Case Study: Turning a Product Fad into a Business
Dwain Gullion was on the verge of pulling the plug. It was September 2004, and the founder of Magnet America had a warehouse full of magnetic yellow ribbons festooned with the slogan Support Our Troops. He also had a heap of legal bills from trying to defend himself from offshore pirates, and felt like he hadn't spent any quality time with his wife and two children in weeks. What's more, sales of the magnets, which had soared for almost a year, were beginning to slide.
Gullion, 35, was exhausted. He'd never set out to be a magnet magnate. It had been an exciting ride, but perhaps the craze had run its course. Perhaps it was time, Gullion thought, to return to his old, quiet life as a buyer for Gullion's Christian Supply Center, his family's chain of four Christian bookstores based in King, N.C. "I really just considered what happened a once-in-a-lifetime opportunity," he says.
But each time Gullion talked about folding the company, his two brothers, Dwight, 37, and Brian, 32, looked at him as if he were nuts. Magnet America, they insisted, was more than just a fad. It could be a real, sustainable company. "We had built up too much infrastructure to let this go," Dwight says. "If the Lord gives us an opportunity like this, we need to do what's right."
Magnet America's sharp growth -- from zero to millions in just over a year -- was the type that even an experienced entrepreneur would struggle to manage. And Dwain Gullion, by his own admission, was anything but that. The magnet business began almost by accident when, in a patriotic gesture, he ordered 1,000 yellow-ribbon magnets from a nearby printer to sell at the Gullion's bookstores. When those sold out quickly, he began exploring ways to expand distribution. During the day, Gullion worked his cell phone from the bookstore, calling retailers and distributors and trying to convince them to stock the items, though he didn't make many sales. At night, he studied Web design so that he could learn to build a website.
The big break came in June 2003, when he sent a box of 500 magnets to a national convention of Vietnam veterans. Along with the order, he included information on his newly created website (www.magnetamerica.com). Within weeks, he was getting orders from all over the country for the magnets, which cost just pennies to make but sold for around $5. As orders streamed in, Gullion realized he could no longer do it all on his own. He outsourced shipping and customer service to two local companies, and invested in some distribution software. By the summer of 2004, near the magnet's peak of popularity, Magnet America was shipping more than 100,000 magnets a week and had more than 100 contract employees. Gullion was interviewed by CNN and People magazine. "It was really out of control," Gullion says. "I kept thinking that it couldn't go any higher. And then it would."
The headaches also began to mount. Because the magnets are so inexpensive to make and weigh a few ounces, it wasn't much of a challenge for overseas producers to exploit the fad, and knockoffs began streaming into the country. Soon, yellow-ribbon magnets could be found selling for a buck or less at everywhere from Wal-Mart to local convenience stores. With the market flooded, demand began to fade, leaving Gullion with excess inventory and few ideas on how to get rid of it -- or what to do next. The best move, he began to think, might be to call it a day.
But Dwight and Brian had other ideas. Perhaps the yellow-ribbon-magnet trend had peaked. But car magnets, they argued, were here to stay and there was no reason that Magnet America should not dominate the market. After all, Dwight argued, they already had much of the infrastructure in place, including a well-recognized brand name and a website that draws thousands of visitors. That was simply too valuable to throw away. "Dwain just kept saying, 'It's dying. It's dead," Dwight recalls. "I had to keep on telling him that things would be just fine."
Dwain eventually bowed to his brothers. To help ease his stress, Dwight, the president of the family's bookstore chain, began handling more of the day-to-day decisions while Brian began overseeing the 20 employees at Magnet America's call center. And all three began trying to come up with new and different kinds of magnets to supplement the yellow ribbons, which the company still sells, albeit at a deep discount.
By October, some of those new products appeared on Magnet America's website -- a magnetic fish, designed as an alternative to the bumper stickers popular with Christian drivers; a magnetic version of the Ten Commandments; and a magnetic Christmas wreath, with the Support Our Troops message. The products are doing well -- though not nearly as well as the ribbons, the brothers say. The company's next step is to focus on its smaller, custom-magnet business, which allows customers to design their own magnets and order a few dozen, rather than several thousand, at a time. That move is specifically targeted at outfits like charities, religious groups, and schools that might want to use magnets to promote specific events or causes.
Equally tempting is a chance to grab a piece of the bumper sticker market. Each year, Americans buy tens of thousands of car decals, even though they don't last very long and can be difficult to remove. Magnets, which are easily removed, have the potential to make a significant dent in that market. The market for Christian-related bumper stickers and other items -- a key market for Magnet America -- is estimated at $4 billion a year. The brothers figure that giving people a chance to express their views without permanently marring their vehicles will prove to be a solid business. "There's a sizable portion of the population who say they'd never put a bumper sticker on their car," says Dwight. "But with a tastefully done magnet, you can even put one on a BMW."
Meanwhile, the brothers still have their day jobs running the family's bookstores, and balancing the needs of the two businesses has been frustrating at times. Dwain's cut back some of his hours, and Dwight says he's learned to delegate more. "We're juggling a lot of different hats, and we're all working a lot more intensely than we ever did before," says Dwight. But he's proud of what they've accomplished. "In six months," he says, "we handled the type of business that most people take 10 or 20 years to build."
The experts weigh in: Is there a future for Magnet America?
Our company owns Safety 1st, inventor of the Baby On Board signs. At the height of their popularity in 1985, we were selling more than 500,000 a month. And we wound up using that as a springboard to create a whole new business. When we started, there were only about five or six very basic child-safety products available. Now it's a whole category. We still sell the signs, but it's one of many products that Safety 1st offers. Magnet America can probably carve out a niche market by developing other patriotic products and then convincing retailers that there's a need for them.
President, Dorel Canada, Montreal
Gullion really has three options: He can try to come up with another beliefs-based magnet; he can try to patent the technology; or he can try to sign a licensing agreement. The key thing is for him to create barriers to entry, which he didn't really have with the yellow-ribbon magnets. Personally, I think the university market has a lot of potential. There are lots of people who want to support their school but who don't want stickers on their car.
Associate professor of marketing
University of North Carolina at Chapel Hill
I hate to call the war in Iraq an "event," but it is. It's very hard for entrepreneurs to catch an event like that, but Gullion did and he was very lucky. From day one, he should have known it was a fad and he should have expected knockoffs. He had a Pet Rock moment, and now he needs to move on with his life. In my mind, there's no continuing business. After the guy came up with the Pet Rock, his next thing was Pet Sand. But nobody's ever heard of Pet Sand. It's very hard to come up with another big thing.
Ken Hakuta, a.k.a. Dr. Fad
Consultant, New York City