You had a great idea for a product. Your prototype got great reviews from focus groups or even from a crowdfunding campaign. Now you’re planning for mass production, ready to launch your own website, prepping for massive online sales, and practicing poses in the mirror for your picture on the cover of Forbes.
Having something to sell is the easy part. Getting it into the hands of consumers is sometimes the more complicated step. E-sales may make marketing easy, but that can be deceptive. Ben Wong is the Head of Startup Launchpad at Global Sources. He helps startups understand the distribution channels they need to leverage, and the different challenges they need to address to get their products into the hands of paying consumers in an offline setting. Global Sources runs the largest electronics sourcing trade show in the world. This October, more than 63,000 distributors and retailers from around the globe will wander the aisles at the Asia-World Expo in Hong Kong, stopping — or not — at 6,000 manufacturers’ booths. Among those will be about 300 booths where ambitious, hopeful, sometimes naïve, startup companies will beam with pride, burst with anticipation, and sweat with anxiety as they demonstrate their products and hope for a chance to launch a product, start a business, and scale to meet demand.
Ben’s job is to make sure each startup has the best chance to succeed. The New Jersey native and graduate of Dickinson College in Pennsylvania has spent the last ten years in Asia. He and I met in his bustling Hong Kong office recently to discuss how he helps the next generation of business leaders understand the marketplace.
Jay Sullivan: Hong Kong has long been the gateway between China and the rest of the world. You must feel like you are at the epicenter of the tech boom, getting products in between two major markets, while getting to see the latest ideas becoming reality.
Ben Wong: There is definitely a palpable energy coming from the people I meet. They’re all excited. It’s the ones who are also a bit nervous that I know will have a better chance of success.
Sullivan: What’s the biggest misperception people have about marketing a new product?
Wong: A lot of startups think they can advertise their new product on their website and the sales will start pouring in. But only 10% of consumer spending happens on the web, and much of that is with time-tested products, not new technology products. With new products, particularly tech products, consumers like to touch the product before they buy it. They want to feel it, play with it, try out how it works, and see if it works for them. Therefore, startups have to understand the customer journey required when it comes to new products and brands.
Sullivan: How do you impart that knowledge?
Wong: We run a series of mini-events at no charge for startups looking to understand the marketplace. Many of the people we deal with are engineers. We help them become well-rounded business people.
Sullivan: What do you cover in these sessions?
Wong: We cover topics like understanding how to protect your intellectual property, how to price your product, what distribution channel is best for you, how you might need to educate the different elements of that channel on how to market your product, how you might have to package your product differently for different segments of the market.
Sullivan: It sounds like you’re running a mini-MBA program for creative types.
Wong: Sometimes it feels that way.
Sullivan: What tend to be the biggest takeaways for your audience?
Wong: There are five elements of getting a product to market that I think are most important.
First, how are they pricing their products?
Many hardware startups price their product without understanding the complexities of sales and distribution channels. They start with their “bill of materials,” what it costs to make their product. Then they factor in what they want as a profit margin, and they think they have determined their price. But it doesn’t work that way. The distributor who picks up the product from the manufacturer’s warehouse needs to add 40% to the cost of the product. The end retailer will add another 50-70% because they will be the ones giving up shelf space and paying for the sales people to learn about the product and spend time explaining it to consumers. Now your product that cost $8.00 to make, and that you thought you could sell for $12 and make a bundle, will now be hitting the market at closer to $20.00. You have to ask yourself if your product is worth $20.00 to the target consumer. If the answer is not a solid “yes” then it’s time to look at your production costs and look at ways to lower your costs because as a new brand, many distributors and retailers will not budge on their minimum markups required.
Sullivan: That’s a radical change to the expectation of the typical hardware startup.
Wong: And that’s just the start. The second step is to help people understand the elements of the supply chain. For your product to get traction you need to educate the “early mass,” the first experimenters who will try your product. That education will happen in offline settings, in brick and mortar stores. There are two avenues – specialty stores and big box retailers. Specialty stores require an in-store presence that educates consumers on how a product works. Because I deal in the tech sector, many of the products I see are part of the Internet of Things. Everyone is very excited about it, but it’s still new to all of us. We all have a learning curve. Having someone or a point-of-sale display to introduce us to a new product is very helpful and, for some, very comforting.
For startups, however, specialty stores are just a stepping stone. The target market, no pun intended is big box stores.
Sullivan: Landing on the shelves of a Walmart or Target must feel like validation of long-held dreams for most manufacturers.
Wong: Yes. And it only happens one of two ways. First, a product has to be in a specialty store for a year or two and have developed enough of a reputation that it’s known in the marketplace. Second, if the idea of the product has caught on, and other manufacturers are making a similar product, there is now a substantial enough market for the big box store to carry it. When was the last time you were in Walmart and they only had one option on a particular product? It doesn’t happen. Their ideal is to have five-to-six manufacturers making the same product.
Sullivan: That makes things tough for startups.
Wong: There are exceptions in the tech space. Stores like Best Buy, Brookstone and Target have dedicated sections for “new tech products.” If a new product can get there, it’s got a great venue.
The third principle involves developing a marketing budget for off-line distribution.
If you have a revenue goal of $100,000, you need to set aside $10,000 as an offline marketing budget, in part because you have to be ready to market in different locations with different approaches. Your distribution channel is counting on you to market the product in-store in your host country. The distribution channel gets your product to the end location, but the marketing is up to you. Some stores might give you shelf space, which means you need to have great packaging, because that’s all you get to market your product. Other stores might offer one square meter of floor space, which means you have to develop a cardboard stand to showcase the product. Some stores might allow you to have a person doing a live demo. You have to be ready for all of this.
Sullivan: It seems like there are a lot of variables.
Wong: There are, undoubtedly. But if you don’t get your great product in front of the consumer, and cut through the clutter that’s out there, you won’t succeed.
Sullivan: You mentioned what’s expected in-country for any startup. What about global distribution?
Wong: That’s where the supply chain gets even more complex. The fourth thing we help new businesses understand is how to market internationally. The first key is, you have to manage quality control on a large scale for mass production. You are managing the quality of not only the finished product, but of the components you are sourcing globally. The quality of the stuff coming into your facility is as important as the quality of the stuff going out. You also have to manage the quality around packaging. You have to have different packaging for different distributors. For instance, Walmart and Best Buy have different packaging requirements. If your product arrives and it’s not packaged the right way, they won’t even accept it. So you even have to consider how you will store and manage the return of product to your warehouse, because product returns are going to happen, whether because the product was never accepted, or because it didn’t sell.
Sullivan: That’s a lot to consider when all you wanted to do was introduce a new product to the world.
Wong: And that’s the kicker. The last thing we help new manufacturers understand is how to avoid becoming a one-hit-wonder. They’ve just created their first product and they’re so proud. And then we say, “Hey, that’s great….So, what’s next?” Retailers want to know what takes that shelf space when interest in model 1.0 wanes. Will you be offering different colors? Different sizes? New features? Some startups are disheartened by that question. The ones who are inspired and challenged by that question are the ones I know will have a better shot at success.
Sullivan: Lots to consider, and all very important. Thanks for the advice.
Originally published on Forbes.com.