Product Development: How to take your great idea from concept to launch

The new product life cycle is an intricate and involved process. Manufacturing for profitability is every business owner’s goal. On this week’s episode of The Playbook, host Mark Collier, area director for the UGA Small Business Development Center, sits down with David Stob, business consultant also for the UGA SBDC. Today, David shares his wealth of information on how companies need the best position themselves for new product launch success.

Transcription:

Mark Collier:
Welcome into The Playbook, David.

David Stob:
Great to be here, Mark. Thank you for the invitation.

Mark Collier:
Absolutely. Listen, man. You’ve got a wealth of knowledge. Share with me a little bit about your background in the manufacturing space and what led you to the Georgia SBDC today.

David Stob:
Sure. I started my career with Kohler Corporation who was a manufacturer. And was in the manufacturing arena for a long time with building products. And started my career with an MBA and a plumber’s license. And so they immediately-

Mark Collier:
That’s an odd combination.

David Stob:
Yeah.

Mark Collier:
MBA and a plumber’s license.

David Stob:
Yeah. Well, they immediately threw me into new product development because of my hands-on experience being a plumber. And it just took off from there, being involved with different companies, making everything from lawn and garden products to plumbing products to liquid foam dispensers and everything in between. So my experience is pretty vast and it’s touched a lot of industries.

Mark Collier:
All right. Well, very good. Well, thanks. So, you know a lot about products?

David Stob:
Yes.

Mark Collier:
So, that’s what we’re going to talk about today. So I know taking a product from conception to launch, there’s a right way to do it and a wrong way to do it. And oftentimes, the difference between those… that chasm is as wide as the Grand Canyon.

Mark Collier:
So let’s talk on a high level basis, the sequence of steps that it takes to take a product idea from conception to shelf in a profitable way.

David Stob:
Sure. So I’ll attack it from a macro because there are a lot of steps from concept to shelf. And I narrowed it down the five key steps, really. Number one is really market research. You really have to do your research to see if there’s a perceived need, a demand for the product who you’re going to sell to, the demographics and who the right retailers are going to be for your product.

Mark Collier:
Yeah. I’m glad you mentioned that as number one, because you get some folks who will say, “I’m going to go to Alaska and sell ice to Eskimos.” Is there really a market for that? No, probably not. So I’m glad you listed that as number one. You got to do your research and see-

David Stob:
Yeah, you got to do your homework. That’s the first thing. And then I recommend the feasibility study and that’s more projections. The market research more is the business planning, you have to have a business plan. But the feasibility study is more on the financial side. Do you have the profitability in the product to make money? And that’s what the feasibility study and the projections are going to call out and you have to know what your cash flow is on a monthly basis because cash is king.

David Stob:
And then you can definitely fail if the cash isn’t coming in and you’re spending more money than you’re making, so just a simple rule there. Third is prototyping and testing. You have to test your product. Whether it’s a new garden hose or a new kitchen gadget or a new food product, you have to do your testing. And you have to make prototypes of the product itself. And you could do that through 3D printing, rapid prototyping. There’s kinds of ways to get your prototype in the hands of yourself to test or your projected consumers or retailers.

Mark Collier:
At that step, don’t a lot of companies, if they’re doing a prototype, they’ll enlist the services of a focus group?

David Stob:
Yes.

Mark Collier:
And perhaps deliver under confidentiality, of course. But have people see it, touch it, feel it and give their feedback.

David Stob:
Yeah. When I was with Kohler, we did a lot of mall intercepts where we presented a product to get their ideas and feedback on the product itself before we even went to the next step of producing the product.

Mark Collier:
All right. So one, two and three so it’s step four.

David Stob:
Step four is branding and marketing. You have to create a brand around this product and marketing around it. There has to be a marketing plan, a sales plan to go out and there has to be recognition. Everything to do with logos, your color scheme, features and benefits. So really, your brand, you’re going to be building your brand in order to have it look good on the shelf and have it stand out, so on and so forth.

Mark Collier:
And it is it at this point that they create the promotion for the product to create that buzz around the new release. Is it at this—

David Stob:
Yeah, that would be developing a pitch deck. A sales plan, how you’re going to go to market through distribution-

Mark Collier:
So all of that is around step four.

David Stob:
All of that is in your sales and marketing plan within the plan. And branding is a big part of that, especially if it’s a consumer brand. Business to business, not so much, but we’re talking here about retail manufacturing so branding is very important.

David Stob:
And then the fifth is your operations and manufacturing. Where are you going to manufacture? Your supply chain where you’re going to get your raw materials and everything to do with getting that product from the manufacturing site to the retailer. So logistics is important. So, that’s your operational plan within your business plan.

Mark Collier:
Well, I can see because if you’re making a product, you’ve got to procure the raw materials to do it. And then you’ve got to assemble those raw materials until the finished product.

David Stob:
So a lot of food product clients that I have start with a co-packer.

Mark Collier:
Okay. Explain to me what a co-packer is.

David Stob:
A co-packer is someone who’s already making products similar to yours. Already buying efficiently raw materials. And has all the equipment and infrastructure that where you don’t have to pay for it because manufacturing is a highly intense capital investment. So, if you can find someone to do it for you until you get really up and running to a point where you’re distributing nationwide or international, and you can afford maybe to open up your own plant, co-packing is the way to go.

Mark Collier:
That’s it. Now, co-packing is that similar to licensing or-

David Stob:
No. Licensing is something that called a white product where you’re just using somebody else’s technology and product and branding it under your own name.

Mark Collier:
Okay. All right. Well, great. Listen, you’re doing a great job detailing that five step process. So I want to ask you kind of coming follow up question on that. Along those five steps, where do you see most companies fail along that process?

David Stob:
Yes. It’s a lack of starting capital. If they don’t have the money to invest in all those five steps, you’re going to fail. And I’ve been through it myself where the R&D part, the testing and prototyping. If you don’t have the money to do that and do it correctly, you’re going to fail on the other end. For example, we didn’t have enough money to do UV testing.

Mark Collier:
Which is?

David Stob:
UV testing is testing your product in sunlight to see if it will survive. It was a fall stone product. And we just couldn’t get through that testing. And a lot of the retailers, if we didn’t have that backup test results would not take it on. So we couldn’t get it in the stores because we couldn’t finish that testing. And again, if you don’t do your homework, if you don’t do your market research, you’re probably going to fail at some point down the road.

Mark Collier:
All right. So we all know what a good product is. Those are ones that sell, right?

David Stob:
Yes.

Mark Collier:
So what do you consider or what’s your definition of a bad idea for a product?

David Stob:
Well, a bad idea is-

Mark Collier:
Other than my selling ice to an Eskimo example.

David Stob:
Yeah. Well, a bad idea is if there’s no perceived demand or need for the product. But more importantly, if you’re going into a crowded field, if there’s no differentiation in the product. You’ve got to have some real, new features, and benefits that differentiate you from all the others. And if you don’t have that and you’re just another me-too product again, you’re probably going to fail.

Mark Collier:
I mean, that boils right down to the old age adage of what is your USP? What is your unique selling proposition? You have to be able to very succinctly and comprehensively answer that question. What is going to drive a consumer to buy my product as opposed to any other offering that’s currently in marketplace.

David Stob:
And your market research is going to flush that out to identify what needs to be different and what I need to concentrate on.

Mark Collier:
Okay. All right. So, every business owner is in business to make money, right?

David Stob:
Yeah.

Mark Collier:
So as they’re going through their financial projections, what do you consider a healthy gross margin and why?

David Stob:
Now we’re talking retail here so in my mind and what I see being successful is a 75% gross margin.

Mark Collier:
75% gross margin.

David Stob:
Now you can live on a 15 to 20% net, but you need to start with at least to 75% gross margin because your retailers, your distributors are going to take a big cut. But the retailers are going to ask for a lot of free stuff. They’re going to ask for promotions, they’re going to ask for free fills which is a free case of your product for every store that you’re going to be in, and that cuts away at your margin.

Mark Collier:
It certainly does.

David Stob:
And at the end of the day, if you don’t have a healthy gross, you’re going to have a very low or negative net margin.

Mark Collier:
Okay. And I can imagine a lot of business owners, they think their projections are solid. But they don’t account for those free fills and— retailer beat you up on.

David Stob:
Yeah. And retail is brutal. So your Walmarts, your Home Depots, your Krogers and Eagles are all going to take a big piece of that. So if you say to yourself, “Hey, I have a 35, 40% margin, I’m going to do pretty good.” You better stop and reassess that. And we have tools for that to help the client determine where they need to be.

Mark Collier:
I mean, that’s great. Those types of tools are much needed so I know your clients, if they’re going into that retail space, they’re very appreciative of that consulting advice that you’re going to give them.

Mark Collier:
All right. So what tools can be used, speaking of tools to ensure that my product makes money?

David Stob:
Yeah. So as consultants, we develop a lot of tools for our clients depending on our specialty. So I developed a retail margin analysis specifically for manufacturers if they’re going to go into retail. And I originally developed it for grocery because grocery is brutal. And they can take a lot from you. But it also incorporates and makes sure nothing falls through the cracks as far as incorporating all your packaging costs, all your raw material costs, your overhead costs, what really is your cost of goods? So you can develop a suggested retail price. That’s going to make sense in both distribution and on the shelf.

David Stob:
And make sure you net 15, 20% and not five, negative three. So, this spreadsheet that I developed that I’ve helped clients with will help determine where those numbers are and make sure you don’t miss anything. It even incorporates all those free fills promotions, even distributors take 8%. If you have a broker, they’re taking 5%. So it adds up and people don’t account for the packaging. There’s corner guards, there’s pallets, there’s shrink wrap, corrugation. I mean, there’s all types of things that you need to account for and pennies add up to dollars and dollars and can take away margin.

Mark Collier:
They certainly do. Now the tool you developed does it checklist and sequence all of those?

David Stob:
Yeah. There’s the directions and I wouldn’t recommend the client do it by themselves that’s why there’s advisement and we hold their hand through it just to make sure that they’re doing it correctly.

Mark Collier:
Okay. Well, very good. All right. So, selling your product in stores is one thing, an online sales is an entirely different ecosystem. So talk to me about a little bit about selling your products online.

David Stob:
Yeah. I would recommend e-commerce as an additional revenue stream. It doesn’t take much infrastructure and additional costs to set up an e-commerce store. You already have the product now. You don’t need the hire a sales team. You don’t need to do the travel to go in front of buyers. And all you got to do is some good SEO which is an investment. I mean, might have the most beautiful website in the world with pretty pictures and products but if people aren’t finding it, it’s a waste of time.

Mark Collier:
Now, that makes sense.

David Stob:
So if you do e-commerce, I do recommend investing heavily on the SCL side. But I do recommend any retail product being online for customers to purchase.

Mark Collier:
No, I mean the pandemic underscore that everything reverted from physical retail to contactless, digital and virtual.

David Stob:
Yeah. There was definitely a pivot—

Mark Collier:
I call it seismic— because that’s what it was. All right. So every product, life cycle, unfortunately has an end. So, I think it’s good in the business planning process to talk about exit strategy. And so share with me your viewpoint on that.

David Stob:
Yeah. In any startup that I consult, I immediately talk about exit strategy in the business plan. And I get this weird look like, “Why now?” But because the decisions you make today are going to affect your business 15, 20, 25 years down the road, and you don’t want to look back and say, “I wish, I could have, would’ve, should have,” type situation. So addressing the exit strategy now is very important and if you have a great product, it’s selling off the shelf, your brand is recognized throughout the nation, it’s going international, someone is going to pick you up.

David Stob:
A holding company with a portfolio of brands may buy you out. Or you may want to go public, which is another option. Or if you want to stay small and scale slowly, you may want to bring family in, and there’s all types of exit strategies. But if you want to cash out big, it’s important to strategize and make the right decisions to position your company for a sale or to go public.

Mark Collier:
So the bottom line is there’s options.

David Stob:
Oh, absolutely.

Mark Collier:
All right. David Stob, business consultant with the UGA SBDC Athens office, thank you for taking the time out of your busy day to come in. I would encourage any business owners who are seeking to get into the retailer, launch a product, reach out to David in the Athens office. He’s going to get you done the right way.

David Stob:
Thank you, Mark.