Tài liệu How Small Business Trades Worldwide doc

How Small Business Trades Worldwide Your Guide to Starting or Expanding a Smal TBadnee International Trade Company Now AIL Rights Reserved © 2001 by John Wily Spies No prt of this hook m

How SMALL BUSINESS

“TRADES WORLDWIDE

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How SMALL BUSINESS

How SMALL BUSINESS

“TRADES WORLDWIDE

Sách có ban quyền

How SMALL BUSINESS

How Small Business Trades Worldwide Your Guide to Starting or Expanding a Smal

TBadnee International Trade Company Now

AIL Rights Reserved © 2001 by John Wily Spies

No prt of this hook maybe reproduced or teased ia any for or by any seins graphic, eerie of mechsnial, including photocopying, scoring,

"sping, ot by any information morage erie sper, without the

permision i wetng fom che publisher

Writers Shomeae

an imprint of Univers, Ie For information addres

Fhe te Spins Gols sat me Dol

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The Role aa Vu of he bapoter

The Bass of Compson

(Chapter Thre: Finding the Best Product o Sell

oe Tha tage Teg Die Pde -

AMiletone

Werking with Daigus

Cnircing Deer for Ptetabe or Coprghabe Products

(Chapter Four:

“The Best Place in the World ro Have Your Product Made

The Nation Tee Date Bank (NTDB)

‘Notes on aning NTR date

CChưng ino the Be Sapper

Minimune Recah Spe

Gorroponding By Fas anẢ Email

Eslelir

Chosng The Supplicr

(Chapter Five: Costing & Pricing

Pricing Sites

Wha if Yur Brit To High

A Beal if Leon in Cating

‘Actual Coning

Semmary

(Chapee Sia: Selling Your Imporced Products

The Resi Markee

The Mars Marks

The Regular Retail Marke

Wil se Resin Go Around Me?

ow Ts Fn the Best Indapendnt ae Bersted The Contras With dn ldependont Sale Repreaive

Working With an Independent Salerno

A Foot fn The Dor

The Independent Sle ñgmeenanherœ Racmmb and Deneopment How Ta Build Nationwide Seles Repenttve Network

Terma and Conditions

Terma & Conditions of Sale

How t Gain Onder The Bate Plan

The Time Live an4 angy

Joby Wiley Spiers (Chapter Seven: Financing When Banks Will No: Pay and Get Paid The Mechanis ofthe Later of Crit

Gamer

Ohcking Gutomer Crivworthines

Dealing With Probl Assonts

How Net To Galles Money

How Ta Colles Acoust: Reivable

Rese Fiance Sous

Cub Agsina Bocumens

Whar Pradus 9 spor

Fog Đề Bet Cươmes

Finding he Bet Suppo

A Sumnsary Graph

‘Siracaring the Deal °

(Chapter Nine: Managing che Company’

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Lisr oF ILLUSTRATIONS

Fig 1 Innovators and conservators markets

Fig 2 A common sourceldistribution

network for importing sa smal busines

Fig, 3 Birano cưtoon

Fig 4, NTDB data on silboards wo

Fig 5 NDB Raw daa sample: value

Fig 6 NTDB Raw data sample: quantity

Fig 7 NDB Spreadsheet: entering aw data

Fig 8 NTDB spreadsheet: groweh 9 calculation

Fig 9 NTDDB spreadsheet: market shat calculation

10, NTDB spreadsheet average price caeulaion

HI, NTDB spreadsheet total 96 of sles caeslaton

12, Price vs oss over time

13, China rags contract

14, China rags invoice „

15 China rags packing lst,

16, Mail entry form for glass candles

17 Bucchase ox for glass candles

18, Cred application for glass candles

19, Leuer of cred fo gs canes

20 Commercial invoice for glass candles

21, acking list for glass candles

22, Bill of lading for pass candles

Fig 29 Liquidation notice for gs candles 189

Fig, 31 Major sections ofthe retail mar 194 Fig 32, Sample Nordstrom purchase order

ig 33 Steps in a leer of rei 289 200

Tig 34 Exporting asa selemployed agene sen 293

Fig, 36 Typical income starement

fora small pft and housewares importing business 316

Fig 39 Steps fom raw materials co consumer 338

FOREWORD

Haw Sal Busines Tae Welds sey sep approach daring your own impor busines, with vew to eventually expanding ino Sporting aswel Although dere are many approaches to international trae, he methods id out inthis book represen the experince ofan

‘cal praccing importer this is work he ha done since 1974, etre

on singe 1984 at dovens of colleges, has advised others odo in his con- suing practice and wha econins odo ma

This book wll enn why s© many people hive become intemations trader, wha importers know and how you oo can become an importer You wl be guided trough whats necsry and sufiene in eecing produc finding ppies ening working with govenmens bankers, Castoms brokers, cases, and inser: nancng,coxing and pricing and gaining ones for your goods or sericea fom an per hop seminars on the sbjer ate highly aed Fr his experienc, candor, Jnformaion and unos This book alo asin you wish o ae, and

‘ould ike o wrk ou of your own home ro sat Although dhe book i Girced a those who want co er aiving at hit work, the pom infor imal ae procedures and start-up matting willbe invaluable or anyone wihing oad ava dln

This books about working in ncenaional wade and focuses on tading

as an enepreneur to init the cupc to those who would ganze and operate all internaional busines and enjoy the bene af he wor

Fr those with a great idea, you will ee how a mort filly develop your idea and marker Most people have no idea what to trade; for them this 'ookis quen tha it shows you how to come up witha grea idea For those hoping to find job working with an international trưng com pang this book wll clearly define the various roles people ply in a rang

‘company, enabling the reader ro identify the ideal position in such a eom- pany and discuss the postion knowingly during a job incerview Indeed,

by following che research steps outlined in chis book for those wishing to start heir own businesses, prospective employee wil be able to identity the potential problems and opportunities any given business may be fac- ing, and use thar knowledge 1 secure a position The steps ourlined will also serve anyone working with a medium or large company who has been charged with beginning international operations

Once you have completed the book, you may take a free quiz ar wor johnspers.com ro rext your knowledge you pase the quiz, you will bbe invited fo join an intemet e-util group dedicated co emall business incesnational cade discussion In this way you gain fre access co the author and several unde others (as of December 2000) like you,

“The advantage the author has over most others in starting his oven busi ness isis eats of experience working a an international trader Now this experience, the advantage, iailalero you inthis book

Surely there iso safer investment for your ime and money than self

‘employment Susprisingly, or many who sare chee own businesses, mak ing money isnot always the prime motivator Nonetheless, recent books such as The Millionaire Next Door provide some remakale information about slF-employment: 809 of the millionaires inthe USA ae frst gen-

«ration —meaning they became so in their own career—and some 890" thirds of the working millionaires are self-employed (20% of US

"mũllonairesar retired he selEemployed are fou times more likey to be

"mũlionaires than those who work for others—it sem the mos common career move in becoming rch is to become self-employed,

US Castoms tells us most interational graders are small businesses, and

‘world trade continues to grow rapidly Given the improvements i trans portation and communication worldwide, inevitably now small business

jn USA has some international component-—some more than others

This book is writen to show you how 10 build a business, rakes you

‘through the sceps 0 you wll know you can doit, and is steuctured 50 you may take postive steps after each chapter towand building your busines Surely you wll finish che book before your business gets started, but by

the time you finish the book, not only should you fel “ready to go,” bur actually be on your way

‘World trade i diffrent from the domestic variety, and small is iferene from large busines Small busines international tade has some specific challenges which this book ilumines and solves

Starting a business is neces dsnuprive but to what extent? Like the tennis pro who shows you how co get grea improvement out of small changes, his book assumes you dsiteecononny of motion and miniel is For those who dese ro engage directly in world trade and fr those who are hired 10 dos, this book explains how smal business trades worldwide

ACKNOWLEDGEMENTS

‘Abook tac took Hilteen years co write and is hased on experience wl have

‘ery many acknowledgements to make indeed, and cannot thank every-

‘one will work chronologically to hit some highlights:

+ Fist, there is Charles Manca of Manca Imports in Searte who hieed me fon and promoted me quickly co buyer, chee I learned the mechanics of

al rade

* nex to Raymond Leung of Hong Kong who taught me the economics

of international trade and has been a generous business partner;

‘in those erly years of semi-annual tips 9 China mer many remarkable people—such as Madame Wi, the political commissar for one of the cor- porations with impossibly long names popula che time—for having a sense of humor,

+ forthe anonymous Dutch fellow who suid afer along evening of com- paring cazeer notes suid “you can do better

‘Ted Van Doom of Vandor Impors in San Francisco, for teaching me how small businesses compete on design, and erastng me with the general

‘management of is company (which I dare say proved to bea good move con his par)

+ sometimes a word of advice can open vistas, and Lefty Stern and Robert

‘Bolman both ofthe Bay Area made comments on business financing and marketing, spectively, thất have proven sturdy over the years

+ Ray Smardon and Ans Rungis aught me more abou bor reatins

in four months of che Intemational Longshore and Warehouse Union taster contrac ee dan anos people ge lear in ie,

+ my sb rom work put me backin school which opened up tach ing a mens for lering- andthe cosinsng edn ieee Br being chy who keep education lve inthe prs dark ages when va dhls ave contol ofthe schools

+ Skip Ellwore for showing me how co tec

+ sang one’s own busines involes innumerable people and Tove the

‘ovour tees who taught and encoraged me sch at Soe Gross dksigners sich a8 Dan Chen, Chris Baron, Gary and May Pesan

Sd Lowell Herero fr hsr exelene contributions

+ Jey Murphy for expor busines ngs Bil Spor, Ri Sting Dennis Ragiale, Maguet McCalogh, Jim Sith Greg Van Gaver + Beay Tong Lau of the Sete Public Library proved aain that some- thing is wiong when peoples valuable ae not pid baer (ve never hard her complain though

+ James Helwig a the Units Suter Department of Comme, Iniemarional Tae Administration intoduced me cote National Tade Daa Bank while Dan Ginvina of the ame organization showed me how

to enc the dara simply,

+ John Hicks, MBA, JD, for busines onanization advice, banker Jon Gonlon for finance advice, banker Brends MKeley for being nique mong bankers by bing rank bout ees feet

+ Linda Loren or iit nto US Cason

*Tom Ral frhin ide experience in dsrbion:

+ the N'S Gustin sales organization for doing che hard part (actully getting orders

Joby Wiley Spiers vie

‘John Wiedmier, Ken Wiser, Bob Keeler, and the Romanos for allowing,

"me to test some theories (with happy results) on exporting agriculture; + Hal Glazer helped me in ealy drafts of this book, and my father the English profesor who had to endure proofreading these, and who with

my mother provided many tipsand improvements,

+ Leslie Ehle for assuming this book would be fis ate in all ways and cating the final deat widh cis presumption paramount:

+ and readers Bolinas Frank, Christina Fyve, Kathleen Rybicki, Mitch (Odom and Jeff Slye for spotsing ers in the frst printing and kindly

‘binging thems to-my attention

Finally one docs not start business or write a book without the frily along forthe ride, whether they like it oF not, 0 special thanks to my wife and daughters for their patience, indulgence and occasional sense

of humo

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‘or lower-cost items, a business in which we may engage as exporters

‘There re 350,000 importers in the United Seaes bringing in some $656 Billion worth of goods each year (and growing) The op 1,000 of those Importers account for 61% ofthe coral impor value—some $400 bilioa, for an average of $400 milion each.' That leaves the remaining $256 bil- lion in impors spread among, 349,000 imporcers, oF a rough average of

‘$754,000 each in importation value Assuming nomdl profit margins we can assume the “average” importer has sales of $12 million doles pee year but keep in mind start-up companies are part ofthe see making up the average As you cin st, although relatively few huge corporations handle nearly two-thirds ofall impors, for almost all importers, import-

ng isa small busines,

Importers find that for the more difficult work in business—the more ceidial work, developing products and manufacturing—i is preferable v0 work with foreign suppliers This is n0¢ to say United States suppliers are

‘not qualified; 10 the contrary, i i lear the United States capabiiy i superior tothe rest ofthe world in almost any are The problem is United States manufacurers are fen too buay tò afnjd of lbiliy, or imply

‘00 expensive overall ro be relied on On the other hand, foreign suppliers are eager and able to work with importers on developing products forthe United States marker, if for no other reason than the USA is the largest

‘marker in the world,

Importing ultimately allows an interest in a vague idea to be pushed for: ward with the help of talented people resulting in products on store shelves that consumers are delighted to buy and to uss

‘And in spite ofall the talk of aveypaid CEOs ar Americas largest busi-

‘esses, owners of US small businesses are usually fr better compensiced than the CEOs of major comporations!=

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Joby Wiley Spiers 3

‘And there isan intangible area find atractve: international business is

‘based on tlationships, not an the Uniform Commercial Cade asic isin these United Seaes Legal problems exist only in the law, among lawyers

‘Businesspeople experience busines problems Tao many business people

‘make the mistake of converting business problems to legal problems by calling layer when they have a business problem In so doing, the busi

‘ness people give up their power and gummi over to lawyers es eaught in the US business schools-if a problem arises, calla lawyer Ie i silly t0 blame lawyers for fling among business people

Ta imtemaianal rade, there sno legal jurisdiction covering ewo companies

in eo counties, Therefore, 25 it was domestically peshaps a century ag in the United States, if dere is a business problem in incermaconal ade, i

‘esas a busines problem Jn over swenty five year inthis business, Ihave

‘never retained legal counsel! Ceraily here have been problems, but they have alvays been sete athe business eel In esenc, smal basnes ter

‘ational rade affords sal the resources and excitement of building our own

‘busines, with none of the distraction of legalism

‘As mentioned, the basis for international rade iselationship These rela- tionships are based strictly on che quality of your work and its future potential Keep thủ hecause this premise i helpfal when think- ing of solutions to problems in tis busines, as you wil ce,

A critical part of importing as a small busines, selling, we leave in the hands of independent sales sepresntaives As you shal see these experts focus on performance and sesults, and ate not inclined to lạnlsie secounse the

Intemational sade has grown rapidly over the last decade largely da, 1 beiete, to the improvements in communications and transportation

Frc yt ob Pk shpat crn Nhe

4 How Soll Business Trades Worldwide

‘worldwide, Iti jus 100 simple ro find the best place in the world to have

a produce made, and once found, oo easy to move it fom thereto hete People formerly forbidden access to the rest af the world ae now Fiee ro

‘wade, and they ate capitalizing on the: new-found freedom Freedom is good for business Hong Kong is freee than the United Staes (a of this

‘seting), an has ive times pe capita he billions ofthe United Seas, All ehe counties fred a socialism Fl (in both its Fascist and communis

‘versions stil have governments and rules and regulations, but the citizens generally ignore the governments, The practical effect is, economically speaking, those people are as fre asthe people of Hong Kong

‘The days ofthe import company on tp af the warehouse in a por city ate over, 00 Again, the improvements in communication allow me to have _ny offices in my home ina mounvain town (nea skiing an lakes) and my warehouses ina disebtion centr in another sae

For ll ofthese seasons and more, small business international tra hán probably the wider demographic spread of any occupation It docs smarter who you ae

Overview

“The practice of international tade is near univers Texaco and I import Boeing Commercial Airplane Company and I export From tiny to huge, Jncernarinal tade cuts across all commodities and services, ll counties, and all kinds of people Within the namow scope of stall business inter-

‘ational ead, ler’ review che players: he service seta, the importers, che exporters, and the commission agen

“The service sector asiss you in handing the nats-and-boles in an interna tional rade wansaction, che rls, egulatons, logistics, packaging labeling, and all the technical questions you have specific to your product Such

‘experts ache bankers, the Customs brokers, the steamship lines, the ngu: ance cits, and soo have a vested inert in seing you succeed, By shar- ing their specialize knowledge and experience, you will proceed with the

Joby Wiley Spiers 5 transactions and thar is where they gee paid by handling che acral logistics, All ofthese people each you whar you need ro know and how ra handle your produc before your fist tansacton, a absolutely no cos ro you That fis

‘tansuction may be alesse few months away, or maybe a yea, and therefore you learn tremendous amount from these experts in the meantime They in effet become your continuing education program a you proceed Also, the

‘apd changes in hws communication and transportation make information| 1m logics, rules and regulations obsolete too quickly forthe importer to remain abreast Therefore, the imporer eles heavily upon the knowledge and experience ofthese exper The impore focuses onthe important es

of developing markers, products and sources In later capers will discuss spscifially who chese service sector people are and how and when you wor: with hem,

‘The next area isthe importer, With an idea fora product ora vision of a potential market that ought tobe exploited, importers buy prodts From overseas, take title to (ownership of) the goods, bring them into the United States and disse,

[Exporting is che miror image of importing, Importers find their cus- comers at home, exporters find thie customers overseas Therefore

ay seem easier than exporting, because the hardest thing (0

do in busines is gin your customers importing

Also, as your suppliers become more confident in you, they will begin to ase you to source American-made product for them For insance, asp plier of baskes in Hong Kong requewed American cigarette filter material fiom me, The Hong Kong company’ bad the diseibution rights đọ ite- less Chinese cigarettes in Hong Kong, and demand vas growing in Hong, Kong for fltered cigarettes Although I have never deal in cigarettes at Feast not since che fith grade, its easier forthe Hong Kong merchants to contact me regarding cigaete filer material than to follow the sandard yet more formal process of contacting a US Foreign Commercial Officer atthe US Consulate in Hong Kong, Although these US officers are quite

competent, chey are too busy with many such requests My supplier can

‘expect fll azention From me to his request So whether ie ea request for Some component of the product they are producing for you, oF simply some US made product they can dstibute in their home masket, o some unusual request lke cigarere filter material, when you stil foreign equests for US made products, you are exporting OF course, you may’ swish to begin business by exporting, and afer laying out international trade fundamentals inthe early chapters with a view co importing, we will devote a chapter to specific serategies for small business exporting,

“The lst area isthe commission agent A commission agent simply oper- ates among various fccoris in the United States and around the word, and various end users in the United States and around the world, Commission agents pu together deals and can a commision of ypcally

‘0 to five percent ofthe value ofthe transaction Whereas the importer takes tite to the goods and adds profit margin, a commission agent never takes teeta the goods, only handles the paperwork required forthe agreements to buy and sl, This work appears especially attractive ro new-

‘comes in international trade, because all one needs ro begin ea elephone and a fx machine, anda set oferade dtecories from around the word, People hear ofthe reali exploits of commission agents such as fiend

‘of mine, A typical deal would be the time he sourced eleetrocardigam

‘machines fora majo Japanese hospital group He found the best place in the world to have lecrocardiogram machines made to Japanese specifica: sions was in Mexico, He eamed a commission of a few percent for his forts on the multi-million dollar deal he put cogether

[Novices heae such sovies and imagine a life of jer setting fiom exotic locale to exotic locale, eating sushi, drinking pina coladas, and working about forty five minutes year, quickly amassing a fortune Nacuraly iis not so easy

“The Fellow inthis example was educated forthe work but it was by vi

of his long yeus developing markers wosldwide for a small dectronis

Joby Wiley Spiers ?

‘manufacturer that led him to his present success To be a commission agent you must havea strong ceputaton in fairy narrow fed and be

‘known and trusted by both che buyers and the sles, and in he informa-

‘ion How to hea abou the equest-for-bid that starts the process

‘Commission agency has been described as almost a semi-retired postion, Aer one has gained a reputation for knowledge and integrity in afin

‘narrow field one can profitably begin thisknd of service Laer well sea

"more reals approach for us

‘The Role and Value of the Importer

The imporer isa the center of a large nework of companies engaging in support services, You engage in the essential activity of buying and selling products The people you propose ro buy rom and the people you propose tao, know well your role and vale The best of these have many poten tial imporrers hey can work with and support IFyou do not know your role and valu, they will no ler to work with you Ia this sense, your wos i

‘compete Ii cra to yous success ro deatly understand the role and salve ofthe importer so you may provide it Furthermore, you mu com

‘nunicate chs role and value in every conversation, eter, Bx, email or other

‘communication You will be judged based on the quality of your work and,

28 you wll se, ic takes remarkably le ro be judge worthy

‘The Basis of Competition

“Importing is a matter of having American products made cheaper over- seas and selling them for a profit in the United States” This i a com

‘moly held belief, and i is tue for some very large companies un certain conditions, Bue for the stare-up or small importer, nothing could

be funher rom the truth Indeed I confidently predice that iFyou star up

a import company competing on the basis of price, you wil fil

[If price ie nor che competitive advantage forthe sal imporer, then what is?

“Toanswer this question, [will draw on che seminal work ofthis es fore- most busines theoredidan, Peer F Drucker

Drucker wrote book entitled /nmovaton and Entrepreneur in which

he laments the failure of US companies co be as competitive in world markets as they ought co be, He holds up as ideal the examples of che only

‘wo large businesses he can name that innovate, the 3M and Johnson && Johnson companies These companies do enjoy a leadership position in

‘markets worldwide, But these companies fllaw a pattern that mimics a paradigm played ou daily berween what | will ll innovators and conser-

‘ators In esence, innovators compete by introducing new benefits inthe

‘orm of goods or services, and conservators compete by lowering prices on those benefits andl making them eventually available co vewally everyone Perhaps youive noticed this phenomenon: a smal, innovative company develops a product and introduces it othe markerplace, The product is new inasmuch aie includes innovative Features that are beneficial, but nots new

10 overwhelm and put off prospective buyers Since the produc is innova- tiveand diferent, cis what is calle "peice blind.” Price blind means the con- sumer cannot hold this inaovatve product up against the old scandard product and Figure ou what dhe pice diference should be onthe innovative product, My glassware is price blind: wobody knows what cold-stike phos phate opalescent hss should el fo, 0 $29.95 retail each fora tumble is no surprise, iis simply informaton, Rew people know the cost of materials dit ference beeween a seventy-nne cont wineplas t K-Mar and fore fve dol Jar crystal winelass at Neiman Mares is about cree cents (certainly there are production cost ilferences

Joby Wiley Spiers

In che mid-sstes Oregon track coach Bill Bowerman and ream member Tinker Hatfield decided they ceded a better sunning shoe.’ This seflected a change in thinking, something the MBAs refer to asa “psycho- graphic shift.” The are demographic shifis (the US population on aver- age is etcing older; Mexico’ is geting younger), geographic shifts (che

‘migration of US citizens from northern sates co southern states afer

‘World War I), and psychograpie shifts The frst wo are easy co fllow

by simply reading census reports The pychographic shift is more dif

cl, and considered the mose profitable to exploit In any event, the race

‘coach and athlete began thinking in tems not so much ofthe bigh-per- formance alee, but high performance equipment aswell

‘We pu a man on the moon, we were Fig a high-tech war in Vier

"Năm, Jean Clade Kill wins the dowahil gold medal on special kis, nd {in popular cute Janes Bond was getting tof tough sivations not dae

to his mor superiority ke Iranhos, bu because of his gee

Since your gear could account for 2/10ths ofa second over your appo-

‘nent, and an Olympic gold medal in tack could land you a milion dolla Madboro cgatere endorsement contract, the coach and athlete badly wanted special shoes—shoes with EVA foam, a space program materi

‘hac used in shoes allowed a athlete to run longer aster and jump higher

“The coach and runner took the idea for becter shoes co Jake Purcell, Converse, Wilson and che other US sport shoe makers who welcomed them, Unfortunatly, these conservator companies could not proceed

\withoue a half-million dollars up font for developmental costs, milion dolla advertising budget, and an greemeat tt, the product did well, the conservators would own 51% of the new company

advantage another athlete mighe enjoy "Where did you get those shoes?

‘We've never seen such shoes” “We made them,” goes the reply “Why make a pair of tack shoes” “For the beneficial featutes of course,” and the

‘other athletes want the shoes as soon as they understand the benefits This isin essence the genesis of every product in every thi ing sart-ip cơ

‘pany The product provides aval, a benefit not yer aailable And since youve probably figured out by now Iam refering to the it oỸ 3 com pany called Nike, point out you need to watch forthe experince the founders of Nike had: when the other athletes asked the coach and athlete

if they would be willing to make a par or them, the reply was yes, bur since they are made one pai a atime, we have 1o charge you some $35 (this when mos rack shoes were going for $5 a pat) When the other -xhlses realy agreed co that premium price, Nike was born

Aad ep in mind the extra $30, the price premi

centyfive cents worth of E VA fom,

covers essentially sev-

(Charging a premium price does not necesly make your product the

‘most expensive Ina twist on chayging a premium price: in 1968, Honda hhad a model ar $1,300 positioned o compere against a Peugeot at $2,300,

‘Was Honda competing on price! It would stem so, until you realize Peugeot was making about $300 per ear and Honda about $500 per ca

‘When few can be sure what your price sould be, you ean pretty much charge what you want,

[Eventually the conservarors, the large companies, spor the innovative product chat has been introduced ro the markerplace They ae abe ro conduct valid and reliable market study co determine che potential sales if they weee 10 offer the innovative product themselves though their distribution channels For many’ novice entrepreneurs the idea of

Joby Wiley Spiers "

a conservator stepping into che markee is a nightmare, But like mast nightmare ie has no bassin fact and is nothing to fear

But conservator companies do “appropriate” (inthe sense of taking) the products and ideas of smaller companies and make them their own,

‘Conscrvators appropriate ideas in one of three ways they buy che innova tor: they steal the idea ourigh, or imply come up with a beter version and charge alower price Ought the innovator not fear this simple fact of life with a concern that che creativity, work and investment wll be wasted?

‘Should che innovator not ake teps to protect this investment?

“The realy is as follows: after determining a given innovative product has profc potential, the consersatos wll apply their economics of scale not

‘only in manufacturing but in finance and distribution as wel as others areas Not only can a conservator manufacture less expensively (Econ 10, the more you make, the less the per-unit cos), conservators get th financing, marketing and distbcon cheaper than innovators By apply- ing these formidable economies of sale to a given produc, the conserva- tor i able ro move in on the innovator and sei the lous share of the

“arget marker segment in the lingo of the busines schoole—that could

‘not of would not pay the premium price the innovator originally charged, In efler, che conservator is serving a masker thatthe innovator could not serve, for lack ofthe esources that are atthe command ofthe conservators The innovators marker share isa tay subset of the entire

‘market (Fig, 1) Bue with wide profit margins, and a mult-tilion dollar

‘economy, the US markee i the premier generator of new businesses

CO Bateman

‘cman au ten

Jig Llanosors and conento makes

In this respect the conservators provide an extremely imporant service in out cconamy: they make the benefits of material goods aailable ro ever wider

‘markers Think of how exclusive the transistor radio, che personal computes, thecelulsr phone and x machine ance were The innovator fist serves the privileged, the wealthy and rhe resourcefl (and faa, who beer to act as ines pigs? By lowering the price ofthe innoraive product the conser tac {or makes available tothe dle dass ad poor dhe heels the innovator introduce (and has proven to be safe and elective), In this way aces co the

‘benef of innovative products become univer

In 1982, he computer and software 10 un a $4 milion import company cost $140,000, tequited a climate-controlled room, took thiee people 10

‘operate and the sofware did not work Now far more computing power can be haa in a lapop with a Favidara modem included wich fa superior and complete sofirare for around $1,000 oF les, How did these Fabulous benefts become near universal? Because of che paradigns played out between the innovator and conservator,

Indeed, 400 years ago one ofthe richese men on earch vs King Hlency VIIL He enjoyed exotic foods, wore sik from China, was leaned ia Greek, Lain, philosophy, mathematics his security was second 10 anne: the could travel widely, had the bese medical cate (adhe tee), went (0 clue dil, ad lad chamber music with every avel Today al of these

Joby Wiley Spiers „ benefits can be enjoyed by virally any US citizen I this because we [became as rich as King Henry VII, or is it because markets brought the cost of those benefits down to where virwaly all of us have access ro them? Do we all need to get arch as Bll Gates, or do we nced to have the acoess—the price that is—fall o where we can enjoy the benefits he enjoys? This is essentially dhe argument of what is known a5 the Austrian schoo! of economics, not to be confused with liberal or conservative, Democrat or Republican Simply put, material progress is price reduc tion, and fe markets provide price seduction and the eversvidening, access to material goods (And the only event chat stops this proces is {government interventions indeed, price increases can always be eraced back to government intervention.)

rice rection can come in «wo eays lower the price ona standard ie for adding feaures and selling a ehe same price point For example, the

‘computer you can buy today at $2,000 has far more features than $2,000 computer of a year ago

"Now this may cause you fel hor and passionate for ee markets, ntl you sealize tha che ice make may ead a conservator to lower the eo of YOUR, produce to benefit dhe great mass! So, do you "protee” your idea?

“The innovator must never take steps to protect his ides, suchas parents cor trademarks or any other method Ifyou do, the conservator will so ply redesign, and no doubr improve upon, your orginal idea, making that original design obsolere Afer bearing the tremendous expense of

“protecting” your idea, ir will become worthless Those succesful small businesses you admite gor customers fist before anything ese OF the

‘millions of pacensissued, almost none of them become products for sale, and of those extremely Few that do, almost none ever urn a profit Patents are very recent and very Western in conception Before wasting

‘et pens oust ore erst Contact hm fur Ue,

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" How Soll Business Trades Worldwide

yourtime and money, ger customess for your product ist, and then you

‘an turn over your hard-ned money fo patent attorneys and such if you wish,

(Once Bill Gates tried to buy an innovative company called Intuit, which sells software program called Quicken, Although you would expect fom his reputation Mr Gates would simply steal che produc, he in fact made

an offer that delighted everyone associated with Intuit The government, however maintained chat life as we know it would end if the desl went through, and vowed to fghe it, «© Mictosofewithdiew the oe Mr Gare scl did nor steal che idea He did worse, 19 my mind Microsoft improved

a product of theirs similar 10 Quicken, and priced it very atsacivey— fice co anyone who wanted it

Regardless of how the conservator has lowered the marker price on the

roduct, since the innovator cannot compete on price, is he

‘The innovators roe is 10 innovate, t0 come up with innovative product, And no innovator is a onetrick pony AS a prodict matures in it life cycle, and is “stolen,” che problem the innovator ices is not, “Whar will sve do net?” but, "Which of these 500 grea ideas we have thoughe up during this proces ill we work on nex?”

Indeed, 38 an innovator, if your ideas are not being stolen ic is because they ate worthless And conservators had better be coastantly looking for good ideas to steal or they wil not lst, The US automakers are an excellent example

‘T illustrate the innovator/conservator paradigm is the cise of Apple

‘Computer [n 1976, Apple inteoduced che pessonal computer ro the mar- -ecplace Jobs and Woaniak, Apple’ founders, havea leer from exec

tives tuening thee idea down when they offered ic ro Hewlett Pacad,

Joby Wiley Spiers 15 TBM certainly had the capital and technological resources to intraduce a personal computer that year if they had wanted to do so But in 1976 there was no interest, and Drucker exphins why: no mainstream conser-

‘ator company executive is going so isk his 9-5, weekends Fee, countey club membership, good sary, health insurance and pension plan on a tisky venture That work is bes left ro the people like Jobs and Woeaiak, literally working ou ofa garage who introduce a beneficial new product tothe marketplace, Indeed, conservators are usally public companies

‘owned bythe shareholders who buy stock in the companies with thie sav ngs Ie would be unconscionable fr these companies to risk innovation, (Bur wharabour such blue chip companies as 3M and Johnson & Johnson

‘mentioned caler’ In both instances, the innovators in these companies ate setup outside the corporation.)

ĐC until 1981 As fiercely competicive asthe computer busines is, Apple

‘was virally alone in the marke for five year! In that span Apple had plenty of time to organize, build up capital, and most important, ro develop new products Aer IBM stole the ion’ share ofthe PC maker, the then-new Macincosh line assured the survival af Apple Computer, Asa side note, study the sales of Apple products a che time IBM stepped

in, Did Apples sale drop? Noe at al, they skyrocketed! Uni someone: Iyzes this event thoroughly take my’ best gues: before IBM stepped in, governments, insurance companies, banks and health care organizations

‘would not dreams of buying ä personal computer After IBM blested che ida, hen everyone considered both the Apple andthe IBM, 80% chose IBM—bur 20% of those who would have never considered a “toy” com- purer chose Apple And chat 20% represented brand new busines, and a Fnage increase for Apple