Monday, May 26, 2008

Million dollar knives, not pages

Portland, OR - Long before holstered cellphones appeared on handymen's belts, another gadget won their hearts and hips: the Leatherman Pocket Survival Tool. Within three months of its first listing in a mail-order catalog, the multifunctional gizmo became essential for thousands of hikers, hunters, and knife enthusiasts. Since then, Leatherman tools have blasted into space with NASA astronauts, severed umbilical cords on newborns, and extracted shrapnel from American troops in Iraq. As founder Tim Leatherman tells it, the idea behind his company grew out of a routine car breakdown. He and his wife spent most of 1975 touring Europe and Asia in a used Fiat. Its hoses leaked and the wiring failed constantly, and Leatherman's generic pocketknife lacked the means to fix them. Inspiration struck: Why not add pliers to a pocketknife? By the time the couple returned to the U.S., Leatherman had sketched out a design. A few weeks later he was using his brother-in-law's machining tools to construct the first prototype. Today the 350-employee Leatherman Tool Group ( sells about 2.5 million units a year of 36 models in 80 countries, from Germany to Mongolia. By December the company plans to introduce five new products. At his headquarters in Portland, Tim Leatherman, 58, sat down with FSB to discuss how he persisted for more than eight years to convince customers that his seven-ounce invention was much more than a glorified Boy Scout knife. My wife and I decided to travel abroad in 1975. We were young-it was one of those budget trips, and we bought an old Fiat in Amsterdam for $300. I was carrying a Boy Scout-type knife and used it for everything, from slicing bread to making adjustments to the car. But I kept wishing I had a pair of pliers! During the trip - it lasted almost nine months - I had a piece of paper in my pocket where I listed ideas for new products, things I might work on back in the U.S. It was in a hotel room in Tehran that I started sketching a pocketknife that contained pliers. Once we got back to Portland, I asked my wife if I could build it - just one for me. I told her it would only take a month, and she got a job to support us. I set up shop in the garage and picked up a file and a hacksaw. (I have a degree in mechanical engineering but knew nothing about machining.) My brother-in-law was a machinist, and what he didn't teach me about metalworking, I had to figure out myself. My month turned into three years. I learned that I'm not a very good inventor. I don't have much foresight. You know Marconi, who built some of the first radios? I've heard that before he picked up a pencil, he had the entire model envisioned in his mind. I'm not that way. It took a few months just to visualize each part of the knife. The first concept was a knife with a pair of regular pliers, and then a separate needle nose would swing over and be driven by the pliers. Then I got really ambitious and decided to add a feature that would lock the pliers, so that once I'd grab onto something, they would stay clamped. I wanted to put in a hacksaw, but they wear out pretty fast. I even tried to put in a can opener, a flat screwdriver, a leather punch, a pair of scissors, and a Phillips screwdriver. Eventually I ended up with two prototypes. At that point I filed for a patent. I was hoping for an easy way out, that someone would pay me a million dollars for the patent rights. I thought my most likely prospects would be knife companies, so I brought my prototype to Gerber (, a Portland, Ore., knife business. They looked it over and said, "This isn't a knife, it's a tool. We're not in the tool business." I still thought it was a knife, so I went to the major knife companies, but they all said no. I eventually got the message, and decided that if it's not a knife, it's a tool. I visited several tool companies, and they all said, "This isn't a tool, it's a gadget. Gadgets don't sell." I found out that the New York Times ran a weekly column about new patents, and I called the writer to give him a heads-up when mine came through. He wrote about it, and I thought, "Wow, I'm going to get so many calls that I'd better go out and get an answering machine." I sat by my phone waiting for it to ring. I got one or two calls from crackpots. Then my wife and I decided I should get a real job. I still had faith that I could sell the tool to some company, but in the off chance I didn't, I knew I'd have to go into business myself to sell it. I knew nothing about business. I had no idea what an invoice was or what accounts receivable were, and I didn't have any sales skills. So I took a welding-sales job I found in the want ads, which turned out to be a really good job for me. By day I sold welding products, and when calling on industrial accounts such as machine shops, I'd bring my product so I could learn more about manufacturing it. By night I was still trying to make contacts, get something going. This went on for about four years. Nothing happened, and I was ready to give up. Steve Berliner, a friend from college, saved me. A business major who was working in his father's metalworking firm, he had tracked me the whole time. We became partners - 75% for me, 25% for Steve. He suggested that we should manufacture the tool ourselves but first find a customer to order a substantial number. His first thought was AT&T (before the breakup), which could use the tool for its fleet of repairmen. AT&T said no. Then we tried the Army, thinking it could ship our tool to every soldier. We sent proposals to 23 government contacts and quickly received two "no's" and one "we acknowledge receiving it and will get back to you in due course." We still haven't heard back from the other 20. Finally, we tried mail-order catalogs. We were so naive! We figured that if we made and sold 4,000 tools in our first year, we would break even and recover the cost of our investment. We would start production when a customer ordered 2,000. We created a mailing list, wrote a cover letter, and sent it to 250 catalogs. We drove up to Seattle to meet with one in person Early Winters. (The company changed its name to Sahalie in 2004.) The buyers looked at the prototype and asked us for a price. I came up with $40. "That means we'd have to sell it for $80," they said. "Sorry, don't think so." But instead of closing the door completely, they asked us what we could to do make it less expensive and helped us brainstorm ideas. Steve and I went to work on a new prototype, taking out the clamping feature and a few other items. When we returned to Early Winters, we quoted the price of our tool at $24. They liked it but wouldn't commit to ordering 2,000. We drove back to Portland and sent another letter out to the catalogs. One responded - Cabela's, the Nebraska hunting and fishing outfitter. It sent us a $12,000 purchase order for 500 tools. Steve and I shifted into production mode. One of the nice things about the mail-order business is the long lead time from when clients commit to the product to when it appears in the catalog. It was May of 1983, and our first order was for late December - plenty of time, we thought. Steve's dad let us use 1,000 square feet of his metal shop, his equipment, and some of his employees. Sometime after May, Early Winters called. It wanted 250 tools. At that point - eight years after my first sketch - we started wondering about exactly who our customer was. If you envision a spectrum of knives and tools, Swiss Army knives sit on one side, and hand tools such as files and pliers sit on the other. Ours fit in the middle, and we named it the Pocket Survival Tool to appeal to the 20,000 survivalists that newspapers were writing about back then. We also targeted knife enthusiasts with ads in knife-trade publications, offering to sell directly to them. A few other orders trickled in, and in late December we got another call from Early Winters asking if its order was ready. We said we would be late-production wasn't quite as easy as we thought. "We need them badly," the buyers said, "because they've all been sold. And put us down for another 500." Three days later they ordered 750 more, and suddenly there was this market of customers calling us, folks who mentioned seeing us in catalogs. We sold about 30,000 tools in 1984 and 69,000 the next year. By 1993 we were selling more than one million units a year. I realized I had gotten lucky-initially, I failed to understand who my customer was. It was the catalogs that brought them to me. Earlier this year I stepped down from my post as president, giving up one of my four positions. I'm still chairman, majority shareholder, and landlord. I think I've done a pretty good job of letting go, but it is important for me to come in every few weeks to meet with the CEO. Back when Steve and I were brainstorming company names, I told him we didn't need to name it after me. But he insisted, and I think he was pretty wise in doing so. Since my name is on every tool we make, I still feel a responsibility for the quality of each one we sell.

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