That is the prospect’s dissatisfaction.  5,136 iterations later the problem is solved.

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Dave Young:
Welcome to The Empire Builders Podcast. Dave Young here, along with Stephen Semple. Stephen, when you told me what the topic of today’s podcast is, I immediately thought of commercials that they do. And we’re talking about Dyson today. So the company that makes the vacuum cleaners and fans, I assume other things. But I’ve read a little bit about, is it Stephen Dyson? Is that his name?

Stephen Semple:
No, it’s James Dyson.

Dave Young:
James Dyson.

Stephen Semple:
You’re so close.

Dave Young:
You’re Stephen. Stephen Semple.

Stephen Semple:
I’m Stephen. I really shouldn’t make fun of remembering names because I’m terrible at it, so.

Dave Young:
He doesn’t care. As long as we remember the last name, which is Dyson.

Stephen Semple:
That’s it. Yeah. So Dyson was founded by James Dyson on July 8th, 1991 and you’re right. They make vacuum cleaners, and hand dryers, and air purifiers and all sorts of stuff. And they sell over $8 billion of this stuff. They have 13,000 employees and they’re still privately held. They’re still a privately held company, which is really unusual, really quite remarkable. They’re really best known for their vacuums. And that was the first product. That’s what we’re going to talk about today, because it’s really interesting. And you’ll notice this parallel of some other things we’ve talked about, story about how this vacuum all came about.

Dave Young:
So here’s a guy, he’s British, right?

Stephen Semple:
Correct.

Dave Young:
Here’s a guy sitting, saying to himself, all these other vacuum cleaners suck, but not enough.

Stephen Semple:
Correct. That’s exactly it. That is exactly it. And the interesting thing is James Dyson did a lot of innovation, and he really kind of considers himself an amateur engineer. So yes. And what he means by that is he would look at a product, and he’d go, this product is not good. How can I improve it? But you would think somebody who thinks that way and has that background, you would think that he went to university for science, right? Like engineering or math or something along that lines.

Dave Young:
And he didn’t.

Stephen Semple:
He did not. He did the arts and classics in university.

Dave Young:
No kidding.

Stephen Semple:
Yes. And what drives me crazy, and he’ll even say it, so many people frown on the arts and classics in terms of an education, because it’s not practical, but he’ll tell you a lot of his thinking came from that degree in terms of how he looks at the world. So while he was in university for the classics, he discovered design and in the mid 60s, design was not being talked about at all. And when he was told what it was, he became really interested. So he went to the Royal College of Art, and he studied furniture and then architectural design. But at his heart, he still considers himself very much an amateur engineer. Again, he looks at things and he says, how can I make it better? So in 1974, so remember the company was founded in 1991, 1974 he buys a Hoover Junior vacuum. So it’s 17 years before the founding of Dyson. This is one of those upright vacuum cleaners, it’s got the pillow sort of case thing hanging out the back.

Dave Young:
Yeah. The big nasty bag that you put in there and

Stephen Semple:
Yeah.

Dave Young:
Zip it up.

Stephen Semple:
And he, yeah. And he hated using it, hated the smell. Then you have to shake out the bag, and it lost suction. So they had that for a while. Then along came a family, they started to have a family and he said, we need a better vacuum. So he went out and he bought one of those canister models, those little round ones that sat on the floor.

Dave Young:
Yeah. Yeah.

Stephen Semple:
And they were considered the best around, and this time it had a paper bag rather than that pillow thing, but it was the same problem. And he started to really look at it, took it apart and here’s the problem. All the airflow goes through the bag and the bag is the filter. So as it filters stuff, it loses suction. There’s just no way,

Dave Young:
Yeah. It’s going to start losing from the very beginning.

Stephen Semple:
Losing from the beginning. Soon as you put in a new bag, it’s good suction for a little while. And then the performance declines as you use it. Now around the same time, he was working on his ballbarrow company. So he had invented this wheelbarrow that, instead of the wheel in the front, had this big ball bearing in the front.

Dave Young:
Okay.

Stephen Semple:
And he was frustrated with the filtration system that they had at the factory. It was constantly having to be stopped and had to be taken apart. And the filters had to be removed and new filters had to be put in. So he decided to upgrade to this cyclone system,

Dave Young:
Right.

Stephen Semple:
That didn’t use a filter. Right. And he thinks to himself, what if I could downsize the cyclone and use it in a vacuum?

Dave Young:
I mean, they’d been using cyclonic filters for things like trucks.

Stephen Semple:
It had been used for a lot of things. So he thinks to himself, well, what if I could downsize this and use it in the vacuum? He goes home and he makes this cardboard version. He puts in the back of the vacuum and it appears to work. So he offers the idea to the ball bearing company. Goes to the ball bearing company, and the company says to him, if there was a better vacuum idea out there, one of the big vacuum companies would’ve already done it. Which is so interesting because how many times do we see in this podcast, we’ve been doing this for over a year now, how many times have we seen the stories are from people who are outside the industry? So far,

Dave Young:
Yeah.

Stephen Semple:
All of them, except one. Right. So he goes back to his old mentor, Jeremy Fry. And Jeremy Fry backs the idea and they become partners and Dyson starts to work full-time on creating this new vacuum. Now one of the first problems was industrial cyclones are good to 20 microns and household dust is much finer and smaller than that. And there are these complicated mathematical formulas around cyclones that he just can’t figure out. So he recruits five different people to help him do the calculation. And he gets five different answers.

It’s kind of interesting. As you know, David, I used to work in the financial services industry and I was a portfolio manager. I worked with my wife in the industry and she was an engineer and very mathematically inclined. We actually created some mathematical models for managing money. And what would be really interesting is she and I would do a calculation and we would come to the same answer and we would go completely different roots. So I get this whole thing of when math gets complicated, it’s interesting how it’s not always one answer or even one direction. He gets these five people to help him and they end up with these five different answers. And so he thinks to himself, okay, I’m just going to have to tinker with this. It’s going to take me a year. I’ll create a new vacuum. So he decides to do experimentations. He does 5,126 different iterations. One change at a time before he cracks the problem.

Dave Young:
Wow.

Stephen Semple:
Yeah, it was a slow, slow process. And at this time he is working full-time.

Dave Young:
Is that 5,000 prototypes or did he have something that he could change a little bit and measure?

Stephen Semple:
He would change a little bit measure, change a little bit measure, but still 5,126 of these little changes. And he believed in, you did one change and test, do one change and test. Because if you do two, you don’t know which one wielded,

Dave Young:
Yeah. So he’s following, strictly following the scientific method and making that.

Stephen Semple:
He’s following the scientific method. And it’s a slow, slow process. So he’s doing this full-time. It’s not making any money. He had some land that he sold. Then he got into some debt and then he bet the house. He went and he put a mortgage on the house and there was no plan B. He did not actually know whether this would work. He hoped it would. Then one day, Eureka I’ve got the solution. Now he has a better mouse track. He looked at it and said he and Jeremy, they were designers, not commercial people. So what their first thought was let’s license this idea to manufacturers. So he spent in an additional six years trying to do licensing. Everyone turned them down.

Dave Young:
They’re making too much money; selling bags is the problem.

Stephen Semple:
That’s one of the problems. One of the problems is there’s no bag. And part of where they’re making money is a bag. The other problem is consumers are not asking for a better product. So basically, companies are saying they’re satisfied with our product. So he’s now at this point invested like 10 or 11 years between development and trying to get it licensed. And he did get a couple of little licensing agreements that really didn’t work out. So he needs to change the plan.

What he realized at this point is he needed to do it himself. So he bought out his partner, Jeremy. So here he is. No factory, no money, no customer feedback, no market research. How do you ask someone do you want a vacuum with no bag? The other thing was their vacuum had this clear area trapping the dirt and research showed people don’t want to see dirt. So all the vacuum companies said, no one wants to see the dirt. Retailers refused to stock it. Because it’s this strange looking machine, people can see the dust, and who’s Dyson. And on top of that, like, because it’s not Hoover, it’s not any of these others, and on top of that, it’s three to four times, three to 400% more expensive than any of the competitors. So retailers didn’t want to stock it.

But what he managed to do was get a few mail order catalogs to offer it. They were the first customers. And the funny thing is a lot of people look at the mail order catalogs and they go, well, they’re very low brow because it tends to go out to lower-income households certainly at that time. And it’s really easy to assume as this is an expensive product, three to four times the price. How many times we were heard this Dave. I have an expensive product. So therefore, my market is rich people. How many times have we heard that?

Dave Young:
All the time.

Stephen Semple:
Yeah, it’s the natural step. That’s the only people that can afford my product. So I got to market to the rich people and this assumption is often wrong. If people want it, they will buy it. And in fact, that’s exactly what happened, because guess what rich people don’t do?

Dave Young:
Vacuum.

Stephen Semple:
They don’t vacuum. Right.

Dave Young:
That somebody else does it for them.

Stephen Semple:
And often lower income households are very house proud.

Dave Young:
And you’re looking for people that hate dirt.

Stephen Semple:
Looking for people who hate dirt and don’t want to spend a lot of time doing it.

Dave Young:
Yeah.

Stephen Semple:
That’s what you’re looking for. And if you can convince them, you got the solution, they will pay for it. And it also turns out to be a very recession-proof item, because it’s more about the home. So you would think, well this is an expensive item. I gets slaughtered in a recession. No, when you’re trapped at home and you don’t have money to go out, your home becomes more important. Your home being clean and all those other things become more important. Turned out actually to be a recession-proof business. And one of the things he talks about is too many businesses he believes designed to a price. They sit there and go, if we can make this at this price, we have a product. He’s never designed to a price. He said, here’s the dissatisfaction.

Dave Young:
Yeah.

Stephen Semple:
Figure out what you need to do and whatever the price is, is the price. And if people are dissatisfied and you can now give them something that solves that problem, they’ll pay for it. And that’s what he’s continually done over and over and over again.

Dave Young:
You know what he’s probably done. He’s given his competitors room to raise their price too. You can buy Dyson products at Walmart. And I think about all the old stories. In fact, if you read Sam Walton’s book, he talks about buying. When they’re buying from manufacturers, they look at a product and go, if we can sell these for this price, how many do you think we could sell?

Stephen Semple:
Right.

Dave Young:
Right. And that’s just backwards from what you just described Dyson doing.

Stephen Semple:
Dyson goes the opposite direction.

Dave Young:
Yeah. And yet Walmart sells those products. I bet you they didn’t do it till they realized, oh, he’s selling them without us. Yeah.

Stephen Semple:
That’s exactly it. And the comic that I wrote, the one about how to raise prices, one of the things I talk about is in that comic is you can have success being the most expensive in the marketplace. You can have success being the least expensive. Where the problem lies is in the middle. So you can make a lot of money being a Walmart. You can make a lot of money being a Dyson. It’s the middle is where the challenge is. But here’s the interesting thing, Dave. This story I just told, we’ve heard this story already. Think about it. I see this problem. I’m going to fix it in a year. I’m going to do thousands of iterations. I’m then going to have the solution. I’m then going to go out and license it. No one will license it for me. And I’m then going to sell it through mail order catalogs. This is Leatherman. This is the Leatherman story.

Dave Young:
Yeah.

Stephen Semple:
So part of the reason why we tell these stories is one of the things that’s incredible when I was reading is going, we’ve heard this story. This is a Leatherman story. So to me, the lesson in here is this whole idea of licensing can be really challenging. And the faster that we can go to the consumer, the better off I think we often are. And he didn’t bother with any focus groups. Well, if we go back to the story of Walkman, the focus group said the Walkman would never work. No one wants that. Because the focus group said, we want all these other features.

Dave Young:
Yeah.

Stephen Semple:
And I said, no, no people don’t. So this is the issue. And don’t be afraid to charge a premium price. Don’t be afraid of that. And don’t assume a premium price automatically means it’s a wealthy consumer. There was a sidebar story that also came across when it came to Dyson that was really interesting. Dyson had also created a washing machine that had failed. And the interesting thing in this story is James Dyson is completely convinced that why it failed is they didn’t charge enough. This washing machine could take a big load. It could wash very quickly to the low temperature. In fact, one of the things when they were studying washing what Dyson notice is hand washing is actually more effective than machine washing because of the way things agitate. So they created this washing machine that could do low temperature quickly. And this is the, you’re going to love this one David, this is the only time he listened to the marketing department saying if we charge less, we will sell more. And what I’m saying is James, you should have hired us.

Dave Young:
Charge more, sell more.

Stephen Semple:
Because.

Dave Young:
Keep more.

Stephen Semple:
We never say that to customers, that you should charge less ever. We are a firm believer in charge that premium price and just make people want your product. But it’s really interesting that the one time they tried to do the price thing, let’s do price. It failed.

Dave Young:
Yeah. I hope he got rid of those people.

Stephen Semple:
Yeah, I don’t know, but I hope so.

Dave Young:
Probably not.

Stephen Semple:
Probably not.

Dave Young:
I think an interesting part of this Stephen is that all these stories that we’re telling, when you say that we’ve heard this story before with Leatherman, you could say that there are aspects of this story that we heard with, we didn’t do an episode on it, but reminds me of Thomas Edison. It reminds me of Ford. The model T was the model T because there was a model, A, B, C, D, E all the way down to T before he got the model T all finished up. And so all these stories have been told before. You don’t need to reinvent a new story. You need to look at all the stories and figure out the one that fits the product or service that you’re trying to build. And just tell that story again.

Stephen Semple:
Yeah, exactly, exactly right. And it’s also really interesting on this. Again, it was one of those ones where he drew his inspiration from looking outside. It was like, look, there’s this thing for filtering air in the factory. What if I apply that to this vacuum? That frustrates me. It’s always interesting that this innovation and these ideas always come from outside of your space and the people who change an industry. Because we see now lots of vacuum cleaners,

Dave Young:
Yeah.

Stephen Semple:
Doing this style. Is almost always somebody from outside of the industry.

Dave Young:
Anybody that’s bought one, you love not having a bag.

Stephen Semple:
Yeah you do. Yeah. In the end of the day you do.

Dave Young:
We got one for upstairs and one for the main floor, because we don’t like carrying it up and down.

Stephen Semple:
There you go. All right. This was awesome. Thanks David.

Dave Young:
Thank you, Stephen. Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review. And if you have any questions about this or any other podcast, episode, email to questions@theempirebuilderspodcast.com.

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