How To Get Big in Japan

Go to this week’s TL;DR here.

Key Lessons:

• If your product is that great, someone will copy it.

• Own 100% of your company (if possible).

• Lawsuits have potential to wipe you out.

• You can lose control over licensing.

• Beware of incentive-caused bias.

Last week on Methods of Prosperity

In 1979, James Dyson lost control of his company, Kirk-Dyson Designs. He also lost the rights to his invention, the Ballbarrow. He learned the importance of maintaining control over patents and company ownership.

Left without income, Dyson faced the challenge of supporting his family. What spurred him to persevere? His frustration with traditional vacuum cleaner design. That’s when he started to develop a bagless vacuum. One that used cyclone technology. He based this idea on his prior experience in industrial design.

At his previous company, he adapted cyclone technology to prevent clogging. His previous company was skeptical about his bagless vacuum invention. That company underwent significant financial struggles. They failed to maintain direct customer connections. Then they fired him.

Dyson persisted with his innovation. He secured partial funding from Lloyds Bank, going into debt for the next 15 years. He continued development through gradual, incremental improvements. Dyson was about to challenge complacency in established markets. Vacuum cleaners hadn’t changed much. There’d been little innovation since 1907. It was time to disrupt vacuum cleaners.

Part 103: James Dyson (continued)

He became obsessed with one consuming problem. How can he make a bagless vacuum cleaner using cyclone technology? Every day at his coach house, he worked on the problem. Each cyclone he made had one change at a time. It took him five years over 5,000 prototypes. Until one day, after iterating on 5,126 prototypes, he did it. Number 5,127 was a success. Which implies that the 5,126 prior versions of his invention were failures. That’s the beauty of failure.

In the end it was a flash of brilliance. It was late 1982. Dyson had a working prototype of the critical cyclonic portion of his vacuum cleaner. That’s when he turned his thoughts to the whole machine. At the time, there were two kinds of vacuum cleaners: upright and cylindrical. His product needed to compete with both of the conventional kinds of vacuum cleaners. He designed a cylinder motor into his brush roll upright, featuring an attached hose. Then he had to have his inventions patented.

King Henry VI, in 1449, granted the first recorded English patent for an invention to John of Utynam. It was for a method of making stained glass. Since that era, not much has changed for the patent system. Patents are expensive for the inventor. One slight error in the wording can compromise it. The inventor has to renew it every year in every country where his patent is. Unlike an artists’ copyright, which is often free of charge and in place for around a century.

The reason he had to file a patent was for the next step of his business plan. Dyson never set out to manufacture appliances. He’s a designer. All he wanted to do was license his design to an established manufacturer. Hoover wanted him to sign away his design before they would consider licensing it. He refused to sign that agreement, and that was the end of any discussion about a Dyson+Hoover collab. Later, a Hoover representative admitted that they regretted not buying his invention.

The representative was their European Vice President, Mike Rutter. He appeared on a 1995 money show on the BBC. Why did Hoover regret not buying Dyson’s invention? Because they were going to “put it on the shelf, ensuring that it never saw the light of day.” Dyson went to other legacy vacuum cleaner makers including Electrolux, Hotpoint, Siemens, Philips. All of them. They had no interest in doing something new and different. They were more interested in defending the vacuum cleaner bag market.

Dyson invented bagless technology. This would threaten their profitable replacement bag sales. Which is best explained by incentive-caused bias. This occurs when individuals or organizations are subconsciously influenced by their own incentives. It leads them to act in ways that protect their current revenue streams. Even if it means rejecting superior innovations.

Consumers spent over $5 million a year on replacement bags for their vacuum cleaners. But these legacy vacuum cleaner makers rejected Dyson’s design. He wondered if consumers wanted to spend that much on their bags. They’re not reusable. They’re not bio-degradable. And the vacuum cleaners sucked not well enough. I mean they literally did not have great suction. Dyson’s bagless vacuum cleaner had a chance against his competitors.

Rotork licensed his design for their catalogs. An Italian manufacturer produced it. They sold the Kleeneze Rotork Cyclon vacuum cleaner in 1983 and 1984. They only made about 500–550 units. Dyson and his business partner kept looking for other licensees. Encouraged to continue inventing and licensing their inventions, they formed Prototypes Limited. With funds from the Rotork deal, they invented new things in a bigger space. An aquatic vehicle and a motorized wheelchair, among other things. Until business with the Kleeneze Rotork Cyclon vacuum cleaner started faltering. Rotork chose the wrong man to run the operation. That’s the downside risk of licensing your products. You lose control over them.

After the Rotork deal dissolved, Dyson needed to find another licensee. In 1984, Amway™ became interested. Amway is a multi-level marketing (MLM) company. Jay Van Andel and Richard DeVos founded it in 1959 in Ada, Michigan. The company operates through a network of independent business owners. They sell products direct to consumers and recruit others to join their sales teams. Dyson licensed it to Amway.

Then, Amway decided to cancel their agreement. They instigated a fraud lawsuit to get their money back from Dyson. Dyson couldn’t afford the legal battle. Dyson gave Amway their money back. Paying all those legal expenses put James in debt. His business partner, Jeremy Fry, wanted out. So James bought him out. He funded these expenses by selling his coach house. Then he borrowed more from Lloyds bank.

It was the end of 1984, and James Dyson was in debt from legal fees. His partner left on amicable terms. He now owned 100% of his company. Amway backed out, and Dyson’s deal with Rotork didn’t work out. And then, TWA’s in-flight magazine placed a photo of Dyson’s vacuum cleaner on its inside back cover. It featured an article opposite. This got his vacuum cleaner noticed in the USA. At the same time, a Japanese company noticed it. Apex was the name of the Japanese company. They imported high-end design from Italy and Switzerland. In January 1985, James Dyson went to meet them in Japan. They loved his product. Dyson made some improvements to it, and they put it into production. It went on the market as the G-Force in 1986, and sold for ¥250,000. It became an instant classic. The G-Force won the 1991 International Design Fair prize. It went out of production in 1998.

Upon return from his first trip to Japan, James came home to disaster. A squirrel had gnawed through a water tank pipe. Water cascaded through the whole house and the ceiling came down. Without a license agreement and without income, this situation was terrifying. The Dyson family was about to face ruin. When, at the last moment, the license agreement came through. Upfront money came through with it.

Saved from ruin, Dyson was on a winning streak. Paul Smith wanted to sell the G-Force at his shop. Dyson imported them from Japan for him. As Dyson’s first UK retailer, Paul Smith sold the lot. Dyson only imported 200 machines, but he didn’t want to be an importer at that time. Paul Smith could have sold more.

That’s when Dyson struck a licensing deal with a Canadian appliance company to sell a dry shampoo. Which led to a deal with Sears. Sears only wanted grey vacuum cleaners. Dyson convinced the Sears’ buyer to order a bold dash of blue on top of the grey. Which inspired the Canadian company to want a licensing deal for Dyson’s vacuum cleaners. That’s when Amway launched a copy of Dyson’s vacuum cleaner.

To be continued…

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– Sean Allen Fenn

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