Guest Post: Engine That Drives The US Economy
Last Updated on Monday, 25 February 2013 09:59
Written by dbhalling
Monday, 25 February 2013 09:55
This story starts about 1982. At the time we were doing job shop work One of the Engines that drives the US economy is the US patent system. Any talk about changing it or doing away with it is stupid. The rewards that a patent can bring are a huge incentive to create. Without the US patent system, I would be near destitute. I have 28 patents I have had 5 licensing contracts. Some of these are world wide successes now. Do a Google search for my and get over 30,000,000 hits. Without US patent protection, I wouldn’t have had an incentive to create these inventions. Anyone who says the opposite is juvenile-stupid or worse. This is why inventors from all over the world are flocking to the US to patent their inventions and corner one of the worlds biggest markets!
Another engine that drives the US economy is our free enterprise system.
[My business started] in my 2 car garage. One day my neighbor came over and asked if I could make some security wrenches for them. He was the manager for the warehouse of a large cable company. He showed me the sample and I could see it would be a very nasty job. So I said we were too busy. He kept coming back. On the third time I said we would. So I made him samples and received an order for 100. He reordered about every 9 months. In the mean time, another cable company wanted some of the same. My other machining business was evaporating. My son Eric said, “lets go in to the cable business,” so I said OK. The first thing Eric did, was to go to work for a large cable company. There, he learned the business and got acquainted with a lot of personnel. This helped with future sales because my son Eric knew a lot of people in the cable business. He worked there for the summer and then came back to work for me.
I decided to build a house first. It took 6 ½ months plus time for drafting and planning. I drew up plans and had them approved by the county. It was a raised ranch house with a 1700 square foot full basement, which would be a machine shop. It was great.
Eric came in one day and said, “ We need a name for this new business.“ I agreed.
I said,make a list tonight starting with your top choice, and we will discuss it tomorrow. The next morning we had the same name at the top of our lists. It’s ‘Cablepro”. I think this is a great name. Every cable installer that sees this name thinks in the back of his mind that these tools will make him more professional
Now the problem was expanding the business. We did several things which worked very well. One thing was that I bought a cable book which listed every cable system and their personnel in the USA. It cost me $375. I chose 1500 of the biggest cable systems in the US to make a mailing list. I made a flier although we only had a few tools and mailed them.
Mailing lists typically yield a return of around 2%. I received over 300 orders from this mailing. That is over 20%. It is important to recognize why this worked so well. First of all, everyone who received a flier was using these very tools. Secondly, big companies don’t want to sell a $10 wrench. They want to sell a truck load of amplifiers at several thousand dollars each or several miles of cable, All the orders were for one tool because they had never heard of us. A few months later I sent out another flyer with more tools and received over 100 orders which were $100-$300 dollars each. Now we were nationwide. I had to hire some more employees.
Another thing we did which worked very well was [to have] a truck with tools on the road. A customer would call and say they wanted to buy a dozen wrenches so the truck would be there the next morning. They usually bought more than they originally ordered. It is expensive to keep a truck and an employee on the road but it paid off. We took over the tool business in this town. An unforeseen benefit was new products. All cable systems have a box where they throw broken tools. My son Eric would ask to see if any of our tools were returned and none were. Whatever tool was the most prevalent in the box was our next new product guaranteed not to break. After we did this several times the cable companies starting saving the broken tools for us to redesign and make. Our biggest competitor was whining about how bad [the] sales of tools were. It was because he didn’t deliver. We never made money with that truck, but we built a business.
Now I had 5 men working for me full time. One on the road and 4 of us in the shop making tools. Business was booming. We had 25 products by now and sales had hit $25,000 per month. What I needed was some fancy machinery which I didn’t have. I didn’t have the money to buy the machinery or a shop big enough to use it. Growing New businesses soak up operating capital like a sponge.
All of a sudden, a potential buyer shows up. His sales had dropped 50% [in the] last year and he had fancy machinery sitting around. We soon had a deal. I sold him the rights to my products for 5% of sales for 7 years. I gave him a customer list, a line of products and my son Eric. My son knew a lot about how to make the products. He was in charge of getting the tools made at the new company. He was responsible for ordering materials, Scheduling production and running production. It went smoothly and soon I was getting royalties. I called it a licensing agreement but my accountant said it was a delayed purchase plan. Anyway, the checks cash the same.
At this time I had about $25,000 in receivables which I was able to collect and $25.000 in inventory which I sold to my licensee because he didn’t have anything to sell. One of the measures of business success is how long does it take to turn over your inventory. One month is outstanding. The shop was working 6 days a week and Sunday was for payroll, taxes, bookkeeping and preparing orders. I hadn’t taken any money out of the business since it started. These were factors which helped make the decision to sell,
Afterward, he asked me to see if I could design a crimper that would crimp a connector fitting round instead of the standard hex crimp. The standard hex crimp is on a round cable and it lets water and signal in and signal out. Does that make any sense? I am an engineer by trade, so I did it and it has been a real winner. This is an unusual situation, Using this crimper enables the cable company to use cheaper connectors, saving 5 cents each. If an employee is putting on 50 connectors a day you can see what a saving this new crimper is. The crimper will pay for itself. This tool and the others are being sold all over the world now.
By now the licensee has a factory in the USA, one factory in China, and two factories in India. He just finished building a new house for $11,000,000. This is what new products, intellectual property and hard work can do for you.
By Don Kesinger
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