Don Angel, VP of Product & Strategy at SOL REPUBLIC.
SOL REPUBLIC is a global lifestyle audio company dedicated to enhancing people’s lives through style, sound and technology. Comprised of music fanatics, we develop our products from the ground up to look, sound and feel unlike anything else in the market. Our philosophy is to change the world one listener at a time; to rid the world of hollow sounding headphones. We believe music has the power to touch you, move you and inspire you.
A buddy of mine manages a VC in the general IoT space. He unabashedly shared that the biggest Start up valuations come pre-revenue. How’s that? Well, the moment a product goes into 1000 retail stores the 700 units/week sell through with 15% returns ground the the always optimistic margin and growth models. The result then is a lower valuation.
Be channel smart. This takes humility and discipline. Unless you have clearly validated the consumer demand for your product, do NOT go straight for the Biggest channel right away. If you are looking at consumer retail, resist the complimentary buyer whose KPI’s include filling shelves with “the next big thing”. It is so tempting to load up that mega 1000+ chain powerhouse. You’ll tie up tremendous working capital and may be forced into the costly, and often unbudgeted forced promotional spiral. There are many regional, smaller and more strategically aligned retailers to consider and learn from.
While you are rapidly learning and improving your success in your strategically planned channel, build a community. Even small, an engaged community can be a tremendous asset to both learn from and to evangelize your product. We live in a wild new world where viral enthusiasm can be more impactful – and a more frugal use of investors money - than traditional brand and product awareness campaigns.
Story: Early last year we turned a production capacity constraint on Shadow into a win win. This retailer in particular has strategic initiatives to be market leaders in new technology (one of those key KPI’s I just spoke of). After realizing that we needed to ramp up more production tools given very low initial yield and output, we presented our largest channel partner with a two month exclusive period. In return we were able to negotiate an incredible amount of normally too expensive merchandising, web landing page, category banner and even ads without spending cash.
It would be pretty irresponsible to present a Business Plan without a Product value proposition and yet I’m amazed at how often folks approach the Channel without the same. And, “a better product” is not a Channel Value Proposition. Do you think the buyer cares about your product benefits? They care about whatever will improve their KPI’s, whether its margin, turns, store traffic, etc. Worse yet, if you don’t have a clear and thoughtful CVP the buyer will usually go for your margin. Be channel smart.
Another Imperfect Pattern often seen with many startups is an unnatural urgency to get to market, now. First to market is not always better than getting the product right for the target consumer.
Target consumer obsession. If a timeline is too strict, the loss in consumer trials and proper marketing support with a strategically aligned channel plan will not result in a cohesive and integrated launch. Having a deep and direct relationship with the core consumer is paramount to strategy and product validation (goes to the previous comment about creating a community).
How well do you know your target consumer? What makes your product special for them? Notice I did not ask what makes your product better? (and hopefully your answer is not that its faster or smaller)
Do you know where do they shop? How they shop? Their purchase decision hierarchy?
How familiar are they with your product category? Have you observed them using the competition?
Knowing your target consumer does not require big budgets, yet it requires someone with a solid understanding of observational research. It takes time and doesn’t immediately feel productive. But it only takes a couple kernels, or unarticulated pain points to identify a value gap. A pain point. An opportunity.
Partner story? Three years back we had a strategic development partnership with a multibillion-dollar handset brand with engineering core competency in Bluetooth. I made one simple observation, unarticulated as a problem by the consumer, watching young millennials’ sharing music on a Bluetooth speaker. They either traded the wired cord between themselves (yes for a BT speaker) or hard switched the BT connection by un-pairing one device to allow the next to pair and play. We challenged the engineering team at our strategic partner to essentially break Bluetooth and enable instant user play switching. After arguing with their engineers for a month, they went to work and solved it! The result was the worlds first speaker allowing up to five people to simultaneously be connected and “Heist” being the DJ by simply pressing play on their device.
We all know Hardware is hard. There are too many pitfalls for a start up to avoid so plan to accept and adjust for some unknown. Have patience and as long as you know what value you will uniquely bring to your target consumer, the adjustments, cost and feature trade offs you come up against will be more clear.
Savvy investors understand that a misaligned Supply Chain can be one of the fastest ways to waste their investment. The complexity and selection of a Manufacturing partner is too often under-appreciated.
Be selection critical. As a start up it is likely that your Manufacturing partner will also play an integral role in the development, quality and cost structure of the product. Making a wise selection requires an honest view of short term business objectives. Local or China? ODM, Service Provider or Contract Manufacturer?
Planning on going to Factory Audits and meeting Factory executives as a good start, but don’t stop there. When Manufacturer shows the invariable slide with he brands they’ve built for, ask for contact names at 2-3 of those who might have similar business needs. Interview the lead contact at those companies. You’re not looking for how many problems they encountered – all HW programs have an issue at some stage of development – rather you are interviewing around the way the team supported, reacted and resolved.
Story: At SOL REPUBLIC I had three offers to support the development of a new Bluetooth platform. All three required some level of investment by the manufacturing/development partner.
One was a group associated with a primary investor in my company. They offered to front the development of our new platform, giving us first access. Their dna was CM level qualification, validation and documentation, with a development cost in the $500K range. Now that’s a fair price for the work, it’s just overkill and not aligned with our scale or business objectives.
Option two was the Chinese ODM we partnered with from launch of the brand who agreed to absorb the full NRE and Line set up fees, but they needed to use a third party BT module that added $2 to the BOM because they were lacking in the expertise/experience required.
We ultimately chose a third option; an ODM whose investment was in their own experienced resource to support us in an emerging market. I believe we paid <$35K in NRE between and Line set up without incurring the $2 Module premium.
Be very aware of how you align in scale, experience and business objectives with a supplier. Bigger is not always better. Small and scrappy can be dangerous. And yes, this sounds like a Goldilocks story, but your company will benefit enormously by poking a lot of beds.