BRINGING INNOVATION TO MARKET

A Simple Business Lesson From Levi Strauss & Co's Founding in 1873

The story of Levi Strauss & Co, the iconic $4.7 billion maker of jeans and pants, is a testament to building trust between buyer and supplier.
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These days, startups seek patents for high-tech devices, complex algorithms, and intellectual property. But an upcoming anniversary provides a useful reminder that great companies can be born from innovations of everyday pragmatism.

On May 20, 1873, Latvian immigrant Jacob Davis and Bavarian immigrant Levi Strauss were awarded a patent for copper rivet fasteners that hold denim work pants together. Specifically, the patent was for "improvement in fastening pocket-openings," according to the Levi Strauss & Co. site.

Davis hit on the idea while working as a tailor in Reno, where he originally used the rivets on horse blankets. He later found they were great for jeans too (especially the pockets and crotch). The kicker: He didn't have enough money to apply for the patent himself, so he asked Strauss (his denim supplier) to apply with him.

According to a 2011 Wired story about the Davis-Strauss partnership, receiving the patent was a key point in their relationship. The button-fly, riveted pants became extremely popular, even though they cost a then-whopping $3 per pair (roughly $55). Strauss brought Davis to Levi Strauss & Co. headquarters in San Francisco. His wish was that Davis would establish and supervise a factory (since customer demand now required an actual factory, rather than individual seamstresses). His wish came true. "Davis remained at his post until his death in 1908," notes Wired. 

It's a simple business parable, almost beyond belief for all of its feel-good elements. Still, you can find two key lessons in it for today's founders: 

1. Using suppliers as a bootstrapping resource. Your best suppliers trust you. Why? Because you've been paying them, on time, for a long time. Moreover, your suppliers have an interest in your business doing well. The bigger you grow, the more of their supplies you'll potentially order. 

So why not seek their backing, next time you need financial help? One of the best examples of a company that launched this way is Genicon, a maker of surgical tools and imaging equipment based in Winter Park, Fla., founded by Gary Haberland in 1998. Today, the company sells its wares in 44 countries. But back in 1998, Haberland was just another medical devices entrepreneur, wondering how he'd finance the initial manufacturing of the devices. "It normally takes millions of dollars before you can get to something tangible," he told Inc in 2006.

One day, walking past the booths of vendors at a trade show, Haberland wondered what it would take to persuade the vendors to become his backers. "If I were in their shoes, I'd have to be frustrated that multibillion-dollar medical device corporations hammer them all the time on pricing," he said.

He figured it couldn't hurt to offer the vendors equity in his startup. He found the home addresses of the owners of 50 potential suppliers and FedExed each of them an inquiry, throwing his business plan into some of the packages. Total cost? $500. Twenty replied and 14 met with him.

Eventually he issued roughly 15 percent of Genicon's stock to five suppliers who invested more than $1 million. More than 15 years later, he's still in business. 

2. Even if it's seemingly simple, patent it. For one thing, patent litigation rose 12 percent in 2013. Though patenting can cost at least $2,000 up front for a small business--a cost that has led to a reduction in small-business-owned patents--the investment is worth it. A patent becomes an asset, something you can use to make a stronger valuation case to prospective investors or acquirers. 

More than this, don't let the seeming simplicity of your idea preclude an inquiry into patenting. 

Google, for example, was awarded a patent back in January for a service that coordinates gratis or low-cost rides to an advertiser's locale. Here's how it works, according to Frederic Lardinois in TechCrunch:

Say a Vegas casino really wants your business. Not only could it offer you some free coins, but if it deems the cost worthwhile (using Google's automated algorithms, of course), it could just offer you a free taxi ride or send an autonomous car to pick you up.

While the algorithms are doubtless high-tech, the business idea is elementary. "The most difficult part about getting a sale for a brick-and-mortar business can often be getting people to your location," writes Lardinois. "Google says its invention would make getting a potential customer into a business easier for stores that otherwise would have to invest in more expensive locations close to high-traffic areas."

Keep this in mind, next time you're considering whether an idea is patent-worthy.

And if the cost of a patent seems prohibitive, don't hestitate to ask your prospective suppliers. 

IMAGE: Double H Photography / Flickr.com
Last updated: May 20, 2014




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