Spread It Around
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
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."
Not 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.