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Michael Michelini Do Detailed Market Research Before Creating a Product

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We were good at the Ebay and Amazon even exist and as far as what it is now but we are selling on Ebay. Were selling on our website. Were GOOGLE AD words. We were doing great aunt. Beat a scene. We're taking existing products. But we've never really taken a brand new product and launched and it was me that was really putting all the money in south hello fellow risk-takers and welcome to my worst investment. Ever stories of loss to keep you winning in our community. We know the to win and investing. You must take risk but to win big. You've got to reduce it. Today's episode is sponsored by the valuation masterclass Online. The complete proven step-by-step online course to guide you from Novice to valuation expert. Podcast listeners can claim your amazing thirty five percent discount by going to my worst investment ever dot com slash deals. My name is Andrew Stotz from ACE DOTS investment research. And I'm here with featured guests. Michael Nicolini Michael. Are you ready to rock? I'm ready. I'm really excited. Yeah let's go. Well let me tell the audience a bit about you. Mike is an American social media ECOMMERCE and SEO specialist who has lived in China since two thousand seven. He's a passionate business. Connector who helps companies do business in China as well as helping Chinese companies to work in overseas markets. He built global from Asia. A cross-border e-commerce community to help cross-border business owners learn network make business partnerships and grow global businesses. Most recently. He has joined as a partner in Alpha rock capital which is an Amazon. Fbi Investment Company. Might take a minute and filling the tidbits about your life. I think he feel great job. I'm really excited. Also happily married Chinese wife. I met while in China with two kids soon to be six and four years old boy girl. So you're a busy man. Totally busy really overwhelmed. I know the feeling well. We're going to relax now and just enjoy the moment. We don't have many interruptions. We've got our time together. And now it's time to share your worst investment ever and since no one goes into their worst investment thinking it will be tell us a bit about the circumstances leading up to it and then tell us your story. Sure so honestly I could probably have a few who've my worse investments but I think this one is is going to be very interesting and it was a bad financial investments. It was two thousand eight March. I had moved to China in late. Two thousand seven and you know was really excited about everything happening in a blue skies new opportunities already selling online for many years while in the US and this industry. I was elling those kitchen and bar supplies online. Be to see as well as to be through some strategic partners and I had been networking a lot of experts in Chinese people in down in Shenzhen City China in the South South Border City with Hongkong and one of them was named Andrew and different Edgier and he says Oh you do bar supplies aligned to I actually. He was the sourcing agency. He was a product specially Bene- China ten years already and he kind of took me under his wing as a as a newcomer as a young guy. The new kid on the block and you always impressed my internet marketing skills and abilities and he has so many product ideas he had always property as he was also the same industry and he was doing sourcing which is basically help them. Us Pliers finding factories in China. So we know he was giving me these a lot of bar hopping you know and and dirty street restaurants street food barbecues which I still love honestly even house threaten. It's not the most healthy. But it's definitely the best bonding with your big Qingdao Beers or those big green bottles of I don't know them in America but those big oversized beers and learning all learning all the insights of China business. Not just from him but he was kind of like kind me and give me the inside scoop about manufacturing so one of the ideas was was a light up. Pour spout basically a bottle top. They put on top of a vodka bottle or or any kind of liquid and when you pour it his idea was it would light up. Stream of alcohol to the color of the led so fancy really nifty net. Yeah as early Guinness. Nice little gimmick so or in March does need can't believe this twelve twelve using now. Let's get me all excited about it. And he's like you have your website. You can sell these. You already sell your bar supplies you your customers you have distribution. I can help engineer it here. Where both here we can do it together and you know it sounded like a great story. I mean He. He had no internet experience. You know he had like a hotmail and he you know he wouldn't do skype call sometimes late at night to the US but he had no real computer or Internet marketing skills and he was engineer and ten years in China. So we went in on this together. P brought in another friend. That was another American that had like legal experiences and we found that there was a patent already crazy story. I Dunno crazy story. We contact the patent holder. It's a Russian living in New York. I'm still friends of the guy. Actually and he didn't make the product so we were starting to do these calls with John in other Mikhail or Mike and Andrew and me there's four people and we had these skype calls bargaining about licensing his patents before we could make it and is going over a month of calls and he has a lawyer in Florida. He's in New York. We're in China. Were doing skype calls email threads and he's he's wanting up front payments he's one. Corley minimum royalties. We didn't even make anything you know so I was getting frustrated. Were ON MISSED SKYPE call? Were actually Ed John The lawyer partner on our side Andrew An. Ira seem a Home Office in my Home Office had even a few Chinese staff working in my home so all jam packed in this apartment. But we're seeing far away on different lines to look like we're different locations for some reason the NFL. I'm looking at John and I said you know what Mike Mikhail or Mike I like you. You know but I can't keep talking. I'm making this product on manufacturing this. If you are in your in if not then I guess you can find me. You can find me. And he's like well and it was silent. John's like weaving say that. Like because I think we're bargain at all for. I think I said I give him five. Grand for like a year exclusively honest worldwide on worldwide pants and. I was kind of saying. Take it or leave. It and I'm going to do this anyway with or without your consent Like he's like yeah. It was hard ball and then he's John's like no like putting his hands on his in. I know it's hard to explain all these different characters. But they're just both lake saying. Oh No this young reported in you know we kinda needed them but he's screwing us up. He's not listening to us. And then there was silence and then McCain was there and his flora lawyer and he's like you know what Mike I like you you. I don't know if he's at balls around Santa Show he's like he says like I like you at you. Just do you yes. It's true to US talk okay. I will accept five thousand dollar one year and five cents per unit. You know so. Basically is a deposit of five cents royalty per units up to five thousand feet over that we have to pay him extra for the first year and then after that I'll be like quarterly payments based on sales audits access to finish stuff so we made as long agreements and did it went. I don't WanNA get so deep into manufacturing but it was a new mold so it's a new product. There's more upfront costs right. So the second hardball had was Andrew. My friend my guide wanted to use his friends factory. And this is where I. I don't know I'll never know the truth. But he they quoted me an upfront fee of like twenty thousand dollars or maybe fifteen thousand dollars for the manufacturing of the product. This is not to make depart. This is the setup fee like. There's there's tooling or molds and I'm like that seems really high to me and he's like Mike you know you gotTa Trust me. This is the guy this is the this is the guy I'm like. There's older guys zolder guy so he was mad at me but I went. I quit. I quit it around a few other factors. Now's getting three thousand. Five thousand dollar quotes for same thing. Upfront fees moving. So he got really angry at me but you know maybe I was young cowboy but he was still. I still kept him in the deal. I just said it was actually another. It was a cheap birds China too because China's huge people realize that but it was a cheaper part of China anyways. We hadn't paid to five grand to the factory that I chose and went ahead with it and then we were getting people. I had my. Us partners from e commerce business. The bar supplies business and other incher. Actually Andrew Hometown frame. We grew up together. We started a business together while still in the US. So he's all excited Products going to be a millionaire. We're GONNA make so much on this. Like just get. Is this product so sending samples? He's talking to Bacardi. Us But Cardi was interested and just the lead time. I don't know it says be to be in so you know it was just taking forever and for me. I don't know I said it started in March. I think he got into summertime. Were still working with the sampling of the product. You know going back and forth. The led wasn't bright enough in my partner in the US. Even I wasn't satisfied with brightness because I think that's the whole effect right owning this vodka and this light like a lightning bolt shoots out of it but it was like a trickle of red or blue or green. Is nothing like what we thought his way? Andrew in China. My my engineer foreigner. He'd Kinda just Jig together like he just took battery like an iphone battery and put to you know contacts to led so is really strong and we actually tried to put that into the product in you have just a little battery. Watch inside of the SPOUT and screws. It was not making that strong enough power as like a nine volt battery. When you're just Jammie two wires into a bottle at so it actually make the same thing with so hard and I found. Led's ahead to get a new PC. Basically we had a source. The led from different suppliers factor. We had a source a PCB from the different factory. That has sort of some if mold an Andrew an enormous shipping us net but Cardi kept kind of saying. Okay make it better can make it this. And then of next big fight was we had a guy in Amsterdam that found us is like he won exclusivity in all of Europe but found somebody new K. and they wanNA exclusively at least the UK. And I'm like man. All of this talk you know. It's like getting august-september designate. It's done sold anything in a guy guy wants. Excuse me here. We got a car to go back and forth staring up my partner in New York engineer. Part and basically this is before kickstarter I wish we had kick starter but then other problem was is promotional item so Bacardi was not willing to pay more than like dollar piece. Because they're just GONNA give Like put it into their packaging any liquor store in nearby Cardi bottles with their. You know their vodka in an east bright red logo Nilsson wanted to exclusive all. Us You know we're not gonNA spend your whole project and by one hundred pieces and I'm like man a dollar you dollar exclusively. It was as crash course of like business because everyone exclusivity everyone knew we want to put money down by one and have the rights. I was like the only one putting money in actually I was paying for the manufacturing. I was paying the patent holder. Five Grand Bankamerica. Remember that day and you know I think he got like twenty twenty grand and we did a production run for ten thousand pieces. The BACARDI was still going through but we started selling our website. 'cause we had a pretty good website where it's like a top in top. Google ranking for all these bar supplies we had some many small distributors in the US in. We had homegrown built after two thousand four. I don't know I mean I could go for a little bit but basically what started happening was I wasn't making money back. And then people spend partners. WanNa start getting their cuts. -sity everyone in their money. Everybody's wanting their money. I'm like we got ten thousand pieces. We you know we sold them for three dollars again for a dollar. And then you know we got to get this wholesalers distributors and we sell it on Ebay but then distributors in want to sell it online because it would undercut their margin. You know we were good at the Ebay and Amazon even exist and as far as what it is now but we are selling on Ebay. Were selling on our website. Were GOOGLE AD words. We were doing great to see and we're taking existing products but we've never really taken a brand new product and launched and it was me that was really putting all the money in. So how did this or how did it go? I mean it was like a collapsed but it didn't make enough money so then Andrew Andrew in China. I bought them out basically. We pushed him out. Mama Friends said I pay him too much for his share of the product. But he's like I told you everything and you know so. I paint him out up fronts him in John Remember. We went today banking Holcombe together and I win. Cash just gave him cash like in hog like on the streets. I think it was like ten grads for his share which he didn't have a company was all contracts. You know it's one of the get them off my back because he was this on my butt about selling more getting his share His money you know we sold like twenty thirty thousand pieces you know. But these are like little Spouse for like a couple of bucks retail a few dollars you know then so basically just didn't really make enough money and it was losing momentum momentum and then Bacardi ended up rejecting it because the craziest this was the maybe this is the breaking point my partner in the US. Was you know sending tip Hikari just as long chain of communication writes a scoring from Cardi. Us Tax Office to my partner in the US and then they rejected it internally because it pass us FDA but failed Bacardi's internal quality control tests of the material plastic for certain percentage of some kind of a plastic chemical. My can't remember towards food grade needed to be food grade. Plastic I guess it was enough for. Us Food grade or US importing. It wasn't GonNa kill anybody or hurt anybody or it was usable but their own internal requirements wasn't enough and this is the maybe the. Maybe I'll say this is the breaking point the factory in China's like it's called face. I think you know you're in business in Asia. No our quality is good. They're wrong I'm like no no no I'm not saying you're quality is bad. I'm seeing that. Can you give me a different composition of material? This percentage of this chemical. I don't even freaking on her stand honestly but days they need less than twenty percent thirty percent of this Pacific chemical of plastic in your plastic of the mold or of the product. And then I don't know it was stuck in lost in translation basically so we lost a deal and then there was turnover. Because this is I'm thinking is probably going past Christmas. Went into two thousand nine it just kind of you know maybe maybe. I wish I had kickstarter. Back dinner crowdfunding. So how did it end? The ending was just like died. I mean ending was I just didn't reorder it. Basically I think I did two batches ten thousand but it was always on me to upfront. Hey I'm you know. Selling them retail won by like two PAC for like ten bucks like five dollars. Of course some dollar dollar fifty my costs but then McCarty and then the Amsterdam guy wanted for like seventy five cents per because he wants his Bacardi or his liquor company in the US and Europe for a dollar learned after that The promotional market is like a dollar a piece. Let's review the lessons that you learn. Yes go what's the number one thing that you learned from this? I mean there's a few but I mean I guess market research market validation or selling property for I mean we did have the market. We did sell these we did have. This was our industry but I guess I didn't really know the promotional mark. I knew like the beat is see like I didn't sell to like precarity before. I didn't sell to these big distributors before that should have known dollar at par. It was basically. If I'd known it was a dollar that I made sure to make a cheaper product but it was also heart. We wanted to quality be good. You know they want to just throw away stuff. I guess any other lessons that you learn. Well I mean as I mentioned. There's all these you heard about four or five six different people involved. There was a joke. They call me like the Godfather in two thousand eight. Because I was making all these deals like had made some money in Wall Street. And now it's just Kinda like I didn't save money for MBA missiles my MBA. And you know. I had a few other projects honestly. But I'll give this half of this one in our twenty five. There's four of us here. Twenty percent each year. An you your engineering years sales. You're like you know you do. This is very rough like I had to. I did have a contracts honest I can take that one but rough agreements without really clear exit strategy. Like what is that wasn't there was no the most important part of a contract is the break-up right like what happens if it doesn't work out and we didn't have that so zas is fighting and I just ended up paying him in London for ten grand screwed out. Don't pay nothing. Just give them some kind of percentage of sales in the future. Now's another lesson all right. Let me summarize some of my takeaways from it. I think the first one is the idea of understanding the market. And it's hard to you know when you get excited about a product. Sometimes we missed you. Know the market the market more important than the product. And I think you know in this case understanding that market and it sounds it. Sounds like really the ultimate death blow was probably be the rejection because of this concentration of certain amount of plastic and. I'm not sure that you could even do you know I mean that's a hard one to say that you could have found that out. You know. It's a tough one. The second thing that's critical is if you have no sales you have no business and you know. Obviously you had some sales online and stuff like that but without a sizable sales and also with a vision of that sales being able to really seriously grow. You know there's no business and I I like to say that for when I look at businesses I have something I call the three million dollar rule. Which is you have to be able to explain with your small business. How quickly you're going to be able to get the three million dollars in revenue because it takes about three million dollars in revenue to be able to hire a management team and build a real professional organization that has the ability then to scale to the next level. It's a lot of people they get excited about a little product but the fact is is that unless you can get serious money behind it you know in series revenue behind it. It's really hard for it. Not just to be kind of a one man show and I would say the third thing that is really the toughest thing is that you need different people involved in a business in order for you to be successful whether those people are providing capital or whether there providing expertise but keeping everybody satisfied is a nightmare and and many businesses fail only because they just can't figure out a way to keep everybody you know satisfied and the breakup and all that end up destroying the business. You know type of here so those are some of the things I'd take away anything anything bad. I'm I guess it's one a somewhat clarify. We were making revenue from our normal generic. Our supplies like we were just you know Shakur's and openers and we're also doing other products for other other people still. This was just idea was this could be like one of our Mastered Right word leading product and he could sell the boring stuff behind it. Right idea was this was like kind of the the. Wow we even sold. We sold some to our competitors like our online retail competitors. 'cause we use the whole patent and I even got a trademark That was made me one of my responses to you. I still get wow on assist. Have cool lime still. He was still get some leads. I just don't reply is the sticking boy. Somebody's gotta put like ten grand into this. You know to get you know again order basically I mean honestly still maybe keeping me better now with led technology battery technology. It was maybe a limiting thing and I was even thinking about kickstarter. I mean honestly crowdfunding. I was some people that I should have done. It could've been presold these right. He could have maybe tested a market by selling them. I was getting ready to put a purchase order but Bacardi or any of those guys wanted to sample working simple. Which makes sense right all right so based on what you learned from this story and what you continue to learn in your life. What one action would you recommend our listeners? Take to avoid suffering the same fate. Imagine person doing the exact getting excited about a similar type of situation. What's the one? They're they're lucky that there's crowdfunding now so I would say leverage crowdfunding if you have a really unique if you're doing something totally unique. Try to sell it. I like you said if you don't have don't have a business yet but on the other side I don't like these scammers like even have friends that I almost call scammers. They sell on crowd funding. And they don't deliver so make so don't do the opposite like that. What makes me so mad because I did this out cross funding and now I see Oversell don't deliver so definitely me at least half full intention to deliver so definitely leveraged at her. Even if it's not crowdfunding sell something I yep sell you know. I've listened to podcasts and stuff about sell sheets even have provisional patents yet. Obviously we talk about this patents are almost BS. Like I. I agree because he knew he couldn't do anything to me. That's I think I could have even sold in the US Marquette GonNa maybe sold in Europe is the US and. I think he realized if I would really do that so I wasted too much time on this patents and you know. I don't know you're feeling but don't get stuck get caught up in the pants. DoN'T GET CARBON PATS. If you're entrepreneur investor of course important have your Ip. I think the most important brand trademark not as great so last question. What's your number one goal for the next twelve months? Yeah goal right now were as you mentioned earlier on Investment Company. I'm just building out where we're scaling. We're raising were buying out more. Brands scale All right scale alright listeners. There you have it another story of lost to keep you winning to find more stories like this previous episodes and resources help you reduce your risk visit my worst investment ever dot com. Michael as we end. I WanNa thank you again for coming on the show. I know it's painful. Talking about are losers but our listeners are learning to win as a result and I want to congratulate you for being one of the brave ones who has turned your worst investment. Ever into your best teaching moment. Do you have any parting? Words for the audience doesn't discourage people you know like I mentioned a hinted towards I kind of put it into my MBA. I think is way better than MBA personally. So you know I think take action and don't be afraid to fail and I think is even Steve. Jobs has some kind of quotes. You know. There's all these successful people say you're afraid to fail. You never do anything right. You'll you'll so don't be afraid to fail. Got It great advice all right. That's a wrap on another great story. Doukas create grow and most importantly protect our well fellow risk-takers. I'll see you on the upside.

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