Driving the Cost of Creation Down to Zero

The challenge in creating new products to sell online, be it private-label or new inventions, is capital and time. The capital and time is the cost of creation.

Capital is problematic because it takes a few months for the return on investment to come back. This is why many of the top sellers on Amazon are primarily resellers - it is easier to strategically manage cashflow that way. Building products on the other hand involves fixed costs initially, and some marketing investment. Which can all amount to zero if the product does not sell.

Despite the fact that most conversations around Amazon are about creating brands and private-label, very few companies have been able to scale it to beyond $100 million. There are proven methods to launch a product on Amazon, but launching a few dozen successful products every month is a problem of scale. Capital required to support this sort of growth is a major roadblock.

Time ties up capital. Introducing new products takes time, often at least a month, which not only means that the capital cannot be used for anything else, but that there can only be a few ideas in the pipeline at any given point. The long gap between coming up with an idea to finally having it for sale hinders creativity.

Thus the goal is to drive the cost of creation down to zero. The core idea behind Amazon-Native Brands is the rise of micro brands created to thrive on Amazon. The most important trait of those micro brands is the ability to introduce new products at virtually zero cost.

“If you have an idea and you spend a dollar to test it and it fails, who cares? If you spend a million dollars to test it and it fails, you can’t do too many of those.”

Joe Ferrara, a co-founder of Resonance

What marketplaces brought to brands was the ability to reach customers without building a sales channel of their own. Most brands still do, but the Amazon-native brands don’t. This allowed reaching customers with zero cost, however most brands still develop products like they always did.

Fidget spinners was a short-lived trend last year. Zooming out from fidget spinners the product, it showcased what retail could look like in the future. As short as those products lived, they out sold every other toy. For those who were able to figure out how to bring them to the market it paid off.

US toy makers like Mattel and Hasbro didn’t sell a single fidget spinner. The way they develop products and launch them to the market is unfit to react to fast trends. And maybe that is ok, but the future winners are going to be brands which can react quickly. Because when the cost to react is zero it doesn’t matter if it fails.

This is the difference between Mattel and Hasbro, and the thousands of fidget spinner “brands”. A traditional brand spends months analyzing the market, signing partnership deals for a major film, developing and testing the product, launching a TV ad campaign. All in hopes they were right. All in hopes it sells.

“If you have an idea and you spend a dollar to test it and it fails, who cares?” this should be the motto of a lot of companies making products. Some products will continue to be created like they are today, but the underlying idea is the groundbreaking impact optimizing capital and time required to creating new things. Not only are there is going to be more and better products, but the organizations who create them will function differently.

Everything changes if an idea is for sale on Amazon 5 days later. There is fundamental value in knowing what customers will want, but it might be even more valuable to not have to risk guessing.

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Juozas Kaziukėnas

Founder of Marketplace Pulse, Juozas wears multiple hats in the management of Marketplace Pulse, including writing most of the articles. Based in New York City. Advisor to other startups and entrepreneurs. Occasional speaker at conferences.

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