making twice that. It’s a lot more money on the retailer side of it than it is on the vendor side of it. There are a lot of risks. Almost all the risk is on those supplying those products into the market. There are product liability risks. There are CPSC recalls. We’ve helped many companies who got subject to those, turn their business around and save their businesses but it happens. There are a lot of risks involved in that and almost all the risk is on you to supply that. It’s the same thing for you and the private labeler. It’s your business, it’s your risks. You’re assuming all of those risks. Amazon is not. It’s no different in that world but the scope of it, the amount of volume in it is much greater.
Let’s pivot into the recall section. What recalls have you’ve gone through? How’d you guys go in to solve that?
We’ve got a couple of big ones. Tom was working on a project with batteries. I wouldn’t say they exploded. They leaked. It had a massive Staples recall from that and had to pull the products in. It’s one of those things where this is where you double-check and triple check and you make sure you have an expert. The company hired an engineering firm to electrical engineering to check all the batteries and do all of that. The client at Staples asked for a change to rechargeables and that’s a whole different model. They weren’t an expert in that and no one double-checked their work.
My number one role is to get someone who’s been there, done that again and again. Do not go for someone who’s only sourced one time or who was only the engineer that one time said, “That’s similar to something else we’ve done. We can engineer that. No problem.” When early on in our business, when we were making stylus pens, we had a plastic manufacturer right down the road from us and we thought, “How convenient. They have an injection molder. They know what they’re doing.”
They engineered the threads on the inside of the pen and shortly after we started selling them. We’d sold a few thousand units, they started exploding and popping apart because they engineered the threads backward. They would crack and pop apart and they were too thin as well. What sounds like a simple thing causes a recall and causes a problem. That’s where you must hire properly and they must prove to you that they’ve done this before.
How many units was that when you pulled the recall on the batteries?
I don’t think it was that many on that. That wasn’t my project. I don’t remember off the top of my head but I wasn’t that many. There were maybe a few thousand and we haven’t all fully shipped into the stores yet.
It could be doing significant damage to the businesses. Imagine if that was like a lot of it of inventory side.
This company was worth a few hundred million dollars. For them, it was a drop in the bucket and they were okay with we’re calling it but they lost face with the buyer. It does hurt.
One of the things that are not talked a lot about is having cash to back your business up.
Cashflow is everything. This is why big brands can eat you for lunch because they have better cashflow than you do. They make all the same mistakes. I see this all the time. They make exactly the same mistakes you do. They are not smarter. They don’t have a better. In fact, they’re probably dumber in a sense because their organization gets in the way of them being smarter and then realizing things fast enough. They make all those mistakes but they just throw more money at it. I call it adding more runway. Going to add more runway to take off and make their launch. They can still launch and they can still do what they need because they have money to be able to work around that.
One of the biggest things that I’ve noticed is, for example, Apple has billions on billions of dollars just sitting in the bank in case something happens.
It’s more than that. The big difference between Apple or any of those other companies is that they use their cashflow smartly too. They are always working on long-term features. They have almost 20% of their budget allocated to R&D for product development. If you aren’t allocating a significant part to your next product, you are in trouble. You’ve got to have money to be able to develop it, design it, tool for it and buy the inventory. You got to be ready for that next product so that’s where cashflow makes a difference.
Is there anything that I left out that we didn’t go over? Anything that you want to tell the readers?
I think the one thing that I always try to tell people is don’t get too attached to your product, idea, keyword, concept, whatever it might be. These are not babies. You will not be able to see if your baby is ugly if you are too close to it. You got to be able to see that this won’t work. When I said it earlier that I have superpowers, my superpower is when somebody says, “What do you think of this product?” The first thing that comes into my mind is, “That’s not going to work,” and I’m almost always right. I’ve been rarely wrong in that. I can’t see if it will work for you but I can see if it won’t work. You’ve got to be able to keep your mind open enough to the possibility that this is not a great idea.
It reminds me of Shark Tank episodes where the entrepreneur is just going on and then Mark Cuban goes and says, “How much are you in so far?” The guy is like, “I mortgaged my house out. I’m $300,000 in debt.” He’s like, “It’s going to happen.” The whole time, I’m like, “Why? You’re digging yourself in this huge trench.”
People think that it’s cash, the wrong team or something like that is the problem in any startup. The real big problem is about 54% of new product launches fail or new companies, startups fail because they have the wrong product, wrong market fit. Somewhere in there either the market’s wrong for what they have to sell or the product’s wrong.
They’ve got a misfit there. That’s accounts for more than 54%. You want to do that early. You want to do it as fast as possible. You want to analyze that. That’s part of why we’re using 3D printing because it’s a low-cost alternative. You don’t have to sink hundreds of thousands of dollars into jeweling. You can test it out and even if you made $0 on that first run, you would know if it was going to work or not.
Let’s say there are multiple different types of plastic in your mold or in the product that you’re creating. How does that work when it comes to 3D printing?
It’s just like you do in regular. You can’t injection multiple plastics. You have to have a co-injection. It’s complicated and the costs go way up there. More often than not, it’s an easier thing to assemble them. You make them in two separate parts, you do it that way or three separate parts and you do it that way. There’s some amount of you can cover something in silicone or rubber can dip. There are things that you can do that accomplish those things. It’s a matter of really understanding your process, your plan and your overall cost goals.
I’ve been considering doing the whole 3D printing route, testing out my concepts and just being able to hold them and see what I could do to make them better. If people wanted to get ahold of you or your services, where can they reach you?
If they’re interested in 3D printing, it’s 3DStartPoint.com. That’s the easiest way to find us, the show is there and everything. For the rest of our businesses, HazzDesign.com. You can find me on LinkedIn, Facebook and just about anywhere too. My columns are in Inc. Magazine so you can find me there too.
I appreciate you coming to the show. It’s been an awesome show.
I’m happy to come on and please let me know if you want me to come back again and talk about something else specific.
For sure. I think there’s a lot to talk about on 3D printing. You have a whole show on it.
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