As as startup CEO I am always intrigued when I meet another entrepreneur fighting the good fight. It’s a great opportunity to trade war stories and learn about other interesting industries. But, I am more thouroughly impressed when I find out they are doing it the “hard way”.
When I met Cameron wheeler, co-founder of ZappBug, his first line was “Did you know there are 110,000 unique people a month searching on Google for “how to get rid of bed bugs?” My first reaction when was “uh, what was that again, I thought you said bed bugs!”
Turns out that’s exactly what he said.
I quickly found Cameron to be a smart dude and Bed Bugs to be a killer business. But this story isn’t all about how to get rid of Bed Bugs (although you can find the link below). Intrigued, I wanted to learn more about how he was approaching this massive problem and how he built a physical hardware product company in a web dominated startup world.
This is a story of how three normal guys started a product company and actually generating revenue, without seeing a single bug (and how you can build your product company on a budget.)
Find a real problem to solve
Bed bugs are a real problem and many of us know someone who has encountered them. It all started for Cameron when a neighbor of one of the his co-founders had bed bugs and they spread through the electrical outlets into units across the building and into his apartment. [Gross.] Having to deal with this “fun” experience, he searched and searched and finally found out how to get rid of the bugs.
In the process they realized there is a real problem with Bed Bugs.
During the initial research process they also learned that there was a real need for better solutions and more information. They found out the market is huge but fragmented. Pest control companies want to come to your home and sell. Bloggers spew tons of words with little actionable advice and sellers want to throw products at you.
They realized there weren’t really any great resources or solutions in market and thus, ZappBug was born.
After some more research, they found the elusive hole in the market – no one was providing high quality products at affordable prices, so they decided they would develop a physical product and sell it directly to customers. The idea was to develop a bed bug oven that could use heat to kill bed bugs in luggage and other personal belongings, ultimately saving peoples belongings in the end. “We chose to begin with this product because we had the technical competency to do it. Heat treatment is a proven way to kill bed bugs. The product could be used for both prevention and extermination and would be a great revenue generator.”
Lesson: Cameron found a big problem to solve and in return has a nice growing revenue curve to support his business. With ZappBug, people simply search and find a solution to their nasty problem. And not too mention, when people have a pressing issue they will not hesitate to spend money on an easy to find solution. Huge lesson for entrepreneurs out there – solve an urgent problem for people and they will pay you money.
Get creative and quickly build a protoype
It can be very expensive to start a company that makes physical products. Testing and manufacturing alone can require more time/money than software products. And there is the fact that each unit costs money. You need working capital up front to buy inventory. Also, you need to make enough units in each production run to meet the minimum order quantities required by factories producing your product. There is no Amazon Web Services for physical products, just Chinese factories…which are a far cry from the affordable but flexible services we are used to in web services.
So the question Cameron had to figure out was: Is there a way to apply Lean Startup principles to physical products? Could you actually produce and sell a physical product without a huge amount of capital and actually make a profit?
“When my cofounders and I talked about the opportunity, things began to move quickly. I soon developed a strategy for low volume overseas manufacturing and developing an MVP to bring us into the market” says Cameron.
The team had the idea, but they needed a prototype.
According to Cameron, this was solved by with just a quick trip down the street. “I went to Home Depot and got a heater, some insulation and a storage container. Then I brought all of my nerd tools home and pulled out my Arduino. By the end of the day, I had a working prototype.”
He basically built an oven from scratch.
The goal of the simple bed bug oven was to heat items and hold them lethal temperatures for a period of time. After a few days of testing they had a really good idea of the max size and how the product was going to operate. “We then found a guy on craigslist who used to design clothes for Nordstrom and was willing to sew up some samples for us. After a couple of revisions and a lot of testing, we already had a design that was ready to manufacture.”
Lesson: Get creative on how to build your first prototype. It doesn’t have to be fancy or expensive, it just has to model what you ultimately want to build in the end. Use local markets or big box retailers to provide the initial supplies. Remember, you only need to build one.
Leverage China’s Economies of Scale
Mass producing textiles like their “insulated folding box” (aka the bed bug oven) is not feasible in the U.S. because of labor costs and minimum order sizes. Most people don’t really understand how you can go from a simple prototype in your garage to a factory sample and then to a production run in a large factory.
So how did ZappBug do it?
Through previously failed startups, Cameron learned the importance of applying lean principles to product development and market testing. Also, previously serving as a product manager responsible for overseas manufacturing at Direct Global Sales, he learned how easy it was to get things made in China.
“Before my trip I looked for several factories on alibaba.com, where you can find everything that is made and just about everybody that makes stuff. So we started looking for a small factory to make our ‘ovens’.”
Fascinating, they simply took some pictures of the prototype and sent out emails to the factories. They sent out hundreds of emails to manufacturers across China and got replies from most, and then just started negotiating from there.
And before he knew it, Cameron was off to China!
Once there, he met a local contact and visited a few factories. “Ben and I had met a few weeks before on alibaba.com and we were in constant communication. Ben hooked me up with samples and helped me negotiate a low minimum order quantity (MOQ) production run. Ben showed me that everything was negotiable in a Chinese factory.”
Cameron notes that when you look into making your own product, don’t be scared off by the initial high minimum order demands. The factory will probably do whatever they can to accommodate you.
Their container box arrived with the goods in June, 2012 and they started selling the product on Amazon immediately. Sales went well. So well, in fact, they quickly sold out of the first shipment. Needing more, they made another manufacturing run and landed their first full shipping container of product in December of 2012. Passing on the opportunity to talk specific revenue numbers, Cameron mentioned they are driving margins “double the wholesale average” and their sales are solid and growing with the latest (and larger) run of heaters.
Lesson: China has great economies of scale, everything is a negotiation and its all just an email away. Making a friend on the ground in China will help you navigate the negotiation process. Also, perfecting the design stateside where the iterations take less time and then working with the Chinese manufactures help to get the costs down to manageable levels.
Who knew Bed Bugs could be such a killer business?
Do You Have Bed Bugs?
If you have the misfortune of Bed Bugs, you have to check out their solution. ZappBug is meant to be a one-stop resource for how to get rid of bed bugs and their main products are multi-sized oven heaters to place clothing, luggage and other stuff meant to kill 100% of the bugs.
Nick Hughes is CEO of Seconds, a mobile payments startup located in Seattle, WA. He also writes at SoEntrepreneurial.com and you can follow him on twitter @jnickhughes.
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