Birth of a Product Company

Part 1
A friend of mine is a stylist to the stars. If there is a movie or TV show shooting in the region,
shes on the set, making hair magic. She gets flown around the world at times. Shes in
demand. She also runs a boutique high-end salon in Memphis. People await her return and pay
2x-5x normal rates for a new hair-do because going to her is an experience.
She not only knows her craft well, but is also a genuine inspiration and joy. Passion exudes
from her like a form of electricity. In an odd way, she is the premium product, offering a
service but wrapping it into a unique, touching experience.
When I entered her enchanted lairdance music at an inviting level, lights just right, art deco
appointmentslast week the experience was further enhanced with strong, attractive smells
of well-mixed essential oils, new products.
Touching the tester items felt so good, silky, not sticky, and not greasy. I felt drunk in the best
way, not woozy, but uninhibited. The sensory overload was heady and bewildering.
I came to my senses holding some hand-crafted objects, lovely designs, beautiful packaging
with hand-tooled wood filled with small batches of shaving solids, solid shampoos, and a small
selection of other wonders. Perhaps it was the environment, perhaps it was the novelty, but I
knew I must take some home.
Until I saw the price, handwritten on a sticker on each object. As I imagined my bank balance
draining instantly with each possible purchase, my friend walked into the room.
Congratulations on creating these products! I proclaimed, smells, looks, and feels sublime.
Did you make them with nectar of the Gods?
What do you think? she asked, knowing I have helped hundreds of companies conceive,
create, and launched new products into the marketplace. Her question was loaded; she was
looking for real advice from experience.

Its too late. Youve made several critical errors, I said, sensing the need to be helpful and
honest, as she is clearly devoting time and energy to this project. Youve fallen in love with
your products, are unmindful of what the market will pay and how much they will cost to
manufacture them at scale, and I assume you created all of these stunning works of art
without writing a business plan.
A business plan? I dont know how to do that, she responded.
My advice would be to back up, stall your product development and prototype creationyou
have enough as a proof-of-concept. Youve put enough attention and care on the products;
however, you have fallen in love with the products and are smitten with your creation. This
love will endure only if you fall in love with the business-side of the equation. May I ask you a
few questions?
Of course, she said, you are the one who helps people go to market,
Thats only partly true. I also help product developers find new areas of opportunity around
which they can create new solutions. You didnt start with people, or a plan, you started with
the products. Now, youve fallen in love with your creation. Hemingway said kill your
darlings and the same advice holds true for the product development cycle.

Part 2
Think of it this way, I continued. Look at these early product concepts as prototypes, a
proof-of-concept, I continued, you can test pricing, sales, returns, which SKUs sell at the
fastest clips, and general desirability for the whole line.
She had a lost look on her face. Then, I unintentionally made the lost look sour by asking,
Where did you plan on test marketing these?
Brother, she said in her bewildered-yet-trying-to-stay-cool tone, I know not of what you
speak, test marketing. Silence engulfed us.
Well, you have to see if anyone will buy it. Based on the local angle and high-end, handcrafted sensibilities, maybe you should try a few boutiques, gift shops, and even a farmers
market, I said. Youll know in a few days if you there is market for your products.
How do you do that? she asked. Who has time to do it?
This question made it clear to me that she was thinking like a creator, a craftsperson, and not
like a business person.

My dear friend, how long did it take you to gather all the materials, discover the right mix of
ingredients, and price what you have?
My whole life.
And you cant take a few mornings and do a little business development?
I thought Id just set up a free web site and sell it through it.
How are people going to know you exist? Once you tap your social media connections and
email listyour low-hanging fruit, youll have to set up SEO, pay-per-click advertising,
produce and update a blog, and more, just for starters, but, I added, youll need to
understand the market first. Where are the watering holes where your tribe hangs outwhat
web sites, what Pins on Pinterestwho are your competitors? What are their costs, who are
the brands, what are their strategies? What are the trends in this segment of the marketing?
And, what happens if you do only a handful of these tactics, according to written strategy,
and your sales take off? Can you produce enough to meet demand?
Then, when it is time to scale growth, youll have to have a distribution plan. What are the
channels? What are your wholesale margins? What is your plan for manufacturing at scale?
Have you modeled out your costs? Do you have a formal pricing strategy? Marketing plan?
What about capital? Youll need money to make all of these moves and hit growth milestones.
Also, you should benchmark companies you like.
Wow, wow, wowthats a whole lot. How would you suggest I even start? she asked.

Part 3
At this point in the dialogue, I felt the need to break down the conversation into helpful
actions in two main categories: test marketing and business planning.
You asked what to do first. First: stop working on your products. You have beautiful
prototypes built. Now, focus on the business, I said. In time youll need to think about
capital, but first you have to prove yourself, so go and see how the market reacts and also
draft a business planthis way potential investors will know you are serious. Remember, they
are betting on you, not on the products.
Whoahow do I do all of that? Where do I start?

You already have begun test marketing by displaying your products on your shelf. Now, keep
good records of what each one cost to make, which ones sell faster, and what the profit
margins are.
Then, expand the test a little. Try to selling a few of the pieces youve created at your
current asking price at the farmers market and a local gift shop or two for a set period of
time, keeping good records on what sells, what doesnt, and any feedback you get from
people.
Most important, write a thorough business plan.
A business plan? she sounded as crestfallen as someone just told they have been diagnosed
with a terminal illness.
I know this point sounds rough, but if you want to be successful, focus on the business. You
have great product prototypes, but from this point forward it is not about the productsas
long as quality is consistentit is about growing a business.
A business plan she uttered this phrase with sour contempt, sounding defeated before a
match.
Silence deafened us both. I couldnt take it any longer, as shes a friend, but she beat me to
it.
Cant I hire someone else to write it? she asked.
Thats like asking who are you going to trust to raise your baby, I responded, then switched
metaphors: Do you know that old saying you cant hire anyone to do your push-ups for you?
Well, the same is true with business planning. You have to own it and do the hard work and
homework to own it. That is, if you want to grow this effort into a business and you want to
control it and be able to make the decisions.
Her head nods affirmatively.
There is one alternative, I add, if you want to take on a business-minded partner whom
you trust and with whom you can work closely, you can focus on products. Still, youll have to
have a deep, visceral understanding of costs, materials, manufacturing, distribution,
marketing, business development, sales, cultural trends, the competition, and adapt your
strategy according to these dynamic forces once you have a grasp of them.

Part 4
After you have a solid business plan and actual market feedback on your product concepts,
including revenue, I continued, youll want to think about raising capital.
You dont want your company to wither on the vine before it ripens, so well need to raise a
round of Friends and Family money.
How do I do that? Just ask them for a hundred bucks each? she asked.
First, you need to figure out what youre willing to give up in exchange. Are you willing to
give up part of your company already? Are you willing to give up equity and report to a board
yet? Or should you just consider a loan or structuring it as debt?
Equity. Debt. Board. Man, these are things I havent thought about at all, she confessed.
Have you heard of Old Wives Tales? She nodded affirmatively. This is one from the world
of business Most companies die of digestion rather than starvation, meaning they got a
bunch of orders, hit a certain level of success, and then imploded couldnt produce and
deliver quality at the rate the market desired. Think of all the struggle, the goodwill burned,
the heartbreak of having to let people go, the taste of failure.
She nodded, as this vision was one potentiality.
The reasons they fail are two-fold, and unavoidable. First, they didnt have a viable plan for
scaling their growth. A plan cannot predict every possibly pitfall, but it gives you a roadmap
for finding your way and highlights key assets and resources youll need at certain levels of
growth. Youll be able to have a sense of whats needed and can adapt more readily, more
creatively with this plan. It pays to do your homework.
I took a minute and made sure she was listening. She was, deeply.
So, I added, the other reason is simple: money. Growth takes capital, investment; think of it
as fertilizer. You have to spread it around pretty thick and generously, until it hurts, really.
This is why youll need those Friends and Family dollars, to have something to put to work
before you can either get a bank loan or raise what they call more institutional money.
Without ready capital, you can get trapped in a death spiral, a painful spot, which is why you
want to plan for growth, account for it, and have money on hand when it is time to grow. Ive
had too many friendsall good peoplewho grew for a few years then got in over their heads,
couldnt handle their loan service or the price of production, then screech and grind until
they finally close shop, still owing taxes, others. Its a tragic end, but it is avoidable.

Dont focus on just the products. Write a business plan. Test market. Raise some money.
Then, build with your plan as your guide. What a grand adventure.

Michael Graber is the managing partner of the Southern Growth Studio, an innovation and
strategic growth firm based in Memphis, TN. Visit www.southerngrowthstudio.com to
learn more.