Posted by Denny Hatch
Itch to start a business?
Here’s how.
Milton M. Levine, 97, Inventor of Ant Farm,
Dies
Recalling how as a boy he had collected ants in jars at his uncle's farm in Pennsylvania, he told his brother-in-law and business partner, E. J. Cossman, “We should make an antarium.”
The resulting product—Uncle Milton's Ant Farm—has been a staple in children's bedrooms ever since. It offers a bucolic panorama of a farmhouse beside a winding path to a barn and windmill above a warren of ant tunnels, all encased in plastic. More than 20 million have been sold. —Dennis Hevesi, The New York Times, Jan. 29, 2011
When I came across the obituary of Milton Levine, it struck a chord deep
within me.
Here was a 43-year-old salesman of toys and novelties watching some ants
at a July 4, 1956 picnic when he suddenly saw his future—the ant farm—a 6” x 9”
two-sided plastic frame with sand, tunnels and live ants busily doing their
thing as mesmerized kids watched and learned.
Sixty years later, kids are still enthralled with ant farms. The basic
model currently sells for $18.95 (including 25 live ants).
In 2010 Levine sold his business for $20 million. His website, UncleMilton.com, has a slew of wonderful
scientific gadgets for kids.
Milton Levine—described by one magazine writer as “anty-establishment”―gave
pleasure (and inspiration) to millions of kids, made pots of money, obviously
had great fun and went to the great beyond at 97.
Life doesn’t get any better than that!
So what’s a fledgling entrepreneur to do next after a eureka moment?
How do you translate an idea into a profitable business?
Start-ups
A number of famous businesses were launched with one product and small
test ads in magazines and newspapers that were read by likely prospects:
• In 1951, Lillian Katz took $2,000 of wedding gift money and
placed a small ad in Seventeen magazine for $495 offering a purse and
belt with free monogramming. Her investment in ad space generated 6,450 orders
and $32,000 in sales. The Lillian Vernon
Catalog was born.
• In 1977, Richard Thalheimer, then a young office supplies
salesman and occasional lawyer, used to jog in San Francisco and keep track of
his progress on a wristwatch that had been specially designed for runners. All
who jog should have this item, Thalheimer reasoned. So he cut a deal with the
manufacturer and had designer Steve Sugar craft an ad offering the watch for
$69 in Runner’s World under the corporate moniker The Sharper Image. The ad generated $300,000 the first year. The
rest is history.
• Mel and Patricia Zeigler found a batch of surplus vintage European Army shirts in 1978. Patricia designed a small space ad. Mel wrote the copy.
They sold out and Banana Republic
was born.
• In 1987, John Peterman bought himself an ankle-length
horseman’s coat—standard gear in the West but unusual and distinctive back
East. “So many people tried to buy my coat off my back,” he wrote, “that I ran
a little ad in The New York Times and The Wall Street Journal and
in a few months sold this wonderful coat in cities all over the country and to
celebrities and to a mysterious gentleman in Japan who ordered two thousand of
them.” This was the origin of the J.
Peterman Catalog.
The five folks described above found existing products, figured out how
to market them, and went on to build multi-million dollar businesses based on
their marketing acumen.
But what
if the product exists only in your head?
Unless you have a lot of money and are a crapshooter, you do not want to
spend a small fortune for a warehouse full of untested product, whereupon you have to
come up with a ton more money for marketing to see if it will sell.
My suggestion: short-circuit the usual process and take your idea directly to the marketplace via direct
mail to see if it has legs.
Dry
Testing!
Promoting a product that is not
yet available for delivery to the buyer in order to test response to the
product before incurring the costs of producing or delivering the product.
Dry-testing is usually done on a small scale to avoid customer complaints. Any
cash orders received must be refunded. Dry-testing is not encouraged, but it is
legal. It is used primarily by industries with very high product start-up
costs, such as magazine publishers—Dictionary of Marketing Terms
I spent 15 years creating dry tests for clients. My own little
business—the WHO’S MAILING WHAT! newsletter and archive service—started
out life as a dry test.
The secret of the dry test is to market a non-existent product—make an
absolutely terrific, highly charged and emotional offer to the right people and
see if your concept fogs the mirror.
The Dry Test that Launched a $1 Billion (in Annual Revenue)
Empire
In 1979, a young entrepreneur named Bill Bonner had an idea for a
lifestyle newsletter that combined the worlds of investment and travel.
Bonner’s wrote a 3,600-word sales letter for International Living. His lede:
Bonner doesn’t open with a lecture on the high cost of living in America
nor the rooking you get from federal, state and local taxes.
Instead, he offers exclusivity and salvation, a virtual Garden of Eden that is very real today and attainable for every
person.
His half-price offer asked
for just $38 for a one-year subscription ($58 for two years).
Out of the box the mailing pulled 300 percent of breakeven and launched
his business.
Today, Bonner owns two chateaux in France, a flat in Paris, a collection
of historic Baltimore townhouses (his corporate HQ) as well as real estate around the
world. And he is proprietor of Agora—a sprawling international publishing and
financial empire.
The flagship—International Living—is
now a handsome full-color magazine with “100,000 print subscribers, 500,000 e-letter
readers and over 400,000 visitors to the website every month, 80% based in the
U.S.” Subscription price: $49.
Okay, Technically
Dry Testing Is Illegal
The Federal Trade Commission has the “Mail and Telephone Order
Merchandise Rule”—known in the trade as the 30-Day Rule.
In a nutshell, it is illegal to make an offer for money unless you
can―with reasonable certainty—fulfill the order within 30 days.
It’s easy to create and mail a newsletter within 30 days. (Now it’s even
easier— and more cost efficient—if you go the online route.)
But how do you get around the 30-day rule when you want to dry test a
product that requires a prototype, manufacturing, warehousing, shipping?
Saying the product won’t be available for six months—if ever—is an immediate deal killer.
Saying the product won’t be available for six months—if ever—is an immediate deal killer.
1. Write a delay letter, saying in effect that due to production
difficulties the product cannot be shipped right away.
2. If you ask for a credit card, you tell the customer that the credit
card will not be debited until the product is shipped.
The Bill-me Option
I worked with many clients who had it
in their heads to start a magazine. The sequence of events to bring it to
market:
1. Find a venture capitalist willing to put up the cash for a test
mailing.
2. Hire a direct mail consultant plus copywriter/designer to create a subscription offer
and mail it to selected lists. The usual come-on was a free issue and a deep
discount for the remaining 11 issues. Bill me. No request for cash or credit
card. If you don’t like the first issue, return the invoice marked “cancel” and
you are under no further obligation. The first issue is yours free.
Jayme-Ratalahti Launch Mailing for Utne Reader
3. Use direct mail. It's secret! A space ad is a public announcement. A test via email could be all over the Internet in 30 seconds and your idea is hijacked.
4. If your test mailing generates the budgeted response—satisfactorily fogs the mirror—the VC should supply enough money to put you in business.
4. If your test mailing generates the budgeted response—satisfactorily fogs the mirror—the VC should supply enough money to put you in business.
However, under this model, a huge question still
existed: Would anybody pay for the actual magazine once it was in the reader’s
hands? What if it failed to live up to the hype of the mailing and all who
signed up for a free issue wrote in and canceled?
If you fail to live up to your hype, it's dead.
The Doscher Solution
One of the savviest research brains in the direct marketing business is
Bob Doscher of Response Innovations.
Many years ago, Doscher of did a series of market research surveys for Historical Times and
came up with nine potentially winning projects—a book (or series of books) and
a continuity card series for Civil War buffs. I was hired to write and design
the dry test packages. Eight of the nine were big successes. (The ninth ran
into legal problems and what I was told to create was different from what the
survey promised.) Delay letters were written to all who ordered, the products
were produced, and the company made barrels of money.
However, at one point, the corporate lawyers were getting skittish over
the idea of dry tests and the potential violation of the FTC 30-Day Rule. They
wanted to say on the mailing, in effect, "This product does not
exist," which would have been a deal killer.
Doscher and the lawyers went round and round the legal mulberry bush on
this point, and finally settled on a line of copy they felt would satisfy the
FTC. In 8-point mousetype under the name and address on the order card was the
following:
What happened?
This line of copy raised response 15 percent! What's more, it was tested
multiple times and the increase held.
Ultimately it was used on every single mailing that went out of the
place―even on products that had been around for years. Response to everything went up 15 percent!
Could this line of copy run at the bottom of a space ad or a DRTV
effort, much like the disclaimers in pharmaceutical ads that warn of blindness,
nausea, impotence and death?
Maybe worth a test.
I’m not giving this line of copy any kind of imprimatur.
But it does honestly state your intentions may be worth testing.
Takeaways
to Consider
• Creating a new product or service is exciting and fun. Marketing is a
tough, precise and expensive slog.
• Just because you are a whiz-bang entrepreneur doesn’t necessarily mean
you are a marketer. Hire professionals.
• "If you think it's expensive to hire a professional to do the
job, wait until you hire an amateur." —Red Adair (1915-2004), Daredevil oil well firefighter
• "The most important word in the vocabulary of advertising is test. If you pretest your product with consumers, and pretest your advertising, you
will do well in the marketplace." —David Ogilvy
• When going after investment capital to launch a new product or
service, it’s essential to have solid evidence that a market exists—harder data
than the soft results of a survey or focus groups.
• With a magazine launch—or any other business—full funding for at least
three years is necessary to acquire customers and start generating serious
revenue.
• For example, it took Sports Illustrated 10 years to become
profitable after Henry Luce founded it in 1954. Many of the publications I
helped launch were just on the cusp of viability when the VCs called in their
markers, fired the founders and sold the properties to big publishers for a fat
profit. Many talented, committed professionals found themselves in the street,
their dreams shattered.
• A VC is not interested in an entrepreneur coming back, hat in hand,
asking for additional money, because of unforeseen problems.
• In war and business, the thing to avoid at all costs is surprises.
Web Sites Related to Today’s Edition
Do you have a start-up story (success or failure)? Additional advice? Share your experience in the Comment section below. Thank you. —DH
Don't forget to mention those seahorse kits!
ReplyDeleteRicardo, Many thanks for taking the time to Comment.
ReplyDeleteI vaguely remember seahorse kits and Googled them. They are for sale. But what should be said about them? Asking for your follow-up to what is a fascinating teaser. Do you have experience with them? Thank you.
Thank you as always. I am trying to launch a new service and it is hard work. Your post gave me the outlook to keep trying and not give up. I wish it was all one page so I can post it on my wall. Sorry to hear about Milton Levine.
ReplyDeletePhilip, Thanks for taking the time to comment. Nobody said marketing is easy. It is a perpetual challenge to make meaningful offers and slavishly studying and interpreting response. Don’t feel sorry for Milton Levine; he had a fascinating life, made pots of money and did not assume room temperature until the ripe old age of 97. It doesn’t get any better than that!
DeleteDenny - I bet I've written over 150 infomercial scripts / storyboards. We know the percentages of what works and what doesn't. Almost every one of them were with prototype products, and the call centers were instructed to not accept a credit card and be transparent about the ads being a "test."
ReplyDeleteThat way we avoided FTC's 30-Day Rule. Standard procedure.
I had some pressing work to do so was going to save reading your latest blog till later. But then I started reading and kept on until the end. Stop being so interesting and compelling, Denny; you're not helping me get through my to-do list;)
ReplyDeleteAt age nine while living in Chugiak, Alaska, I ordered that ant farm. It came all the way to Alaska, complete with ants! As best I remember, the ant farm included soil, and all the ants survived the long trip through the postal system in their small plastic tube.
ReplyDeleteAfter I dropped the ants into the farm from the tube, they immediately went to work digging a latticework of tunnels. They died week or two later, and I replaced them with local ants. I didn't take the ants to school, because school was out for the summer.
The ant farm was a short interlude from my main interests, which were World War II history, my garden, our Husky, and tether ball.
Hey, Arnold, great hearing from you after so long a time. And thank you for your terrific post. It answered a lot of questions I had about ant farms (e.g., life span of ants, what they did in the farm and attention span of grade schoolers. Do keep in touch. Cheers.
Delete