"just in time for the San Francisco International Gift Show...I soon began sales calls on buyers ranging from novelty shops and porno stores to gay rights groups and Planned Parenthood clinics...People began buying my key chains. Small gift shops in small towns bought dozens and dozens and regularly reordered"
His failure seems mostly economic: his financial projections didn't include all the overhead involved in importing the keychains, getting them ready for sale, and shipping them out to retailers. And much of that was because he didn't know all those things were required.
He would've been saved by researching the supply chain better, not the market.
"I learned that a markup of 150 percent doesn't mean much when you're only making 75 cents per item."
And of course the final nail in the coffin:
"These are hilarious. You gonna give these to us? I bet you could sell thousands of them."
Although research of his supply chain was extremely bad, it doesn't seem as though correcting it would have saved his first misdirected attempt at a product.
My own take is that the poor guy's fundamental error was that he jumped the gun on outsourcing. He should have built the first hundred prototypes by hand on his kitchen table, with parts scrounged from one hobby store or another, then sold them himself. It sounds like he basically ended up doing that anyway, but if he'd done so in the first place he'd have invested less up front, gotten feedback faster, and gotten an intuitive sense of his market and the sort of product they'd prefer. Premature optimization!
The other, even more fundamental error was going into the novelty business in the first place.
Often times a product that gets well received when you have a few samples made doesn't sell at all. Something you think kinda sucks and is just a 'filler' product in your line up turns out to be the most popular, and you run out of stock. Something sells well, you can get more made, so you order 500 more units, and then all of the sudden the product is not cool and nobody wants it anymore.
I'm saying that even under his best assumptions about the market, his product was not profitable. He ended up getting customers after all, but even under generous volume and gross margins, it couldn't cover overhead.
His problem was that his financial calculation was wrong. Marketing is ALWAYS wrong till it works, research is only right after it is proven true. The only thing you can estimate with any degree of accuracy is the financial projection to see if the business is financially viable. And in his case he didn't factor in the uncertainty and the mistakes that one always makes.
The _basics_ of marketing?
Consider marketing the social component of design. In the whole "Make Something People Want" bit, marketing identifies the "something people want" part. "Make" is important, but it doesn't mean jack if you're making the wrong thing.
It sounds as though this guy might have had a good market for condom cases ( http://www.google.com/search?hl=en&q=condom+cases ), particularly in the 80s when the things were just coming out from behind the pharmacist's counter, but he didn't pursue that initially and his second attempt appears to have been an approximation of what people actually wanted to buy.
If he instead identified what people wanted (reliable condom cases) and delivered that instead of a novelty which sold well to Bangkok tourists, he may have had a business.
For example now, you have gotten stuck on this idea of condom cases. I personally don't want anything near to that. BUT, if the design were really interesting, I may want it. So you can't research if I want that, because even if you asked me, the answer I would give would be ambiguous.
Business School people come out with this idea that you can find out what people want before you have a product on that market. You can't! What you can do is identify a PAIN and fix it. You can identify something to be OPTIMIZED and fix that. If your product does not clearly fit any of those two categories, then all you can do is GUESS that people want it, then throw it at the market and move with the market to take the product in the correct direction.
It's easy for you to say condom cases are wanted after reading the article, but a condom keychain or case does not solve any specific pain. It's somewhat convenient thing, but I can easily live without it. It can work in the market, but it may not work.
The correct approach to this type business is to guess the best possible product that could sell in the market. Then put it in the market, and the market will tell you what it really wants. Then you modify to fit the market. But you have to factor this process into your finances, and you have to factor the risk factor in. The more unclear your market is, the greater your risk factor, and your finances have to be large enough to accomodate this risk. This was not true for the guys case above.
You are running with the wrong attitude if you think you can get things right all the time on one shot if you do proper research. It can happen, but most businesses will refocus after being on the market, and there are many many business who did the research, but didn't get it right. They failed and you never hear about them.
Those people who can determine what people want don't just snap their fingers and pop out an idea. An iterative process is followed to produce that initial product. With your iPod example, a music player which is small, elegant and easy to use [so drop all the extra features the competitors have which nobody uses -- and which features are those?] took a great deal of research to spec out.
I see what you're saying and agree that product development is an iterative process, but without marketing you're depending upon luck getting you to that final result; and you'll run out of cash long before you reach that point.
I couldn't be bothered to buy a condom case either. I also couldn't be arsed to use Twitter but I'm not the target market for either of those products, so both companies would only waste resources if they attempted to match my needs.
They said 'no'
Keep this story in mind the next time you assume that the computer science graduate in front of you knows how to install Linux. Or that the electrical engineering Ph.D. knows how to solder.
I also suspect a bit more research would have shown that empty cases (which the customer would fill with their own product) would sell just as well. Instead, he plowed on through to obtain more inventory (wasn't discarding expired inventory the inspiration for the product in the first place?) and meet regulations (instructions, etc.) that he probably didn't even need.
Do your marketing up-front, folks. A well-designed product that doesn't address a market isn't much better than this guy's box of greasy, plastic-covered condoms.