Product Development: Why There's No Such Thing as a Free Lunch
We often get asked by well-meaning business owners, “Why should I work with a product development consultancy? A few ingredient vendors and co-packers I’ve talked to offer free product development!” Unfortunately, the answer is that there is no such thing as a free lunch.
A former client of mine became CFO of a successful, high-growth brand a couple of months ago. When I emailed to check in on how he was doing, he replied, “Things are going great, business is booming. Can you reverse engineer our product?”
I immediately suspected why he was making such an unusual request. No doubt, back in the day, the founder had gone to a co-packer to not only manufacture their product, but likely the co-packer also offered up “free” development services in the form of scaling their original recipe into a commercial formula. Of course the owner was pleased to get the R&D work for “free”. Who wouldn’t be? It probably never dawned on the owner that the co-packer would hold the keys to producing the product.
Time surely passed, the relationship with the co-packer likely got messy and when the owner tried to sever ties, it was very likely discovered that the company couldn’t get their commercialized formula. It was in reality, owned by the co-packer because the co-packer offered up “free” development services. However, there was nothing in place to ensure transfer of the intellectual property to the brand owner once development was complete. Sadly, many of these situations end up in arbitration or court.
Mconnors / Via morgueFile
Several months ago we bid on a beverage project. We worked on the proposal for quite some time. About ten days after submitting it with no response, I called our contact to make sure they received it.
“Yep, we got it, thanks.”
“Great, how did it look?”
“It looked fine.”
“Okay, I was wondering why we hadn’t heard from you.”
“Well, there is one thing,” my contact said.
“What’s that,” I asked?
“A flavor house said they would do the work for ‘free,’” my contact confided, “I think our President is going to go for it, even though I recommended you guys.”
“What can I tell him to change his mind?” I thought about it for about a nano-second, “Tell him there is no such thing as a free lunch.”
“What do you mean?” they asked.
“Look,” I said, “do you think the scientists at the flavor house work for free?”
“No”, my contact replied.
“The cost of that R&D is just going to be built into the cost of the flavor. In fact the longer you use the flavor, the more you’ll wind up paying for it. They are going to be your unintended partner!” I asked, “How are you going to know the flavor house is giving you a good price if you don’t have other flavor houses bidding on the work to keep them competitive?”
“I’m not sure,” they replied.
“Are they going to give you a full set of specifications on the product they develop?”
“I’m not sure about that either, we will need to ask.”
“Do you know who is going to be doing the work at the flavor house? What are their qualifications?”
I’d love to say that our contact called back a week later and we got the business, but that didn’t happen. This is real life, not a fairy tale. They went with “free”. Too bad I couldn’t just have them dial up my CFO friend. He could have told them what it’s like on the other side, when “free” gets a lot more expensive.