The Entrepreneur: Wayne Willert, 47, founder of Gutter-Bolt Inc. in
Port Washington, New York
The Product: The Gutter-Bolt is an aluminum bolt used to
attach gutters to houses or other structures. The product claims to
offer a number of benefits over steel bolts, which are
traditionally used to attach gutters to buildings, including a
design that reduces torque, prevents breakage and holds firmly.
Pricing ranges from 39 cents to $1.89 each, depending on the
quantity and packaging purchased.
Startup: About $80,000 by the end of 1996, which paid for
patents, production equipment and an initial production run
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Sales: $1.2 million in 2003. Nearly two-thirds of sales
came from independent hardware stores, Ace Hardware and True Value.
The rest came from Allied Building Products Corp., which sells to
the construction trade; Hardware Wholesalers Inc. (HWI), a
distributor to retail hardware stores; and Do It Best, supplier for
Do It Best hardware stores.
The Challenge: Determining the best distribution strategy
for a new product
How will I distribute my product to retailers? The right
solution depends on many factors, but inventors have a bevy of
options:
- Sell direct to retailers.
- Sell through distributors, which sell a broad range of products
to many retailers.
- Sell through captive distributors, which sell a broad range of
products to one chain of retailers.
- Sell through distributors, which sell to companies in your
target industry.
- Sell through rack jobbers, wholesalers that lease shelf space
at large retailers. The rack jobber buys inventory to furnish
products for that space and gets paid by the retailer when the
products sell. Retailers benefit because they keep low-priced
products stocked, and there's no risk if the product
doesn't sell.
After weighing all the options, Willert settled on the right
strategy for his product-pushing sales past $1 million.
Steps to Success
1. Start with a
distribution approach that matches your capability. Willert
was originally offered a deal from a rack jobber that promised
dazzling sales numbers, but he wasn't sure what his profits
would be and whether he could meet the order demand. In the end,
Willert decided the best way to build the business-in a way that
matched his finances and production ability-would be to call
individual hardware stores.
"I produced a small display for the store and promised to
take unsold product back after 90 days," Willert says. "I
went store to store in my area, then began promoting the product
over the phone. Once I got early store sales, I picked up
additional sales as a result of satisfied customers."
2. Learn how your
product sells. "I found out early that retail stores
need a display to sell the product," he says. "I felt
local hardware stores would show the display and explain my product
to customers. The big-box retailer can't match that level of
support." Understanding his product's sales process led
Willert toward more traditional distributors and away from rack
jobbers, which concentrate on large retailers.
3. Consider your
options in selling to the target market. One of the major
ways hardware stores find products to buy is by attending small,
regional shows featuring products from distributors and
manufacturers. Because he runs his own roofing company in Long
Island, New York, Willert didn't have time to attend many
shows. But at the shows he did attend, Willert made contact with
distributors such as Allied Building Products, Do It Best and HWI.
As a result, Willert was able to strike deals with these companies
to carry his product.
4. Weigh your options
before making the final decision. Willert wanted a
distribution network that could sell enough to support his product
without too much effort on his part. The volume rack jobbers
promised to produce was enticing, but after a thorough evaluation,
Willert took a different route.
Willert explains how he came close to making the wrong decision:
"I had an order for over 100,000 [units] from a big
distributor who was going to bag the product up and sell to
Wal-Mart and other major retailers," he says. "Then a
problem developed, my patent was temporarily abandoned, and the
order fell through. This was a blessing in disguise, as I am much
better off with my current distribution. I can grow my
company's sales, and I can control where and how my product is
sold."
GO TO THE SOURCENot all industries have rack jobbers-wholesalers that lease
shelf space at large retailers like The Home Depot-but most
consumer products have them. To find a rack jobber for your
product, attend trade shows or check out Douglas
Publications' buyers directories. The directories are
expensive ($200 to $400 each), but they can often be found in a
library's reference section.
Trade magazines are another good source for distributors. Do a
Google search for the type of store you are selling to by searching
under "hardware store trade magazines." You can also
check out the Gale Directory of Publications and Broadcast
Media, available in larger libraries.
Lessons Learned
1. Understand what
distributors do-and what they don't. Distributors ship
and sell products people know they want to buy. But distributors
aren't good at pioneering a new product or persuading people to
try it. One reason is because distributors carry too many products
to know every one they sell. But just as important is the fact that
distributors provide buying convenience for their customers. A
customer can buy 30 or 40 products from a distributor by placing
one order, and a distributor offers quick delivery on items that
might take days to get from a manufacturer. A distributor's
functions include stocking, ease of ordering and quick delivery-but
not pioneering sales efforts. So before turning sales over to a
distributor, build a base of direct sales to prove the product will
sell.
2. Have realistic
expectations when using distributors. Distributors appeal to
many inventors, and for good reason. They have access to major
accounts, they sell lots of products, and they usually offer to
take stocking orders. But don't expect more from distributors
than they can offer you. If your product needs a hands-on sales
approach, distributors can't provide that. And if the products
don't sell, distributors will send them back to you. Certainly,
it's great news when distributors decide to take on your line,
but don't assume that will translate into immediate sales.
3. Check out the
distributor's five newest products. Don't be afraid
to ask distributors for the names of their manufacturing contacts.
Call those contacts to find out how the business relationship has
worked for them. This is important to do if your agreement will
preclude you from selling on your own to certain markets. You
can't expect every product sold by a distributor to be going
like gangbusters, but some of them should be doing well.
4. Secure plenty of
financial backup. Distributors can have big orders, but they
often pay in 60 days (or sometimes even longer). So set aside
enough cash for 90 days. Otherwise, you may get into a squeeze if
you have to pay your vendors in 30 days, then take another 30 to 45
days to make and ship the product, then wait 60 days to get paid.
It can be even worse if you get returns. Having enough cash helps
you establish a secure relationship with your distributor.
Don Debelak is author of Entrepreneur magazine's
Start-Up Guide #1813, Bringing Your Product to Market, and host of
inventor-help Web site www.dondebelak.com.