To Market, to Market: Launching a New Product or a New Company

Our experts were Ed Holtgraver, chairman of actuator maker QTRCO, and Ken Chickering, president of Hemiwedge Valve Corp. Both companies have introduced significant new products in the past few years, but there were some differences in what it took to get those products onto the market. Hemiwedge’s signature product is the Hemiwedge Cartridge Valve (Fig. 1). Introduced in 2007, it uses a cartridge design in which all of the valve's internal parts are affixed to the bonnet for ease in servicing, while mechanical wedge seating provides bubble-tight shutoff. QTRCO’s new product is the Flat Yoke Actuator, a variation of the scotch yoke that eliminates side loads on the rod bushings (in fact, there are no the rod bushings). Tracks in the housing absorb the side thrust and guide the pins that engage the yoke (Fig. 2). Product development began two years ago February. The steps to bringing out a new product are no mystery: get the idea, get funding, talk to customers and develop the design, build prototypes, arrange for manufacturing. And each step has its own set of challenges and pitfalls.

Getting funding

Once you have the idea for a new design, it’s time to line up funding. For a large corporation, Holtgraver explained, “the biggest challenge to getting a new product introduced is convincing they guys up above to allocate the capital to it.” But even a small company may have enough cash flow from existing product lines and sales of spare parts to fund the development; that’s how QTRCO funded the Flat Yoke Actuator, he said. “The market was doing pretty decent and our legacy products were generating pretty good cash flow,” which was enough to do the design and develop the manufacturing facilities: “the foundry, the pattern equipment, the machine shop, etc.” Holtgraver figures that the total investment in the new actuator, “between inventory, tooling and so forth,” was between $300,000 and $400,000. “And now it’s starting to pay some back,” he added, but it’s a still long way from paying off its tooling cost. But that isn’t the case for a startup. “You don’t have any spare parts business until you’re probably in business at least four or five years or longer,” said Chickering. So what can an aspiring inventor do? “Maybe he has some people put money into it,” he said, “and he sells the patent to the people who have an existing business, not anything to do with the valve business.” But this can be a rocky road, and achieving a positive cash flow tends to take longer than inexperienced investors expect. Holtgraver, too, had to look hard for funding when he began his company. “I couldn’t interest anybody to buy into it,” he said. One person expressed some interest but wanted ownership, which Holtgraver rejected. And venture capital firms were no help either — they were more interested in electronics companies, and didn’t want to fund a company from the beginning. After a few false starts a friend agreed to provide the funding. They rented a building and got set up. “Simultaneously,” Holtgraver said, “[we] received some inventory from a company in India that I had built some actuators for, and we were off and running. I made some sales calls, sold an order and kept going from there.”

Don’t forget industry standards

Experienced valve people are familiar with the standards their products have to meet, be they API or ISO, but newcomers aren’t always, according to Chickering; and may not design accordingly. And, he added, for many potential customers it’s important to have an ISO-9001 certificate, with the quality system and all the engineering documentation that requires — “and that takes sometimes six months to a year.” While ISO 9001 certification may be vital for a valve maker, countered Holtgraver, it’s not essential for an actuator manufacturer. As long as the quality is there and the customers like the product it’s not a problem these days. Ten years ago, he said, “everybody was pushing and we were all getting audited and so forth.” But by now people have come to realize that ISO 9001 doesn’t actually certify product quality, but only quality control methods. “Even if what you do is bad, it’s just assuring you’ll continue to do it that way.” He told of a shipment of about 30 butterfly valves he’d once received from an ISO 9001-certified company; two were so badly assembled that they couldn’t be turned. And that’s why people became jaded, he observed. “You’re not getting any better stuff now than you got before, so what’s the benefit of that?” On the other hand, he added, you can’t sell into Europe without a CE stamp, and ISO 9001 is mandatory for that, so as his business expands he’ll have to go ahead and get the certification anyway.

Look at the real world

After you have a design and some funding it’s time for a market survey and field testing. Some people make the mistake of going just to people they know or like, warned Chickering. They get positive feedback from their friends, “but they don’t sometimes go to a broad enough base that gets a real industry feedback as to some of the strengths and weaknesses of the new product.” And it’s important to test your new product under real-world conditions. “A lot of valves can be made to work on a test rack … with clean water or clean test fluid,” Chickering explained, “where in the real world—in the field, in the refinery, pipeline—after six months or two years, some of these lines aren’t real clean;… they have some sand, some grit, some rouge, some things that get behind the seat ring and other areas and that causes problems that don’t happen on the test rack.”

Get it tested in the field

While initial testing is essential, it’s probably not enough to convince potential big customers. “For an Exxon, for Shell, people like that,” Chickering explained, “they’re probably going to want to [test it] in several different applications for maybe six months to as much as 18 months.” One reason for that is that users no longer have their own test manifolds; “they can’t shut down a system just to test a valve.” Chickering summed it up with a comment he heard when he first started Hemiwedge. David Moser, president of DFT, Inc., told him: “It’s going to take you at least three years to do all the things you’re going to need to do until you’re going to start getting repeat orders.”

Setting up a supply chain

The next step is to set up your manufacturing supply chain. Where will you get your parts and materials? You might rely on outside vendors for the first year or two, said Chickering, “and then as you prove the product, start buying machinery.” But an overseas supply chain for castings presents its own challenges. It can take a year or more to get patterns made and quality where you need it. Holtgraver made the choice to make his new product in the U.S. “That doesn’t help our cost situation,” he said, “but on the other hand we have avoided the long distance travel to try to discuss problems.” But at the beginning things didn’t go smoothly; the first machine shop he tried wanted full price up front, rather than wait until volume picked up. “We had to go find a supplier who recognized that there was some future here, and we would grow together.”

Being small has its advantages

While new product introduction might seem easier for a large company — certainly the funding is easier —small companies are a lot more nimble. “The benefit of a small company,” said Holtgraver, “the decision that let’s do this, was about a day. We sit down, we look at it, … and run it in your mind and how much tooling are we going to have to pay for this; we have money available, can we generate it, and the answer is yeah, let’s do it.”