On the negative side was an entrepreneur who didn't have much experience. He was bright and I liked him a lot, but the whole team had little knowledge of the marketplace. And it was essentially a distributor business with inherently low margins and relatively high cash-flow risks. It would have required a fair amount of hand-holding if we got involved.
Because of their inexperience, it makes a lot of sense to use only distributors and not keep house accounts. Any time you have house accounts, you create problems with your distributors. Right now, Bennett has enough other risks that he shouldn't yet risk his distribution channels.
Competition is a concern; definitely, he will have some. But I think Bennett's right -- he has a near-term advantage. If he can control his growth, he may be able to pull it off. Bringing in a CFO as they did was very, very important.
COMPETITOR
STEPHEN NICKERSON
National product marketing manager, Samsung Electronics America Inc., Saddle Brook, N.J. The $15-billion Samsung Electric sells microwave ovens and compact refrigerators into domestic, college, and hotel/motel markets
Bennett's two markets aren't as broad as he thinks, but there's no doubt this product should be very successful within them.
However, he's presented a very aggressive picture and maybe hasn't been careful enough in considering things outside his control that will influence his company's performance. For example, while it's true that MicroFridge could be attractive to his targeted motel chains, which are trying to differentiate themselves, it's an area of the industry that's based on being no-frills. Yet for the MicroFridge-in-your-room deal to work for guests, these motels will have to provide things to cook or cool. Will a no-frills hotel want to keep food in stock? And who's going to service that food supply? How is Bennett going to make sure hotels are hooked up to food distributors?
I'm not an engineer, and Bennett apparently has the patents for the current-switching device, but I don't believe it would be that difficult to build something similar without copying. A major appliance maker could come up with its own product in six months. If a brand-name company like GE decides to get into the business, it will most definitely affect his five-year plan. People feel more comfortable with a name they know. The GE name on the same product, even if it's more expensive, would sell. I'd guess that big-company interest will depend a lot on MicroFridge's success. Bennett's probably got a two-year lead on his competitors, which gives him somewhat of an advantage. But no matter how big he builds the MicroFridge name in those two years, a GE name or an Amana name is bigger than he'll ever get.
CUSTOMER
ROGER TREADAWAY
Vice-president of purchasing, Days Inn of America Inc., Atlanta, operator of 950 economy-class motels throughout the United States
The MicroFridge people identified a big market -- college kids. Motels will also pick up on it, especially the suite properties. I'm willing to look at it, and I think most destination and commercial properties will have an interest in this type of product. The switch is the key to the whole thing. You could buy the appliances separately, but MicroFridge has only one cord. You don't have to have the three pieces spread across the room. You can have them in one location.
We also have a lot of motels along highways, and once people -- especially older people -- get into their rooms, they want to stay in their rooms. They don't like to go out, because they don't know the area. If you have microwave food and equipment available, you're going to increase the value of your accommodations, and most people won't have a problem with paying $3 more.
CUSTOMER
LARRY DURST
Business manager, housing division, University of Michigan at Ann Arbor
MicroFridge would have a problem here, because we still have a policy that microwaves are not permitted in the students' rooms. Cooking in the students' rooms is prohibited; it's one of those fire safety issues that's been around for many years.
But Bennett may have a good argument that a microwave can allow you some safe cooking in a student's room. We're interested in student services, so if in fact we can do it safely and students want it, then we'll be discussing it more in the next year or two. Still, we have not seen a group of students saying they want to have microwaves in their rooms. And that usually has to happen before we consider doing something like this. These days we're encouraging students to have computers, which is probably one of the reasons we'll stick tough with the microwaves for a while. If you had a microwave and a refrigerator and two computers and a hair dryer all in the same room, we'd have some concerns.
If we did bring in units like this, I'd be worried about buying from a new company. You've got a refrigerator and a microwave that's totally redesigned. Bennett says the product life should be seven years, but this power switch has never been done before. Will that microwave last seven years or will it last three years? And if the microwave goes bad, what do you do with the refrigerator? This is a new concept, and there's more risk involved in buying something that you haven't seen on the market.
