From the June 1999 issue of Entrepreneur

The cute toy you once saw in your local gift shop is now in every home, and the movie everyone raved about last year is today's top-selling video. Were you able to predict the ensuing insanity? Do you have the ability to identify the longevity of a current trend? If you've answered yes, the next question you need to ask yourself is: "How can I profit?"

When demand for a particular product is high, prospective entrepreneurs who see an angle should jump on the gravy train. Since the 1997 release of Titanic, for example, entrepreneurs have cashed in on the hype with everything from 3-D puzzles to dinnerware.

But perhaps the biggest aftermarket craze of the decade was inspired by Ty's Beanie Babies. J. Craig Lundberg, 41, had the idea for the Beanbag Tree, a two-piece structure that houses up to 32 of the stuffed animals. Lundberg, owner of HMC Industries Inc., a Lynnwood, Washington, wood turning and display fixtures shop, designed the product with minimal start-up costs. "It helps to have familiarity and interest in the item you want to produce," says Lundberg.

Judy Tompkins, on the other hand, co-founder of Chicago Clipp Designs Inc., had absolutely no experience in the plastics field before creating Beanie tag protectors. So Tompkins, 32, along with her sister, Susan Shelton, 39, and her brother-in-law, Paul Shelton, 41, spoke with collectors, did research on the Internet, read up on the plastics industry and consulted various experts. "The plastics people kept telling us the heart-shaped, one-piece tag we wanted couldn't be made," says Tompkins. After several visits with manufacturers, the trio finally came up with the winning design. "The key was perseverance and research," says Tompkins. The tooling of the plastic mold was expensive, however, so to keep other costs down, orders, shipping and packaging were initially handled in Tompkin's home.

"Secondary markets are what keep [product] crazes alive," says Chris Gigley, editor of Giftware Business magazine. "If you're going to try to ride the wave of a product, theme or license, it must have a huge fan base. If you know someone will go into a store and buy everything that's related to the product, instead of just one or two things, [you have a winning market]."

Know Thy Enemy

You may have more competitors than you think.

There are two ways to define competitors. One is by strategic groups--competitors who use similar marketing strategies, sell similar products or have similar skills. Under this definition, you might group Toyota and Nissan as competitors within the car industry.

The second, less obvious way to group competitors is by customer--how strongly do they compete for the same customers' dollars? Using this method gives you a wider view of your competition and the challenges they could pose to your new business.

Suppose you're considering opening a family entertainment center. If there are no other family entertainment centers in the area, you might think you have no competitors. Wrong! Any type of business that competes for customers' leisure time and entertainment dollars is a competitor. That means children's play centers, amusement parks and arcades are all your competitors. So are businesses that, on the surface, don't appear similar, like movie theaters, bookstores or shopping malls. You could even face competition from nonprofit entities, like public parks, libraries or beaches. In short, anything that families might do in their leisure time is your competition.

Don't limit yourself to the obvious definitions of competition. Start thinking out of the box . . . and you'll be less likely to get side-swiped by an unexpected competitor.

Excerpted from Start Your Own Business (Entrepreneur Media Inc.) To order a copy, visit http://www.entrepreneurmag.com

Taking Charge

Should you finance your new business with plastic?

By Amanda C. Kooser

Temptation. That's what credit cards represent to many Americans. So what happens when you try to start your business with that little piece of plastic? Many aspiring entrepreneurs have faced that very decision: whether to give in to quick financing or steel themselves against the siren song of VISA.

Debbie Mumm, 43, is one entrepreneur who entered the plastic jungle--and survived. Mumm's craft book design and publishing company, Mumm's The Word in Spokane, Washington, began with a booth at the 1986 International Quilt Market trade show. "I used my credit card to pay for my expenses, booth rental and prototypes," says Mumm. Because her start-up costs were less than $3,000, she didn't feel the need for a bank loan. "If you have something that has potential in the marketplace but don't have financial backing, there are creative ways [to use] your resources without risking your whole financial structure," says Mumm, who was able to pay off her credit-card debt within a few months. Her gamble paid off: In 1998, Mumm's The Word gained an exclusive licensing contract with Mervyn's department stores and earned $70 million in sales.

The credit-card start-up path was a bit bumpier for Doug Monahan, 42, founder of outsourced sales and marketing company Sunset Direct Inc. in Austin, Texas. His first attempt with a company called the Job Store resulted in a too-rapid expansion and five years of paying off his credit cards and getting his credit perfect again. A self-described glutton for punishment, he tried again in 1993. This time, his investment was solid--his new company, Sunset Direct, projects 1999 sales of $45 million.

Still, Monahan thinks successful credit-card financing is a million-to-one shot. Would he advise someone to do it? "No way! Uh-uh! Ten exclamation marks after that. No!" he says. Instead, he recommends using credit cards only as an auxiliary source of capital. Says Monahan, "Most people [who use credit cards only] are going to go bankrupt or spend years paying off their cards."

Quick Advice

By Victoria Neal

  • Translate the trend into something logical. If the product makes sense to you, it probably makes sense to someone else.
  • Do you see a demand for your concept? Would you buy it? Ask your friends and family for their input. Visit trade shows and ask collectors what's missing from the market.
  • Research any and all legal aspects of the item to ensure there are no hidden liabilities. The manufacturer may prevent you from using any part of its product's name to market your idea.
  • Research the resources you're going to need: production, advertising, packaging, labels, postage and, most important, your time.
  • Get in early. "When you see a fad getting hot, jump in at the very beginning," warns entrepreneur Judy Tompkins. While you're wavering back and forth about an idea, someone else may jump in.

Future Fads

By Victoria Neal

You don't have to reinvent the Beanie--just find a niche. Here are some possible fad phenomena of the future:

  • Tiger Electronics' Furby. With the original fuzzballs going into retirement and a new line coming out this fall, these interactive creatures are expected to steal the spotlight.
  • Salvino's Bammers. A hit with sports fanatics as well as bear lovers, these plush, bean-filled bears named after notable sports players are sure to hit a home run with consumers.
  • Go-Go's Crazy Bones. These candy-resembling, plastic figurines will satisfy any compulsive collector's cravings.

Contact Sources

Chicago Clipp Designs Inc., (800) 494-3936

Giftware Business,http://www.giftline.com

HMC Industries, (425) 778-3144, fax: (206) 624-4434

Illume Candles Inc., (800) 2-ILLUME, http://www.illumecandles.com

Mumm's the Word, 1116 E. Westview Ct., Spokane, WA 99218-1384, http://www.debbiemumm.com

Sunset Direct Inc.,http://www.sunsetdirect.com