The
Entrepreneur: Ross Youngs, 46, founder of UniKeep LLC in
Columbus, Ohio
The Product:
Youngs' latest product is the UniKeep, a stackable,
archival-safe three-ring binder made from polypropylene and
introduced in 2001. Its fully enclosed design allows users to store
pens and other small items as well as papers. Youngs is also known
for inventing the Safety-sleeve, the first sleeve using a
combination of nonwoven, clear plastic for storing CDs in
three-ring, fabric and clear-plastic binders. Youngs' company
sells more than 1.5 billion Safety-sleeves and other licensed
products annually.
Start-Up: $2.5
million in 2001, which Youngs used to pay for the molds the UniKeep
required, multiple worldwide patents, branding, packaging and the
initial marketing push
Content Continues Below
Sales: $2.5
million in 2003
The Challenge:
Manufacturing a product with perceived value by keeping costs low
so you can compete with large, established corporations
The price you choose for your product ultimately depends on how
much it costs to produce it. When Ross Youngs decided to sell his
UniKeep three-ring binder, he knew he'd have to limit
manufacturing costs to compete with larger companies that sell
traditional binders. Luckily, Youngs was able to do just that-and
today, the UniKeep sells for a good value against the competition.
The UniKeep is found nationwide at select Office Depot and Staples
stores, as well as through commercial office suppliers such as
Boise Cascade and Corporate Express. Here are the steps Youngs took
to ensure costs didn't spin out of control:
Steps to Success
1.Set the right
price. "Our original target retail price was $3 [per
binder]. "Manufacturing costs can only be about 20 percent of
your list price to account for costs in the distribution channel,
so our cost target for manufacturing was 60 cents [per unit],"
says Youngs. However, you won't always meet your target. To
account for all the costs in his distribution channel, Youngs ended
up selling his product for an average price of $5.50 per
binder.
2.Streamline the
manufacturing process. Youngs used his background in
industrial engineering to simplify the manufacturing process.
"I was sure I could make a binder in just one step, with
polypropylene rings included in the mold," he says. Simpler
manufacturing is one way to keep costs down against the economies
of scale of bigger manufacturers.
3.Obtain firm price
quotes from manufacturers. To get a price quote, Youngs put
together specifications for the product that were eight pages long.
"Include a clause that states that manufacturers should review
the idea to see if there's a more cost-effective way to produce
the product under a nondisclosure/confidentiality agreement,"
he says. This agreement ensures that the company you're working
with can't steal the idea and make the product on its own.
4.Limit packaging and
shipping costs. Youngs aimed for packaging and shipping
costs that were 7 to 10 percent of the manufacturing costs.
"Packaging is crucial," Youngs says. "It has to tell
the product's story, but you have to keep the costs down."
Regarding shipping, "when you sell to big retailers, you are
going to have to pay the freight, so you have to be careful with
all your shipping sizes," Youngs says. "You need to be
small enough to ship six to 12 units to a small store, but placing
more units in a carton will help avoid excessive shipping
charges."
5.Set aside enough
money for allowances. Allowances are costs you have to
deduct from your invoice for items like co-op advertising, shelf
space and returns. "We tried to keep our allowance budget at
10 to 15 percent, but that allowance level may only work for a hot
new product for a smaller manufacturer," Youngs says. "It
takes an allowance budget of 20 to 25 percent to get your end-cap
placement every day. Paying more for allowances to get better shelf
space is one of the most effective ways for a small manufacturer to
increase sales."
6.Have some financial
backup. Despite all of Youngs' planning, some of his
"firm" price quotes turned out to be not so firm.
According to Youngs, "We are working now to resolve those cost
issues, but we've had to draw some resources from Univenture
Inc. [Youngs' company that makes the Safety-sleeve]. We expect
to get our costs back down, but we would have been sunk without
some financial protection."
SET THE DATEIt's time to think about protecting your idea
the second you start to think about it. But what's the best
way? You wouldn't be the first inventor to mail a sealed,
stamped letter to yourself with your invention details inside. But
that tactic isn't effective, says patent attorney N. Paul
Friedrichs. After all, envelopes don't have to be sealed to be
mailed, and ideas can be tucked inside at a later date.
Instead, Friedrichs suggests inventors take advantage of the
U.S. Patent and Trademark Office's Disclosure Document Program
(www.uspto.gov/web/offices/pac/disdo.html), which costs
$10. "The program is an excellent way to prove the date of
invention," he says. "The Patent Office will act as your
witness. The Disclosure Document Program does not provide patent
rights but proves date of invention."
Lessons Learned
1.Know your target
costs. Costs come at an inventor from all directions.
Manufacturing, shipping, packaging, marketing, retail allowances
and product liability insurance are just a few of the costs
inventors have to pay. Five percent more for packaging doesn't
sound bad, but it grows fast if you forget to include taxes and
shipping. The next thing you know, your product is too expensive.
So set a target, and stick with it. If you go over on one item,
find another area to cut from.
2.Learn to balance
your costs. A major reason why many inventors fail is
because their costs are too high. Even inventors with plenty of
experience have cost overruns. It's not always the
manufacturing costs that get out of control, but rather items such
as product liability insurance, shipping costs, retail allowances
or commissions to sales reps or distributors. The best way to be
prepared is to connect with an expert at an event such as an
association meeting. He or she will have enough experience to
evaluate your projected costs and see if you've missed anything
important. You can find associations for almost every type of
business in the Encyclopedia of Associations (Gale
Group), which is available in most libraries. If you can't
connect with a similar business or expert there, try your local
inventors' association (visit www.uiausa.com, or see a nationwide listing of
organizations at www.inventorsdigest.com by choosing the
"Inventor Organizations" link) or Small Business
Development Center (www.sba.gov/sbdc).
3.Have a financial
reserve for when things go wrong. Inventors rarely
experience smooth sailing from start to finish. There are always
problems, and if you don't have money in reserve, you might not
be able to adjust for a relatively small problem. Try to avoid
completely running out of money, or you'll have trouble
negotiating a good deal from a bank or investor. The best time to
set up a line of credit is when you still have plenty of your own
resources.
GET CRAFTYThe e-book
Sly as a Fox offers just the kind
of brainstorming help would-be inventors need-especially those who
recognize products with problems but can't find a unique
solution. Written by Mark Fox and offered free for a limited time
on his Web site (
www.slyasafox.com), the book is chock-full of hints on
how you, your friends and your family can work together to create a
product with plenty of perceived value.
Two especially valuable sections of the book are "10 Mental
Blocks to Creativity" and the "Sly as a Fox
Toolkit." The "10 Mental Blocks" section evaluates
ways of thinking that virtually everyone uses, such as logic, being
practical and following the rules, and shows how certain patterns
can create roadblocks to creativity. The Toolkit then shows you how
to break through those roadblocks. These useful exercises will
benefit any inventor who's trying to figure out how to build
that better mousetrap.
Don Debelak is author of Entrepreneur
magazine's Start-Up Guide #1813, Bringing Your Product
to Market (www.smallbizbooks.com). Send questions to dondebelak34@msn.com.