Too Hot To Handle

A sizzling product is everything you've dreamed about and more-and the "more" could put you out of business.

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ON THE BIGGEST DAY IN A.J. Canfield Co.'s 63-year history, Alan Canfield could think only of his vacation.

He was sure that the sudden interest in one of the company's products, Canfield's Diet Chocolate Fudge soda, would translate into a "slight bump" in sales and nothing more. "Taking a sip of the stuff," Chicago Tribune columnist Bob Greene had written over the weekend, "is like biting into a hot fudge sundae." A nice review, Canfield thought, but so what? In 13 years, the soda had generated only listless sales. As he drove to work on January 14, a bitterly cold Monday in 1985, Canfield's mind focused on his upcoming retreat to a Jamaican villa.

All over the city, though, people were thinking of Canfield's Diet Chocolate Fudge soda. The company's phone lines were jammed by consumers who craved it. "That afternoon, things just went crazy," says Jerry Vance, vice-president of sales.

Canfield wasn't impressed. A turbulent month, he figured, and that would be the end of it. So he left for Jamaica a few weeks later. Vance called before Canfield could stick his toe in the water: sales are still going up, he said. The next day: sales in the last two days were higher than all of last year. The next day: I've got to ration the soda. As Greene's column appeared in more than 200 newspapers, bottlers jammed the long-distance lines looking for distribution rights. Retailers wanted truck-loads right away. Reporters from all the major television networks camped out at the company's headquarters.

"you've got to come back and handle some of this stuff," Vance pleaded. It's only temporary, Canfield responded; you people just aren't used to being busy at this time of year. Besides, the senior vice-president said, somewhat annoyed, I'll be back soon.

By the time Alan Canfield returned two weeks later, the third-generation family business was practically unrecognizable. The company was like a can of its own soda. Bob Greene had shaken it, then pulled the tab. Now Vance was tied to the phone, taking orders from retailers. Every time he signed a new customer, he marched into the hallway and shouted the city and state. Cleveland, Ohio. Denver, Colorado. Boise, Idaho.

Alan could hear it from his office. "Oh, my God," he thought. "What on earth do we have here?"

Most small companies only dream of inventing and marketing a product that creates more demand than they can fill. But when that fantasy actually comes true, it often turns out to be the company's undoing. A hot product is like a dangerous and sophisticated weapon. Instead of learning how to use it, many small companies end up wounding themselves -- sometimes fatally (see the boxes on the following pages).

In 1958, Wham-O Manufacturing Co., a small sporting-goods concern, sent teenagers to TV-station parking lots to demonstrate the uses of its new toy. The ploy worked, and the company sold millions and millions of the toys that year. To fill the overwhelming demand, it invested in new manufacturing facilities and warehouses. Soon, though, the public tired of hula hoops, and Wham-O's sales wiggled away. Saddled with massive inventory and exorbitant overhead costs, the company nearly went under; years later, it reappeared with another national success, the Frisbee. "Wham-O lost a lot of money," says Robert Shook, who has written about hot products. "Most companies make the same mistake. They start thinking their hot product is going to last forever." As a result, they add new production capacity that they can't support when the fad ends. Unfortunately, excess inventory and huge fixed costs don't disappear as handily as demand often does.

Hot products can also cause a quick and ill-considered shift in strategy. Some small companies reach for an acquirer as a life-line others run for cover to the public markets, still others sacrifice control of their own product by striking arcane marketing agreements. "You do get picked up and carried away with the momentum of it," says Joseph DeKama, whose company, Nature's Organics Plus Inc., went down the drain as smoothly as its hit shampoo. "There's nothing more exhilarating than having a product take off."

Some companies mistakenly believe that one hot product must lead to another. Few companies hit the jackpot twice, and many are surpassed by an improved version of their hit. "It's inevitable that while you're going crazy trying to meet demand, you'll get scooped on the next model," notes William Parket, a consultant with The New Directions Group, in Norwalk, Conn.

But few companies worry about that -- or much else -- at the time. Many of them let the hit product lift them up and carry them away. Like a twister, it can drop them back to earth abruptly. "A company that produces a hit product is not very different from a rock star who earns a lot of money and develops a lifestyle that costs a lot of money," says Parker. "If record sales stop, he can't afford that lifestyle anymore. He goes broke in a hurry."

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