The two men signed a joint-venture agreement that gives Columbia first dibs on all Aware's new artists. Since then Aware has continued to find and develop unsigned bands, put them on tour, and launch them -- no longer risky ventures but safe bets -- into the world of big music. The two companies treat each new artist differently, but typically Aware debuts a band on a compilation album and puts it on local tours. Aware often also produces its own album independently -- the company released its own John Mayer CD in June 2001, for instance. Once the partners feel that the artist is ready to go to the next level, Columbia steps in wholeheartedly. In September 2001, after Aware had sold 20,000 copies of the Mayer album, the two companies released a new cobranded album and pulled the Aware-only CD off the market. Aware shares in the profits from the new CD; Columbia foots the bill for worldwide tours, promotions, music videos, and the like.
If it all seems like common sense -- and sounds easy to pull off -- it's not. Most music-industry joint ventures ultimately fail, says Botwin, who became Columbia's president in January. He says those failures occur because many independent labels are artist driven and therefore don't bring much business savvy to their partnerships. Aware, on the other hand, "is an entrepreneur-driven label," he says. "This is the flagship joint-venture relationship in the music industry."
Indeed, there's such synergy between the mammoth New York record label and the $2-million Chicago indie that, says Latterman, "I feel that when I'm in the hallways, I'm part of that company."
What's going on here? Why are huge household-name corporations turning more frequently to small companies to help them develop their hits? It's all economics. Big companies need big hits; at places like Procter & Gamble that means a product capable of pulling in at least $100 million in global sales. But most new ideas fail in the marketplace (about 80% of packaged goods, for instance). Big hits grow from little discoveries, and large companies generally don't have the time, talent, and patience to nurture seed-stage inventions.
But small companies do. And the smart ones are trying to make it pay by going after royalties or licensing fees.
Tony Koselka's Personal Robotics Inc., a two-year-old start-up in San Diego, is one of those young companies that are banking on the outsourcing trend. Koselka's company, which has developed robotics software for use in household products, has received a cozy reception from more than a few appliance giants. Several have shown interest in codeveloping a robotic lawn mower. "We were surprised how eager they were for innovation. That's improved in the last few years," says Koselka. But it makes sense: Personal Robotics targets low-tech industries with its highbrow software. "These companies don't know software or robotics. We're not competing with their in-house people," he says.
Koselka's list of potential partners is long, since the software that Personal Robotics has developed is easily customized. "Robotics can go anyplace," he says. "We want to clean the whole house."
Koselka can clean -- but don't ask him to manufacture anything, although he could. A serial entrepreneur, he enjoys bringing a new idea from paper to prototype. He hates making and selling stuff. So when he started Personal Robotics, he decided not to bother. "I've worked for a manufacturing company. Setting up a factory is torturous," he says. "Trying to displace someone on a store shelf is very hard. The big company has the name, the money, the distribution."
Still, Koselka does more than deliver prototypes, collect an advance, and move on to the next opportunity. He also helps the big company's marketing department select product features -- an activity that, he says, is essential. Koselka, who expects to finalize his first big deal by year-end, intends to rely solely on royalty arrangements for the company's revenues. His plan is to grant his partners exclusive use of his technology in their industry, within specific geographic markets.
Many large corporations need companies like Ogio, Aware, and Personal Robotics in order to maintain their market leadership. Others need outsiders because they have shrunk their own R&D staffs. Filling the void are all sorts of innovators for hire, from product-development shops to invention farms to industrial designers.
The primary ingredient at Nancy Rodriguez's $5-million product-development firm, Food Marketing Support Services, is depth of talent. Rodriguez is a veteran of Swift & Co., the meat company, which in its 1960s heyday employed more than 350 people in R&D alone. Then came a decade of downsizing. She left in 1985 to start Food Marketing, which she sees as an extension of the R&D departments of her big-food-company clients. They, like Swift, have scaled back their R&D labs. Her clients come up with rough new-product concepts; Food Marketing then fully develops those ideas, creates prototypes, and scales up a final version for production. "We never really work apart," she says.
"We're sensitive to the market, but that doesn't stop us from dreaming the impossible."
Rodriguez brings to her large clients what many of them are missing: years of experience. Her 20 staffers understand virtually every aspect of food science, saving her clients time and money in the crucial trial-and-error stage of developing a new concept. For instance, seven people on her tasting panel have been together for 30 years, sampling everything from roast-beef drippings to cotton candy to garlic juice. Although "sensory support" is a key ingredient in new-product development, many big food companies don't have a dedicated tasting team anymore. Food Marketing does.
