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South Florida’s consumer product startups are on a roll

Miami Herald August 24, 2015

By Nancy Dahlberg

ndahlberg@miamiherald.com

“We kept hearing ‘you really have something here.’ If you hear that enough, you can’t give up,” said Joseph Signorile, who is part of a team developing an innovative fitness product.

Signorile is part of South Florida’s fast-growing cadre of new entrepreneurs. In June, Miami landed at No. 2 on the Kauffman Foundation’s index for startup activity, just behind Austin, Texas, and ahead of Silicon Valley. People often equate “startup” with “high tech,” but Kauffman’s index includes all kinds of new businesses, including consumer product companies. South Florida is no different. In the Miami Herald’s annual Business Plan Challenge, for instance, typically 30 to 40 percent of the entries involve consumer products such as foods, fashion products, gadgets and accessories.

Yet product companies face challenges different from service businesses. Along with the common business needs of office systems, staffing, accounting and marketing, product entrepreneurs often also need to foot the cost of product development and manufacturing long before they see their first dollar in sales.

“Cash flow is a huge issue — they get the contracts and then they don’t have the cash flow in order to deliver,” said Pandwe Gibson, founder of EcoTech Visions, an incubator for local green manufacturing startups.

Investment capital is a challenge too, as most banks want to see two to three years of tax returns that startups don’t yet have, she said. Venture and angel funds more typically flock to high-growth tech companies; in the case of consumer products, investors want to see sales. But the entrepreneurs still need capital to build their prototype and engineer the manufacturing process.

Some incubators and grant programs help entrepreneurs line up investment. But working with a variety of interests — manufacturers, suppliers and retailers — to get the costs down is critical. “Retailers often want unrealistic markups. People need to learn to compromise and work together,” said Sam Hollander, managing director of Concept One International, which has taken hundreds of products to market.

Distribution is another critical requirement — one that has become concentrated. Most product makers need to crack Wal-Mart, Target or Amazon if they want to build a $100 million company, said Robert Hacker, who teaches entrepreneurship at Florida International University’s Honors College and is an instructor and mentor for the Goldman Sachs 10,000 Small Businesses Program at Miami Dade College.

“To succeed with those three, you have to become really effective at your own messaging,” he said. “Today the consumer pulls, the retailers no longer push the product. … You’ve got to be able to advertise and self-promote a lot more effectively because there is so much more competition.”

Like tech companies, consumer product companies should keep in-house those functions that are critical to success — such as product development, sales and customer experience — and outsource or take on partners to handle manufacturing, distribution and logistics, Hacker advises.

“Consumer companies tend to grow in stages, zero to $1 million in revenue is the proof of concept stage, $1 million to $3 million is where you’re seeking a depth of customers in your product-market fit, and $3 million to $10 million is where you are learning to scale,” said Hacker. But too often, Hacker says, companies get to the $1 million mark and stay there. “These companies provide their owners with a living and the owners get comfortable but they are afraid to push on. You just can’t get stuck at a million dollars.”

And as with tech companies, big payouts are possible — with the right innovative product and a sizable market opportunity. Take Spanx, for example. Founder Sara Blakely started her company in her Atlanta apartment with $5,000 at age 29. Twelve years later, her company generated $250 million in revenue, according to Forbes.

Few companies will become the proverbial overnight success story that often actually takes 10 or 15 years, said Jack Chadam, a marketing expert and mentor at FAU Tech Runway, an accelerator for startups. A big hit takes perseverance — and perhaps a little bit of luck.

“The challenge for an entrepreneur is to have something that is unique that you can protect and you can own, affording you with the first mover advantage — and you can do a heck of a lot with your product or other versions down the line,” said Chadam. “But it takes a real entrepreneur, not someone playing the entrepreneur. It takes someone who truly gets it, who truly understands the hustle and commitment.”

South Florida’s young product companies are riding entrepreneurial roller coasters. Here are a few of their startup stories.

KEEP AN EYE ON THE BEST BALL

Samuel Hollander has 35 years of go-to-market experience developing consumer products, the kind you’ve seen over the years on shopping channels and in big-box stores. Joseph Signorile is a University of Miami professor who is an expert in the science of fitness; he also wrote Bending the Aging Curve and co-authored the South Beach Diet Supercharged. About five years ago, the biking buddies found themselves reimagining a product that has been rolling around gyms and fitness centers for a half-century.

“As we rode, we talked. One of the things that came up was the typical exercise stability ball, and we started joking about how people don’t use them, how you see them lined up against that wall,” said Signorile.

They thought about making a ball that would give people a greater sense of safety but would still roll, providing all the exercise value in core stability and balance.

The long road from idea to market is paved in perseverance. After too many nights and weekends to count and multiple iterations, the pair finally has a product.

Their first few ideas – putting the ball into a skeletal frame that would still allow it to roll somewhat — were ditched because shipping costs would be prohibitive.

“The packaging was monstrous,” said Hollander. “You can make the greatest product in the world, but how will you package it? How will you ship it? How much space will it take on a retailer’s shelf?”

Their idea shifted to adding resistance wings to the ball. “We covered the ball with sponge material where the wings would be and showed it to some engineers. Everyone thought the concept was terrific but no one understood how we could manufacture it,” Hollander said.

But on a trip to visit Chinese manufacturers, the new concept began to gel. They found the perfect — though expensive — biodegradable material. A high-quality ball manufacturer in China set out to make the mold, Hollander said. The first mold was a bust — a $40,000 bust at that — but No. 2 was a charm. “Now we have a product.”

Called the Best Ball, it’s a patented fitness ball that doesn’t roll out from under the person. Better yet, the wings create resistance that increases as the person rolls further away from the central balance point, creating a better workout, said Signorile, a professor of exercise physiology.

The patent process has been expensive, costing the pair about $55,000 in the U.S. and $20,000 in the EU plus separate fees for each country.

They haven’t determined a price for the product yet but it will be priced for the mass market, said Hollander, whose company, Concept One International, has helped develop hundreds of products for manufacturers and private label clients such as Target, WalMart and KMart. Quality is key. “Many [companies] say, how cheap can we make it? We say, how good can we make it?”

With Hollander’s experience, the packaging has been designed to include a ball, pump and training DVD, and additional training programs have been developed, such as one for yoga. Now they are ready to introduce it to the market. But today, making high quality infomercials and buying TV time is costly, and shopping channels like QVC and HSN often won’t touch the product until after it has had an infomercial, Hollander said.

They have been showing their Best Ball off to fitness companies, gyms and yoga studios, rehabilitation centers and wellness clinics. “They all have their fitness experts, and we can’t get the ball away from them,” said Hollander.

So far, the endeavor has been financed by Hollander and Signorile — “a quarter of a million, conservatively,” said Hollander.

Said Signorile, “If it wasn’t for the fact I know Sam, I would have given up a long time ago. I look at the way this process works and sometimes I feel cheated and sometimes I feel disturbed, because you don’t understand what the heck the whole business process is like.”

Yet, Hollander and Signorile believe in the power of the product and are committed to seeing this through. They are meeting with potential partners and talking with a TV shopping channel. “We will not give up — we’re ready,” said Hollander, who hopes the Best Ball will be on the market by the start of the new year. That’s prime time for fitness products.

“You think, great, here’s my product, they are going to look at it, they are going to fall in love with it, and I’m going to make a lot of money, and that just isn’t the way it works. This is real R&D on a shoe string, much of it in my living room,” said Signorile. “This is hard work.”

Related video: Demonstration of the Best Ball http://www.miamiherald.com/news/business/article31977462.html

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