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Product retail fit - 10 things hardware startups should know

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When do retailers start calling? Answer: the big ones don't.
Making a product is half the battle: distribution is the end game.

Published in: Technology

Product retail fit - 10 things hardware startups should know

  1. 1. PRODUCT-RETAIL FIT 10 THINGS HARDWARE STARTUPS SHOULD KNOW ABOUT RETAIL
  2. 2. YOU’VE DONE IT!… almost • You built a product • You got buzz • You completed a Kickstarter That was HALF THE BATTLE Your next battle is…RETAIL! THE LATEST SHINY GADGET
  3. 3. BRICK AND MORTAR ECOMMERCE 7.5% E-commerce is only 7.5% of U.S. retail sales.* * Source: US Census Bureau, Q4 2015 1. WHY BOTHER WITH BRICK & MORTAR
  4. 4. DEFINITION EXAMPLES STANDARD / WHOLESALE Retailer purchases inventory from you and owns it. Retailer is assuming all risk and getting higher margin. CONSIGNMENT You are paid as products are sold to the end user. Less margin for the retailer. Common in high-price point categories. DROP SHIP / DIRECT VENDOR SHIP Products are shipped directly from your warehouse to customers. Less margin for the retailer if you pay for shipping. Common across all retailers, especially for heavy products. MARKETPLACE Retailer is the listing agent; orders are drop-shipped by you. Less margin for the retailer. 2. ONE PRODUCT, MANY RETAIL MODELS
  5. 5. STARTUP RETAILERSALES AGENCY OR SALES REP CUSTOMERS OPTIONAL MIDDLEMAN BUYER / MERCHANTYOU 3. YOU NEED TO WIN THE BUYER Images via Rachel Harris at The Noun Project
  6. 6. Whatdotheydoallday? Howaretheyincentivized? • Work on financial & strategic plans • Manage vendor relationships • Source new product • Sales • Innovation • Leadership Howtomeetthem?* • Trade shows / industry events • Connections / sales reps • LinkedIn * in order of effectiveness (continued) 3. YOU NEED TO WIN THE BUYER
  7. 7. 4. READ THE FINE PRINT DEFINITION TYPICAL RANGE MARGIN The % of the retail price the retailer keeps. 25-40% is typical in consumer electronics. PAYMENT TERMS Also called “days to pay”. Days between delivery to the retailer and their payment to you. 30-90 days, depending. 
 This is often the most negotiable term for startups. RETURNS When a customer returns a product to a retailer, you generally pay for it. 10%-15% is a safe rule of thumb. IN-STORE / ONLINE PROMOTIONS You might have to “fund” all pre-planned in-store and online promotions. The price cut is out of YOUR share. e.g. Regular retail price: $100
 Retailer: 30% | You: 70% “10% off” promotion: $90 Retailer: still 30% | You: 60% SLOTTING FEES Fees for shelf placement or online real estate. Variable
  8. 8. 5. MIDDLEMEN CAN HELP Now you’ve
 got mail! You ran a successful campaign… Ask mentors or other startups for references HELPER ASK DISTRIBUTORS 5-8% of wholesale cost SALES REP 2-5% of wholesale cost CONTRACT MANUFACTURERS Per-product fee. Varies. FINANCING PROVIDERS 5-20% of inventory cost ADVISORS Equity BRANDING/MARKETING AGENCIES Service fee + equity (sometimes)
  9. 9. 6. IT’S A MARATHON BUYER YOU LIKES YOUR PRODUCT, REQUESTS A SAMPLE ADDS YOUR SAMPLE TO HER “ASSORTMENT” FOR THE NEXT CATEGORY UPDATE UPDATES OCCUR 1-2 TIMES/YEAR PRESENTS THIS NEW “ASSORTMENT” TO HER BOSS FOR APPROVAL APPROVAL GRANTED! PAPERWORK TIME! THERE’S A LOT OF IT FORECASTS LIKELY UNIT REQUIREMENTS WRITES A PURCHASE ORDER PLANNER YOUR PRODUCT IS ON THE SHELVES! TOTAL TIME: 6-12 MONTHS 1 2 3 4 56 7 Images: Rachel Harris @The Noun Project
  10. 10. 7. SHOPPING = RESEARCH 
 
 
 Place: GotoTarget,BestBuy,Walmart,andshoponline Usethe4P’sasabenchmark What’s the range of prices in your category?
 Where do you fit? What is different about your product?
 How are you conveying that message?
 Why would someone choose your product? How are your competitors marketing their products?
 How can you compete?
 What type of packaging is most effective? Where in the store or online does your product land?
 Who shops this category? Price: Product: Promotion:
  11. 11. 8. TWO MAJOR ADMIN TASKS 1) BECOME A REGISTERED VENDOR Retailers need to make sure you are a registered corporation, have a bank account, don’t operate sweatshops, etc. 2) REGISTER YOUR PRODUCTS IN THE RETAILER’S SYSTEMS Retailers need to know every detail about your individual products, for distribution purposes and for effective online search. WHY THEY NEED IT: SAMPLE INFO: •Contact info/location •Factory location/shipping port •Unit sales/# of customers •Order minimums •Return policy •Insurance •All item attributes: size, color, etc. •Components, including batteries •Casepack details •Price/cost •UPC Andathousandpapercuts
  12. 12. 9. NEW STARTUP-FRIENDLY OPTIONS open house Online platform for startup products,“showcasing an ever- expanding collection of fresh new products from popular crowdfunding platforms, incubators and startups.” Target’s connected home lab and retail space in San Francisco. Sells products from startups and major brands side-by-side. “End-to-end development, manufacturing and retail program that can help you realize the full potential of your product idea.” B8ta is “the first brick-and-mortar retailer architected to help you discover, experience and buy the latest tech and IoT product.” Located in Palo Alto, CA. Startup-specificprogramsoftencomewithextraassistanceduringthesetupprocess, bettertermsanduniquemerchandisingoptions.
  13. 13. 10. RETAILERS WANT YOU! Innovationisthenewbuzzword.Startupsarethecoolest.Everyonewantsinonthefun!
  14. 14. CONCLUSION • You don’t have to be a great salesperson, a distribution expert, or a marketing guru to go into retail. • Use your network, do your research, and pick good partners. • Talk to other hardware founders who have done it before. • Don’t try to reinvent the wheel! “I think people overweight the value of an idea.
 90% of success is execution, just driving through the circumstances.” 
 Andy Katz-Mayfield
 Co-founder of Harry’s, Inc. Youcandoit.It’s90%execution.
  15. 15. Buyer/Merchant (same person!): This is the general manager of the category you are selling into. Buyers tend to own a collection of products in a particular part of the store; e.g. girl’s toys, salty snacks or sporting goods. The buyer works with vendors to decide which products to sell. PO (Purchase Order): When a buyer decides to sell your product in her category, she’ll work with her inventory planner to write a PO. This is your formal “order”, and is generally your only legally binding obligation to a retailer. Retail: Industry jargon for the word “price”, short for “retail price”. This is generally the same as MSRP (Manufacturer’s Suggested Retail Price), and is the price that you have decided to charge for your product across channels. Buyers will want you to maintain the same price across retailers to avoid price competition for your product. Cost: When a buyer talks about cost, he is referring to the wholesale price that you will charge the retailer for each unit. The difference between your cost and the retail is the margin that the retailer gets to keep for each unit sold. POG: Short for planogram, is the diagram that buyers use to decide where each product goes on a shelf. Brick and mortar retailers will often have POG rooms, which are mock shelves used to demonstrate what the actual product looks like in stores. Google Image “planogram” for an example of a 2-D POG diagram. Transition: Transitions are the changing of seasons or cycles for a retailer. For example, the day after Easter, the candy buyer will have planned a “transition” from an assortment featuring Easter candy to an assortment featuring no Easter candy. She will use internal systems to put exiting product on clearance. In non-seasonal categories, such as consumer electronics, transitions occur in a preplanned month, generally once or twice a year. A non-seasonal category typically “transitions” about 10-20% of products out 1-2 times per year, based on product performance, customer demand and changing technologies. Vendor: As a hardware startup, that’s YOU. Vendors are companies that sell to a retailer. Vendors can range from MNCs like Coca Cola to single-product companies. RETAIL LINGO
  16. 16. BOOST San Francisco URBAN-X New York ACCELERATOR Shenzhen HAX ACCELERATOR Duncan Turner Managing Director duncan@hax.co @duncanajturner HAX CHINA Karina Chang Program Director karina@hax.co HAX Cyril Ebersweiler Founder cyril@hax.co @hax_co HAX Benjamin Joffe General Partner ben@hax.co @benjaminjoffe BOOST Kate Whitcomb Program Director kate.whitcomb@hax.co @katewhitcomb URBAN-X Nick Plante Program Director nap@sosv.com @zapnap HAX TEAM WeMakeYourElectronicsDreamsComeTrue!
  17. 17. JOIN US! Areyouahardwarestartuplookingforretail?ApplytoHAX|Boost! HAX|Boostisa42-daysalesand distributionacceleratorlocated
 indowntownSanFrancisco. ItisoperatedbyHAX,theworld’s firstandlargesthardware accelerator. www.hax.co/boost/

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