Podcast Series with Leigh O’Neill: Building better small businesses

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Leigh O’Neill: Welcome to our podcast series Building Better Small Businesses, and today I’m privileged to be joined by Hugo Davidson – designer, innovator and founder of Knog.

Hugo Davidson: Hi, Leigh. Thanks for having me.

O’Neill: Hugo, I wonder if you could start by telling us a bit about the company.

Davidson: Background in industrial design and developing and consulting for a whole range of other companies. And understanding, really, the sort of products that they needed meant that we really got to a point where we needed to do, or we wanted to do that ourselves, so we wanted to take a lot of the learning that we’d had in manufacturing products and apply that in a very, very simple industry. So we chose the bike industry predominantly because it was not as competitive back then as it is today. It was full of generic Chinese products and we could see a niche where we could actually make a difference. So difference really can be considered as a level of innovation, I suppose. So we applied what we knew best, which was really a design philosophy, to this particular category of products and really, it meant that when we got…started releasing these products into the market that everyone looked at them and said that these aren’t typical of what we see in the industry. These are actually quite unique. And it was because we weren’t… We didn’t basically come from a biking background. We came from a design background.

O’Neill: So, Hugo, I think you’ve just struck on something really interesting there, which is when we talk about innovation, I think we often think of technology. It doesn’t sound to me like innovation, to you, means just technology.

Davidson: No, I mean, innovation, for us, is about creativity. It’s about making sure that the creativity can be applied effectively. So that can really be suitable for any aspect of the product development life cycle. So you need to be creative in the way that you can see the products, that you identify the categories and the differences. You need to be able to implement those strategies and actually put them in. And innovation can actually even be in the way you implement. You’re going to manufacture them locally or elsewhere. The distribution channel, the logistics. They are all aspects of what we try to approach, we try to deal with differently.

O’Neill: So can you maybe just give us and our listeners some context around creativity and innovation and putting into practice in a ‘building a business’ concept?

Davidson: Sure.

O’Neill: Because I think that’s sometimes a challenge for us, to think how creativity is translated into business outcomes.

Davidson: So one of our most successful products, which was developed, was a very, very simple bicycle light and it was basically a product that we called the Frog and it would have been developed 10 years ago. So at that point in time, we were developing a range of other products for a different company in a different category that was using silicon. Flexible silicons. And so we took the technology and the material technology and we applied that to a product that we were developing ourselves and came up with a very, very simple product which was completely unique. That, in itself, developed – with that, there was a whole range of branding and naming requirements that were considered. The overall approach meant that it became very successful. I think at this point we’ve probably sold over 3.5 million units of that particular product. And the sole, I suppose, significance of that material change spurred what other people would have seen as a unique for innovative approach to what is a very, very simple product. That gave us a point of difference in the market. It meant that when people were looking… Consumers were coming along and looking at our product versus the competition, it was an easy choice because there was something that was new. It was something that was fresh and they hadn’t seen it before. So it was all those aspects as far as the design process, the material choice in a category of products which people wouldn’t expect innovation. They wouldn’t expect to see significant difference.

O’Neill: So I think I’m hearing a really great story about creativity in the design of the product, and then I’m hearing a story of “we started 10 years ago and now 3.5 million”, which is pretty amazing number to have sold. Not necessarily an overnight success. I wonder if you can give me some context of who the “we” might have been to start with and how you’ve become so… How you start from being small to become inevitably quite big.

Davidson: We… Well, within our business we… Certainly there was a business partner. Malcolm McKechnie and myself. And we had a small team of people who were basically designers. We knew nothing about logistics. We knew nothing about supply chain management or distributors or the bike industry at all, actually, and we just wanted to develop products for ourselves, rather than for other people. So we wanted to move from consulting. And in doing that, we then looked at a whole range of opportunities that were there. So we looked at different categories of products and we were thinking about everything from sex toys to baby products. And in doing that, we would try to find a niche that there was… There was no… You know, we had an opportunity to really grow. One of the guys who worked for us actually had worked in the bike store for many, many years and said, “This is a category product which just doesn’t have any innovation. It’s always the same.” And so we left the sex toys on the living room floor…

O’Neill: My next question was going to be, “Is it important to develop a product that you’re passionate about?”, but I’m not going to ask that question now, Hugo.

Davidson: No. So we just found that that was a category that really had, you know, a lot of interest. It meant that we did a massive matrix on a wall, based on the sorts of customers that we might try and expect and their disposable income and the opportunities that surrounded those particular customers. And we found that there was a niche there that wasn’t being addressed, which was really about commuting cyclists. And so we targeted out products to those particular customers and it did take off. It was one of those things that… It allowed us to develop fresh products for a new market.

O’Neill: So it sounds like having a very targeted product for a customer group that you deeply understood was really important in the evolution of your company. Did you take advice during that course of that… You mentioned you and Malcolm, your business partner. Who else did you consult and take advice from when you were growing?

Davidson: Oh, we worked with a series of other companies, I suppose. We went to a number of trade fairs to do research and we met a number of companies internationally that helped us. Our first product that we developed, we went to a local bicycle distributor and they gave us the whole range of other contacts that we then went and approached. So within the first six months of deciding to make these products, I think I jumped on a plane and visited 10 countries to look at the distribution in those countries to try and find out whether in fact we had a business before we invested all that money. And everyone committed to buying and being interested in the product. For the trade fair, probably six months later, meant that we had sales in about 16 countries. So it was… It was a strategic approach to try and open up the opportunities and there was a significant amount of advice from people within the industry. We left the advice at one point and decided that we wouldn’t pursue all of the suggestions because we wanted to do something which was truly unique and we felt that if we continued to follow their business models and their approach, we wouldn’t necessarily have a solution that was Knog, that was us, or reflected our abilities.

O’Neill: So that sounds like a very courageous approach to growing your business. How did you know whose advice to take and whose not to?

Davidson: I think in the end… There was logic in much of the suggestions, but I think you have to just, you know, put yourself out there and so most of the things that we did which we felt confident about, you know, we both worked with a number of other companies in a consulting role and so much of it was common sense. You know, if things didn’t seem logical, we chose not to pursue. Being small and being nimble is a word that is bandied around a lot, but being small means that you can react very quickly and so for us, we could actually achieve significant amount very quickly because we could change strategy, we could change direction. So that aspect about starting a company and starting a business was critical that we could test certain things and then if they didn’t work, we could try something else and we hadn’t invested so much money into one particular direction that we couldn’t alter our plans and actually do a move in different directions.

O’Neill: And I wonder that when I’m listening to you talk and I reflect on the many small businesses that I have the luck of interacting with them and I see how innovative they are and then I reflect on the corporate culture and I see how challenging the perception of innovation is – do you think you need to be small to innovate?

Davidson: No. I think you… I think it’s interesting. We’ve grown from a staff of four or five up to, at one point, about 36 people and a lot of those people come in wanting to have a corporate culture. Wanting to have complete strict structures to ensure that everything is done effectively. And I’ve argued with them on some levels that I think, you know, being true to ourselves is critical. We need to remain… The culture of the company is critical and that is one of innovation, is one of being able to do things and be slightly ad hoc in some of our decision-making. It doesn’t necessarily mean that we don’t try to have a level of structure, because that helps to implement things, but I think the creativity can be driven by, you know, maintaining small company mentality.

O’Neill: I wonder if you could give us an example of something that you’ve done more recently. I know we’ve just talked about the way that you now promote your products using social media. Would you describe you’ve had to take an innovative approach to that?

Davidson: Probably… Most recently, one of the things we did was to actually adopt Kickstarter, which is the crowd funding website, as one methodology or one method to actually release a product. So we developed a new bicycle bell and we did the bell because we thought it was an iconic product. Something that… Everyone understands what a bicycle bell looks like. But we wanted to change the complete aesthetic and the look and the way that that product worked, so we came up with a concept for the design. We decided that… We planned out the strategy as to how we’d release it into the market and took on Kickstarter as that approach. It was not so much for funding, it was more in order to actually market the release of the product effectively. What was really interesting is that of the funds we raised, which was just over $1 million for a $19 bicycle bell, we ended up with 35,000 bells being pledged from 20,000 people in about 98 countries. And it allowed us, I suppose, to reach out via social media to a whole raft of different demographics and different people. So what was very interesting, from our perspective, is that we sell all of our products through traditional distribution channels and those distribution channels mean that you have a wholesaler and retailer and a consumer and it works on that basis. So to launch a product where the product is being reviewed by a blogger or shown on an article on LinkedIn or on Facebook and find that all of the traffic that is driven from those social media sites where 100% of the backers come from, for me, it was an eye opener because we hadn’t considered the power of social media.

O’Neill: Because I’m listening to you talk with such great passion about your product, but it sounds to me at the beginning you had a single product, a very clear focus on market and now you’re 98 countries, great reach. How do you stay focused on the core and delivery for outcomes?

Davidson: I think the passion in the products is where I come from. So that’s my background. So each project and each new product or each business opportunity is considered in the same way – as an individual project. And it’s like anything. If you’re birthing an idea or you’ve got something which is unique, then it’s very easy to remain focused on that and to make sure that the outcome is considered and the process is methodical. So I think from our perspective, we try to make sure that not only is the creation and the concept appropriate, but that we can implement that all the way through. The excitement remains until we actually get the product in the market and get our first orders because that is the point at which you actually realise that there is a… There’s a response that you can measure and that response then tells you whether you’ve been successful in the concepting of the product through the production and the quality and all the other things that you need to get right. A product, in our terms, isn’t successful unless you get a tick in probably 10 boxes right along the process from conceiving it to having it in someone’s hand.

O’Neill: Yeah. It sounds to me that we’re using innovation in designing the product, but also continually innovating the way that you distribute the product, think about growing the product, think about the way that you market it.

Davidson: That’s right. The marketing is absolutely critical. Point of sale. Right through to things…mundane and very dry topics like, you know, quality testing, testing assurance and working with factories in China. So every aspect of that has progressed so significantly since we started the company because Chinese companies… We used to manufacture in Australia. We find that that’s not as cost-effective as it once was and it’s more difficult to find production technologies that are appropriate to the way we make. And so all of these things have changed over that period and you have to be looking and borrowing and adopting technologies from outside your industry to make sure that you can stay ahead of the game.

O’Neill: You’ve picked up on something that I see a lot, Hugo, which is innovating the product but then just being really open to creativity and innovation as we’re growing, as we’re marketing, but focused on what you need to do in terms of the core.

Davidson: Yes.

O’Neill: In terms of your product.

Davidson: Yeah.

O’Neill: Yeah. And so you’ve talked about Kickstarter as one source of investment for Knog. Are there other ways that you’ve needed to think about how you’re going to invest in your company and your product to grow, and how did you go about preparing yourself for those?

Davidson: We’re quite lucky in that the process we’ve taken is very organic. It’s been a very organic growth, typically. And so we were… We’ve worked with NAB effectively and your business bankers to provide us with the flexibility in some of the funding and certainly, I don’t know, we had no experience in foreign exchange and all the dealings that we have to deal with in working with distributors in a number of countries. So that’s been a process in itself. As far as the funding of the company, we have a business model which allows us to generate the sales and then manufacture the products without keeping massive inventories, so we do that by choice so that we’re not overly exposed. But overall, it’s sort of been a case of looking outside of banks and looking at other people. We had involved… Got involved with Lynch Capital many years ago and decided that it was an interesting approach, but probably one that we’ll leave, you know, leave behind.

O’Neill: Sounds… Well, you’ve obviously been through a number of iterations for the company. I wonder if you could talk to us about a time that you’ve come in real challenge and… Where does the resilience come in? What’s kept you going?

Davidson: Oh, which time?

O’Neill: Really?

Davidson: (LAUGHS)

O’Neill: Many times, hey?

Davidson: I think, you know, business is about the journey. It’s not about the end. And that reality is that we entered the bike industry where there were 16% growth and we only had nine other companies internationally that made bicycle lights. At last count, there were 59 companies that make bicycle lights. And the growth…

O’Neill: Even bicycle lights have disruption.

Davidson: Exactly. And the industry has moved through the boom and is now… It’s only what you make it, so you have to create your own growth and your own opportunities. No doubt that will change and there’s always ebbs and flows. I think that the times when it’s challenging is probably the times that we’ve had to really sit down and ascertain what’s important to us as far as business and how do we overcome the adversity that sits there. It does mean reconsidering the size of your company. You have to look at whether the… Your approach to capital expenditure and more tooling and more products is the way, or you should be marketing more effectively, or we’ve had times where we’ve taken half a million dollars out of the marketing budget just focused on social media to find that that did impact things and we had to, next year, put more money back into marketing. So you test things and you try things and you do try to move effectively to balance all that to make…to generate the most growth in those times.

O’Neill: To make some courageous decisions, it sounds like.

Davidson: Sometimes. (LAUGHS)

O’Neill: We talk about… So we have customers and clients that have a massive spectrum of businesses and there will be individuals listening to this that… “Well, I sell fruit and vegetables” or  “I sell food or coffee – how do I innovate and his innovation important to me?” As an industrial designer, what’s your view on… Can every company innovate?

Davidson: I think they can. And I think that it’s…as we discussed earlier, it isn’t just about the product. It can be about the business case or the way you adopt new business practices. So I think the reality is that probably the biggest changes come from, you know, a massive rethink or restructure in the way you might run a business. But innovation can be very small. It can be in the way that people approach the customers. It could be, obviously, the way in which they go about marketing the company or selling it or answering the phone. You know, there’s, really, I suppose, on many, many levels it’s a scalable thing. I think we always look at the way we do things and ask our staff and ask the people who we work with whether we can do it better and that’s critical way of then re-evaluating as to whether you are actually being innovative in everything you do, or whether it’s just that one R&D meeting we have a week where everyone’s got to put on their thinking cap and try and be creative. But the reality is, across the business, you know, if you can be thinking about better ways of achieving things, then that’s obviously another way of innovating.

O’Neill: How do you go about… I want to know, for my own role, how do you go about instilling that mindset that actually it’s OK to challenge and it’s OK to innovate within the company?

Davidson: I think it’s all about the corporate culture. I think it does come from… It comes from me and it comes from my business partner and others where the opportunity to actually… We encourage people to ask questions. We encourage people to be and to control their own destiny within the business. And if they’re not enjoying the way things are approached, then to actually come back and propose alternatives. So it’s done on an everyday basis within our business and it encourages people to take on personal responsibilities within the business that I think many companies… We’re very lucky. We’ve got a team who really do enjoy that responsibility.

O’Neill: Sounds like you embrace curiosity from your team.

Davidson: Absolutely. And they’re all very… They are very curious.

O’Neill: Yeah. Is there a key piece of advice that you give people that you can share for us today?

Davidson: Well, I think there’s lots of advice I could give, but probably the most important thing that works for us is making sure that every aspect of our business, every aspect of the product development and every aspect of the brand is consistent and it runs through. So when people touch the products, when people read the packaging, they look at the website, they understand what we stand for and it’s consistent. And trying to drive the consistency through everything we do drives a level of perfection and drives a level of passion, and that’s probably the… The good feedback that we get from our customers is the fact that they… When they enjoy a product and they see and they smile at the copy, they smile at the website and they understand what we stand for. That makes me happy.

O’Neill: I would absolutely say that that is exactly what I felt when I was doing my research to come in and talk to you today, was the real passion that comes through in anything that’s around your products.

Davidson: Thanks.

O’Neill: So congratulations on such a wonderful story.

Davidson: Thank you very much. Yeah.

O’Neill: Do you ever have any time to relax? How do you do it? What do you do? Do you ever have any time off innovating?

Davidson: Yeah, I do. I have… Look, I love… I spend time with my kids. Because a lot of what to do is commercial, I spend a lot of time painting and doing other creative things at home, which actually is sort of for me, not for other people. So that’s how I relax. It sort of gives you time them to actually focus and think about the business and work on it rather than in it, which is quite a nice way…

O’Neill: And important?

Davidson: Yeah.

O’Neill: Has that been important in your success?

Davidson: Yeah. I probably do much better thinking when I’m travelling or away than I do when I’m actually sitting at my desk.

O’Neill: Well, we’re going to go and let you do some thinking now. Hugo, thank you so much for joining us today. Thank you so much for inspiring many innovative entrepreneurs out there, and good luck with the next 10 years of success for Knog.

Davidson: Thanks very much, Leigh.   

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