One reason people fail in opening an export market is they see the huge numbers (USA is only 5% of the world market, so the world is 95%) and go after the huge market. Think of the world market for a category you trade in, say a pineapple jelly, as a large circle. Now draw a tiny circle within that large circle. Well the market for pineapple jelly is the big circle, the market for YOUR pineapple jelly is the tiny circle. To get going on the right track, go after the tiny circle as a market.
The illusion of the huge market leads to an illusion of higher stakes, and thus more caution. Call a lawyer, find out what contracts are necessary to protect oneself in int'l trade, what are the labelling requirements for each country, and then what programs might there be to assure payment in the risky world of transnational business? And of course, IPR only applies to USA when one is awarded such property, one needs to first to secure IPR in each country before one proceeds.
What follows is an amazing waste of time talent treasure blood sweat and tears for what should not take more than 2 or 3 hours to arrive at, once and for all, an export offer that will work in all times and places worldwide and is no more difficult to fulfill, and no less profitable, than any domestic order.
It is quite simple, the trick is to enter exporting as a low stakes, low effort project:
1. What is the minimum (never maximum) order you can stand to sell? (Say $2000.00)
2. What are all the costs associated with getting an order of that size and weight sitting on a ship in an export port (say you are in San Francisco, so Oakland). You work with a freight forwarder to establish this. Say all costs in are $350.00. So add your $2000 minimum and now your MOQ is $2350.00, FOB Oakland. (And this is why they say there is more money in export than in domestic sales; well, yes, but no more profitable, nor any more difficult).
3. The terms of sale are cash, prepaid. Any importer with distribution anywhere in the world can afford this, and want this. As a test order. No buyer wants to test a large amount. In this way you make it easy for far more buyers in far more places to try out your product in places undreamt of.
4. Post this on your website for the entire world to see. Any and all can place an order at any time, no questions asked. "but but but... what about lawyers and bankers and foreign labelling requirements and documentation and so on...?"
Not your problem. You've been paid. Any and all problems your customer overseas experience is both his problem and his fault. he knew that placing the order, and one reason he is willing to place the order is to find out just how many problems he will encounter in a real transaction. He knew he might have to lose the shipment.
The reality is there are 10,000 people around the world who'd like a free sample which you pay to ship worldwide. Ignore that scenario. There are 100 people who might be potential buyers. There are ten of those who will actually place that FOB MOQ order. And then there is one who will reorder.
You need to utterly ignore the 9,990 who are not really your market anyway, and make yourself available to the 10 who may actually order. You need know absolutely nothing about anything regarding 9,999 of the above. the only time you begin to ask any question is of the only one who reorders. The one of the 10,000 who reorders found a market. Now you can get interested.
Feel free to forward this by email to three of your friends.
The illusion of the huge market leads to an illusion of higher stakes, and thus more caution. Call a lawyer, find out what contracts are necessary to protect oneself in int'l trade, what are the labelling requirements for each country, and then what programs might there be to assure payment in the risky world of transnational business? And of course, IPR only applies to USA when one is awarded such property, one needs to first to secure IPR in each country before one proceeds.
What follows is an amazing waste of time talent treasure blood sweat and tears for what should not take more than 2 or 3 hours to arrive at, once and for all, an export offer that will work in all times and places worldwide and is no more difficult to fulfill, and no less profitable, than any domestic order.
It is quite simple, the trick is to enter exporting as a low stakes, low effort project:
1. What is the minimum (never maximum) order you can stand to sell? (Say $2000.00)
2. What are all the costs associated with getting an order of that size and weight sitting on a ship in an export port (say you are in San Francisco, so Oakland). You work with a freight forwarder to establish this. Say all costs in are $350.00. So add your $2000 minimum and now your MOQ is $2350.00, FOB Oakland. (And this is why they say there is more money in export than in domestic sales; well, yes, but no more profitable, nor any more difficult).
3. The terms of sale are cash, prepaid. Any importer with distribution anywhere in the world can afford this, and want this. As a test order. No buyer wants to test a large amount. In this way you make it easy for far more buyers in far more places to try out your product in places undreamt of.
4. Post this on your website for the entire world to see. Any and all can place an order at any time, no questions asked. "but but but... what about lawyers and bankers and foreign labelling requirements and documentation and so on...?"
Not your problem. You've been paid. Any and all problems your customer overseas experience is both his problem and his fault. he knew that placing the order, and one reason he is willing to place the order is to find out just how many problems he will encounter in a real transaction. He knew he might have to lose the shipment.
The reality is there are 10,000 people around the world who'd like a free sample which you pay to ship worldwide. Ignore that scenario. There are 100 people who might be potential buyers. There are ten of those who will actually place that FOB MOQ order. And then there is one who will reorder.
You need to utterly ignore the 9,990 who are not really your market anyway, and make yourself available to the 10 who may actually order. You need know absolutely nothing about anything regarding 9,999 of the above. the only time you begin to ask any question is of the only one who reorders. The one of the 10,000 who reorders found a market. Now you can get interested.
Feel free to forward this by email to three of your friends.
10 comments:
I'm currently working with some individuals on a start-up and they've made precisely the mistakes you've outlined above. They have everything IPR's, insurance you name it but no customers. I'm only in my twenties with no professional experience and it's my first job so I can't really tell them they've made a huge mistake.
Anyway, thanks for teaching the rest of us what you know.
/Jacob
They have learned all that in school, and it is designed to make entrepreneurs fail so they they become wards of the state. As for you, take risks, make expensive mistakes, try things out working for this company and thereby learning much before you go on your own.
Most new tech. companies - following assumed "conventional wisdom" - blow their start-up funds on items not really essential to their success, like IPR, marketing, etc., but what they just really need are customers. Check this company out as an example: Advanced Liquid Logic, from the articles: "West says most of that money will be used to cover patent expenses." Also: "a key use of the loan will be funding internal and external patent counsel and legal fees." Unbelievable - such a waste of money and time, it really is amazing how clueless entrepreneurs can be - This is where the widely asserted statistic indicating that 9 out 10 start-up businesses fail within the first 3 years probably comes from. They really should read John's book and take his course.
http://www.bizjournals.com/triangle/stories/2007/10/08/story6.html?page=all
http://www.ncbiotech.org/content/advanced-liquid-logic-business-plan
IPR will not be the crucial factor in business success. Spending so much resources and time in acquiring IPR can actually sink the business more often.
I had a fellow explain to me the Venture Capitalists emphasize the IPR as a kind of back door insurance: if the business fails, there is decades long (if not eternal) predatory opportunity as an owner of IPR to personally tax industry while charging off the enforcement of IPR to the taxpayers.
This could not happen in a free market. Capitalism is raw evil.
Regarding new tech. companies like the one mentioned above that focus so much on acquiring IPR, my impression is that they are "building to sell", not as much as seeking to actually build an enduring business. If they have IPR for their product, they want to be attractive for being bought out by a larger company. To the larger company, the IPR indicates that the small company has exclusivity on the market for the product. The founders/owners just want to sell out and make quick money.
There are actually VC's that view IPR for what it really is, that it is not important and is actually an immense hindrance to business. Check out this article:
http://www.techdirt.com/articles/20090216/0120263775.shtml
Techdirt.com has a lot of information on the fallacy of IPR - a very good resource.
Unfortunately, the incorrect notion that IPR is necessary for business success is very persistent and widespread. Social conditioning indicates to people that it is "common sense" that a business needs to "protect" their ideas from being "stolen", otherwise they could never make money from their ideas.
http://www.dailymail.co.uk/news/article-2317924/Five-founders-left-split-just-36-000-tech-startup-gets-sold-82-million.html
Sometimes the sell out does not actually benefit the founders.
The beauty of John's book is that its to the point and has a lot of substance.
Let me contrast this to a book I bought only a week ago by Leif Holmvall called 'Export & Import - winning in the global marketplace' which had gotten decent reviews on Amazon and which I thought would contain a lot of real life examples, since the author had a pretty good resumé.
Halfway through the introduction pages I felt robbed. By then the guy had cited half a dozen irrelevant sources such as Gandhi and even quoted himself saying something like "change is the only constant in the world of global trade". Every chapters thereon would start with a question like "What is team-work?" and then there would be a lengthy definition and many bullet points.
One of the main themes of the book was that unless one understands the cultural customs you're destined to fail in international trade. For example, there was a whole chapter devoted on how to give gifts in different cultures. Having lived in China myself I know there is a small bit of truth to this, however, as John clearly explains in his book, the prevailing factor in international trade relations is whether you are able to represent or show potential money value to your partner. Especially true in China.
Of course, I returned the book and got my money back.
John, when will we be able to buy your next book?
/Jacob
I suspect the reason VC's value IPR so much is because it's the only thing they can do seeing as most of them have academic background in finance and accounting. It isn't possible to value true innovation when determining an investment acquisition however they believe its easier to value a patent or trademark. Thats why when venture capitalists buys ownership of a innovative company the innovation stops since it is so closely related to the original owners of the company.
/Jacob
How is a patent "valued"? "Patent Valuation" seems a very nebulous and ephemeral technique, its not clear to me how its done or if it can even be done reliably - how do you determine a patents monetary value - is it like product sales? Is it just what people would be willing to pay for it or license the patent? How many products on the market are actually covered by a patent?
See these articles:
http://www.techdirt.com/articles/20070507/013659.shtml
http://www.techdirt.com/articles/20110812/02583515490/how-getting-patent-can-actually-be-detrimental-to-startups-long-term-success.shtml
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