In 2009, I’d already had 15-year career in the tech industry, mainly as a product manager at software companies like Microsoft and Adobe. But that year, I decided to take the plunge into physical products, launching KOR Water with my partner Eric Barnes. Our goal was to make what we called “sustainable hydration” the non-negotiable, socially acceptable choice over bottled water. Our plan was to take a page from the bottled water industry’s playbook. We would create sexily designed water bottles and portable filtration units that could stand as fashion accessories.
Ultimately we did reach some pretty lofty heights, but as tech industry folk we were on a steep learning curve in order to achieve success in this very different world of physical products. When moving from bits to atoms, the world goes topsy turvy: business models, sales, marketing, customer support, and perhaps most of all, product – are all transformed into something strange and exotic.
Like I did, I think many experienced software product pros enter this domain with misconceptions about what makes a great product. Sure, it’s got to look good, feel good in your hand, have tons of features, and most of all address your key use cases, but you’ll need to go deeper if you want to build a sustainable business.
These are the top five lessons I learned the hard way. I’m offering them here so you don’t have to repeat my mistakes.
1. Minimize Parts
Our first product, a very sexy water bottle called the KOR ONE had over 25 parts. It was a viral sensation, but all those parts were tough on profits. That’s because parts drive cost along many dimensions: higher tooling costs and cost of goods; reduced reliability and time to market; increased supply chain complexity. We learned quickly from this mistake and subsequent products were simpler and, most importantly, more profitable.
2. Minimize SKUs
If you’re new to world of physical products, get ready to hear the term SKU a lot. SKU stands for stock keeping unit and it refers to each product variation that you sell. For example, if you’re making iPhone cases, each color counts as a separate SKU, and so does the iPhone 7 vs the iphone 10 version. With all those variations, things can get complicated quickly. Henry Ford had the right idea here when he famously said customers could buy a Model T in any color “as long as was black”. Minimizing SKUs delivers innumerable downstream benefits: lower inventory cost, lower cost of goods, and fewer stockouts to name a few. The right time to expand color selection and product variation is after you’ve proved product/market fit, not before. Take a tip from Ford. He didn’t offer color options until five years after the first original first Model T rolled off the line.
3. Design for Retail
Even if you plan on selling 100% direct to consumer, there’s always the possibility (and perhaps even the necessity) that you will sell at a retail store at some point. When that happens, you need to make sure your product stands out on the shelf. But designing a cool looking product may not be enough – you also need to think about the packaging. Can you make it just as cool and differentiated as your product? If so, then you’ve really got something. For example, think about how the Pez and Tic Tac took commodity candy products and dominated the competition at retail through innovative packaging. But aesthetics are only half the challenge at retail. The other is cost. Retailers typically keep 50-60% of the retail price. Therefore you’ll need to design your product with these lower margins in mind. At KOR, our rule of thumb was to keep the cost of goods at 15-20% of retail price in order to accommodate retailer margins.
4. Design for Services
Coming from the internet, one of the hardest things for me to get used to was the idea that each physical product sale was a “one and done” event. But it doesn’t have to be this way. You can build services into your product that generate recurring revenue and deliver other benefits as well. This was always our plan for KOR but it took a few years to get there with products like Nava and Waterfall that not only offer replaceable filters, but filter subscriptions as well. Not only do these products generate recurring revenue but they enable us to build ongoing relationships with customers. This is especially important at retail where you may never get to know your customer unless you can sell them something directly like a replacement filter after that first purchase.
5. Prototype and Test
One of the hardest things about physical products is how long they take to get to market. Perhaps the second hardest is how much money you have to spend on things like tooling and inventory before even getting your first dollar of revenue. To overcome these challenges, you will be tempted to reduce the number of prototypes and early samples you get from your factory and the amount of testing you perform on them. But this short-term thinking could come back to bite you hard later on when customers start complaining about things like breakage, overheating, usability or cleanability issues. These are all problems you can discover and fix, but you have to put the time in to do real world testing. Take your product sample home for a week and use it to death. Give samples to friends and family and have them do the same. You will find flaws. Then take a deep breath and work your butt off with your designer and manufacturer to fix them. I promise you, it will be worth it.
If you are making the transition from software to physical products, I hope you find these tips helpful. I hope they also give you pause and you realize that you are entering a vastly different world. Mastering these and other principles of physical product design isn’t hard, but it does take time. So think deeply before you take the plunge. You’ll be happy you did.