Latest / Pitch to Product / The MOAT Framework: How to Know If Your Product Idea Will Actually Make Money
Transcript
- Venture Program Intro: Business and gardening are very much the same. You gotta plant seeds, you gotta cultivate it, you gotta clean it, you gotta maintain it, you gotta do everything right in the beginning. Worry about the rabbits. And then you gotta and then you gotta just wait. we just talked about core successful product. We're going to talk about MOAT because they go hand in hand. And there's going to be a thorough one that we'll talk about with KISS. when you have those three things clearly defined at the beginning, you can't fail. That's just it. Yeah. So MOAT is an acronym. It's many it's it's margin, it's operations, it's your advantage to the market or your core value proposition, and it's your total serviceable market. That is how we measure your your alignment. So let me go down moat margin. How important is margin, Bobby? And there's no margin. There's no business. Exactly. So if you're buying it and sell it for it, it has to be margin because that's where you eat. So I'll ask the question, Bobby, how do you know this is going to have margin? Well, we're going to look at sourcing. We're looking at where it's made. Our cost is to what we're going to sell it for. Right. And since we haven't made it yet, we have control of that margin, right? If something that you designed or that we developed or there's a source like and it costs as much as the consumer would pay for it, that there's no margin, you've got to go back to the drawing board. No. I'll I'll give you the you know the the margin analysis is the most important part that is what you're hiring us for it's usually very detailed in our DFM process which is designed for manufacturing. Right. The DFM reduces your costs, looks at the efficiencies and it does come with some some decisions that you have to make. If I want a forty dollar item This is what you get for $40. Can it sell for $90? If here's the what we can make for $20, that still meets your core successful product guideline. But now you're in the $59, $49 margin or price point, and those are your margins. If you want to go higher, it's really finding that placement that you want to be. Are you going to be that low end product? Which I don't always recommend. In fact, unless you were got a high volume and you have direct access to that high volume, I wouldn't do that. We're looking to be a uniquely positioned product that is over the average of other products, very similar to, like you said, Brookstone and Sharper Image. I explain very easily. It's it's I don't care if you're a waitress, I don't care what you do in life. At one point, what you're whatever you're doing has to have a margin in it for you to make your money. If you're selling cookies, what it costs you with the sugar, what it costs you with the wheat, what it costs you with the time banking it, and what you're selling that cookie for, well, that's your margin. It's no different than building, doing being a mechanic. Where you make your profit. is as as important as whatever you're making. Because you can't keep making it if you're not making your profit. And that is business 101. Well, look, I I'll give you my reading glasses as an example. I bought a I bought a five pack of these for 20 bucks. What's missing on here? Right? There's no brand. No. How much if these had Gucci or Louis Vuitton or if they had some brand name on how much would I pay for these glasses? They'd probably be three five three to four hundred dollars, right? So for one part of the margin conversation is Also about your brand. It's your story. It's your backstory. It is your who you're targeting, who you're aligning with. People pay a lot more for craft beer than they do for Bud Light. Why? Also, when you come to us and you say, I have a product for the 1% and you're going to try to compete against Gucci and these people, you don't have their brand recognition. Right. Let's let's get your value of your product there so we get you a good price for it. And as you start selling, now you come up with version number two that you could go up against those other brands because now you have brand recognition. But you gotta get known first. I try to be realistic with my clients. I don't want to put a 10,000 valuation on a product that we could start at a thousand, bring a lot more people in, and then grow our way that way. So that's the margin conversation. Next is operations. That's who we are. I I have every employee that you would ever need to continue your operations. That is our relationship long term. You don't ever have to worry about how you're gonna import something from overseas. You're never gonna have to worry about, you know, creating all the shipping logistics, all the paperwork that goes with that. That's what we do. That's for you. We don't charge a fee for that. You know, all we are is I want to be your manufacturer. And that's an added value service that we provide as you're growing your business. So we're your operations team. advantage. Let's talk about how important the advantage is. And Bobby, are you surprised by the calls at how many of our clients actually do have a value proposition that is Valid. It is surprising to this day after 30 years that you still come up with ideas for something I've probably worked on 30 times and then come up with a new twist on it. You're like, why didn't I think of that? Why didn't anyone think of that? But is launching that that's the problem that we have to work on and breaking that mold where someone says we have something different, but you have to educate the public. You have to be able to get there. But without a product, we have nothing. And and look at I would say that that's the very first step. It goes back to does that a in moat stand for does it have the core. successful product that we're looking for. Second question I would ask, you know, can we manufacture what someone came up with and and and designed and developed? If they can't, you know, I wouldn't I would move on. Right. Right. If if they can. And like you said, I wish we do. we have. We've turned more clients down than we've taken in because I think clients turn us down when we don't sound like we're aligned with them. They think that they can make anything and and that's fine too. Like I appreciate it. It's a great idea. red tape is a good one where I would say even if you had an advantage, if you don't have the connective resources or the network to get it into that that that tight net network of you know government contract, I would say, hey, be careful or it needs an FDA approval. So let's talk about total serviceable market. Cause I think this is the only one in the moat. I am probably the opposite. We we're not tar we're not starting at the total serviceable market, right? Like when when people tell you, you know, it's a billion dollar industry. What what do you automatically come to your mind? It's not where we're we're not going for a billion dollars. We're we're trying to get a piece. We w we want to fit in where we can right now and work for work our way up from there. But we have to start somewhere. Yeah. I I mean, did you think that craft beer was gonna be a thing twenty five years ago? No. Like all these little microbreweries that pop up. I used to sell us I used to sell on home shopping a make your own beer kit in a bag. That's where it started. That's where I started. That's where it started. Or make your own beer kit. Right. And now every town has their little microbrewery. And it is so what does that mean, right? It means I get to go somewhere that I feel like there's people like me. Yeah. And that is the definition of a good product. Your total serviceable market is not total serviceable. It's your identity that connects to the person that is buying it from you. I I've been watching Mad Men again because I think that we're about to re-enter the nineteen sixties, not in terms of the chauvinistic side, but in terms of the the core values that a marketing agency has to deliver because the reality is it's it's not about like finding or searching anymore. AI is going to change that. It's gonna come down to the EQ, the the emotional connectivity or the emotional quality of of the conversation. And you know, one of the draperisms is it's not how you how your product looks It's how people feel using your product. And that is so important. When you understand that that is the difference, your brand speaks to someone about how your product is perceived by someone holding it, how they see themselves with it, how they see themselves using it. And that is really where most people just miserably fail at at successfully at products that could be successful. They're trying to make the product the ego. The reality is the consumer owns the ego. They in they They c they own the emotional connection to your product. You have to put it in their vision. When they you know, you buy a car, like he says, it's you're not buying a new car. You're buying a new car because of the new car smell. It's how I feel in that new car. I I just make it easy. It doesn't even have to be expensive, man. You go to the beach with a new spin on a new beach lounge or chair, you sit down, and this thing could have cost you twenty bucks at CVS, but it has a new feature. People are like, I need that. And that little piece right there, that little piece right there, it makes you think like I got something here. So it has value to it. Well, you said it's the wow factor, right? Yeah. It's how do how come no one thought about that before? It's like, wow, where'd you get that? Like those are the those are the impulsive emotional reactions you want. And here's what I would turn. I'm not trying to get to the whole market, neither are you. Never. I'm trying to find the first thousand people. The first thousand people would be, you know, if you scale down What a large corporation would do, they would try and find the first hundred thousand people. They give a hundred thousand products away to then validate the market and then go and service the market. We can't afford that with individuals. So let's just make the first thousand products. At 3,500 to 5,000 units, you're at your break-even. So your question is, can I sell 5,000 units to to start a business? Absolutely. You you can if you go through our process and if we eliminate the ones that can't. But after that, you've got a viable business. And now it's just a matter of And I will go on more because you're starting from the bottom up and you're organically building your first thousand sales, you have an organic audience versus a paid audience. Thank God we live in a time now where we have Instagram and TikTok and everybody's on their phone for free. You don't have to go spend a million dollars on an ad campaign to put your TV on. You don't have to do paper inquiry ads on television like infomercials used to do in a day, 15 seconds, 30 seconds, six. Now you get a product that costs you 29 bucks. Give away ten to a couple of influencers. Let them use it. Let them put it out there. Let them feed your product out there. You're gonna get the responses back. And it didn't cost you a ton of money. We can do that now. You can put it on Etsy. There's ways of selling your product. You gotta get past that first thousand, man. That first thousand gets you going. We're moving, but we gotta get the product. Look at I I started gardening this year. It's probably the only successful tomatoes, yes. So but he that's what I was just gonna say. Like Business and gardening are very much the same. You gotta plant seeds, you gotta cultivate it, you gotta clean it, you gotta maintain it, you gotta do everything right in the beginning. Worry about the rabbits. And then you gotta and then you gotta just wait. Right. Like like when you're building something organically, you can't I couldn't pay somebody to come and make my tomatoes grow faster. I couldn't pay somebody to like not my my cucumber plant just die. Like I don't know why. There's things that that succeed, there's things that fail, but You know what I do? I just went and got another cucumber plant. I'm gonna try it again, right? I'm gonna I'm gonna succeed where things fail. But yeah, we we just started harvesting tomatoes after I had my first thousand dollar pepper like last week, right? That's what the gardens cost me so far. And it the investment is in the results, and you cannot pay to make the results go faster. You have to be delicious pepper, you know. It was freaking phenomenal. My pepper. So total serviceable market is like, let's be realistic. I'd rather build an organic garden that you can continue to grow, cultivate, and produce fruit long term, or vegetables or whatever that is that that you're growing. That is how we're starting a business. Organically, people will come back and buy more and more and more. We're no longer in the we're we're in a very unique market right now where people want better quality. They're so used to crap. And You know, was someone actually I have three can openers because I didn't know which one wouldn't suck, so I just bought three and I figured out which one didn't suck and I kept it. I gotcha. People want to know that what they're buying has the value that and most of it gives them a service that they want. Yeah. That's it. You want quality. You