Entering the Market for Fire Safety Equipment

X-It is a company that produces fire escape ladders that are half the size, half the weight, and twice as strong as any product that is currently for sale in the market. In May of 1988 X-It and its two founders, Andrew D. Ive and Aldo J. Belardino filed for both a U.S. patent and intellectual property protection. As with any new innovative product that comes to market, X-It’s ladder quickly caught the attention of the public as well as current producers of fire escape ladders.

Their primary competitor is a company called Kidde Products, which manufactured and sold different types of fire safety products, including an escape ladder. Kidde was already a mass producer of fire escape ladders, being sold in stores such as Walmart, Target, and Home Depot. Upon the discovery of a superior product entering the market, Kidde contacted I’ve and DeBelardino at X-it about possibly entering into a business alliance with them or buying them outright.

Entering into a business alliance would allow Kidde to market and sell the X-It escape ladder in the stores they currently sold their products in.

While X-It was not eager to jump at the low ball offer of $600,000 from Kidde, they continued to negotiate, simultaneously handing over many valuable documents to Kidde’s lawyer. These documents included their patent, which was still pending at the time. Due primarily to a lack of money and a little forethought, X-It was unable to protect its product from Kidde. Kidde, with the help of a back alley lawyer, created a product that was a “legal” copy of X-It’s.

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This product included many of the same elements along with the same packaging, including a photograph of DiBelardino’s family using the product during a mock house fire.

The two founders and friends of X-It knew that they were a small company with little financial resources entering into a $3.4 billion market filled with larger companies that had far more financial resources than them. With Andrew I’ve handling the business aspect of the company and Aldo DeBelardino handling the hands-on work, they felt comfortable entering the market knowing they had a product that was far superior to the currently existing models. The two thought that they made a breakthrough by would become the dominant design in the market for fire escape ladders, a new industry standard. After applying for a U.S. patent and intellectual property rights they decided to enter the market in a very strategic way. By showcasing their product to companies at hardware shows in 1998 and 1999, they can cut down on marketing costs and go straight to mass distributors of fire safety equipment such as Walmart, Target, and Home Depot. Their decision to hand over the sales and shipping to an independent representative shortly after entering the market also allowed the two founders to free up their time to continue working on new projects alike. They also chose to keep the company’s staff small at this point, by only employing one other member, Chief Financial Officer Kevin Dodge. This strategy allowed them to save cash flow until they had their place in the fire safety market secured.

While the fragmented $3.4 billion markets for fire safety products dodoes do not provide data about the percentage of sales from fire escape ladders, there were current existing models in the market. So to say that X-It was a first mover of the escape ladder is a slight stretch, as they would most likely fit into the category of early followers, meaning that while they were not the first to market, they still got in early on. With early movers of fire escape ladders, such as Kidde, already having brand loyalty toward their products, they had the advantage. Typically with early movers, as they can gain brand loyalty, they can keep intact their market share even after new products and companies enter the market. While Kidde holds many advantages to being a first mover in this market, they also face first-mover disadvantages that we see very clearly throughout this case. In a historical study done by Gerard Tellis and Peter Golder, they found that around 50% of first movers will face some sort of failure, such was the case with Kidde (Schilling).In contrast to this, early movers such as X-It, average almost three times the market share compared to first movers. This proved to be a major advantage for X-It during the case because while manufacturing prototypes of their fire escape ladder, they were able to work off the flaws that were present in the current dominant design produced by Kidde.

Key Problems

As a result of Kidde being able to produce and market an exact copy of the X-It ladder, X-It now faced a serious threat in the market for fire escape ladders. Kidde had much more financial stability than the young company composed of two best friends from business school, I’ve and DeBelardino. There are many key issues to be discussed as a result of the actions taken by both companies.

Aldo Debelardino Sole Founder

The first key issue that arises as a result of the circumstances at X-it is that Aldo DeBelardino is now the sole founder left at the company, due to Andrew I’ve stepped down. While this comes with negative implications, it is also important to note the positive side of this action. With Ive stepping away from the company, they can free up a significant amount of cash flow that was not previously available. That is because the company was paying for Ive’s expensive rent in Manhattan, office space in New York City, his phone bills, travel expenses, and most importantly, his salary. This new influx of cash flow will help to keep X-It afloat for longer than they would have previously anticipated following the 1999 hardware show in Chicago, Illinois. But this action taken by I’ve done not only produce positive outcomes but also shared some negative consequences that are important to note. I was primarily in charge of the business side of the company, while DeBelardino handled most of the hands-on work. As the now sole founder left at the company, DeBelardino was left with tough decisions without having the input of the man who created the business side of X-It, to begin with, which could also be seen as a positive. DeBelardino’s plan of action included slashing their costs and halting new product innovation until they could get a grasp on their current financial situation. This leads to the new key issue that the company faces, financial strain.

Financial Strains

Another key issue throughout this case involved X-It struggling financially. While X-It was able to receive around $550,000 in original investments from friends, family, and angel investors, this was all they had, compared to the billion-dollar company of Kidde. Even before Kidde committed patent infringement by reproducing the X-It fire escape ladder, X-It did not have enough funds to market its product very well. They chose to dump most of their cash flow into the design of the product itself and the box it would be sold in, a wise choice due to their financial situation. After the 1999 tradeshow, they found themselves in a very dangerous situation financially. X-It was still a very small company in the market for fire safety equipment, which was a $3.4 billion market in 1998. At this point, X-It barely had enough funds to continue to fill orders and pay their employees, much less take on a lawsuit with a billion-dollar company of Kidde. To stay afloat they must begin to cut costs and gain back a piece of competitive advantage, a daunting task for a small company like X-It.

Restructuring of X-It

With Aldo DeBelardino’s plan begin adopted by the board members of X-It and Andrew I’vethe stepping down from his role within the company, X-It set out to restructure their company shortly after the discovery of Kidde’s “new” fire escape ladder at the Chicago hardware show. When the board members met with I’veis and DeBelardino shortly after this, they chose to follow DeBelardino’s route, which called for slashing costs in areas such as their current office space,  phone bills, travel expenses, and equity stakes. This plan was a great start to the restructuring of the company. Andre, I’ve stepped down also was a big boost in terms of restructuring the company, as it freed up a fair amount of cash flow that was once being used as Ive’s salary and living expenses in New York City Manhattan. The investors and board members of X-It also restructured the equity stakes of Ive and DeBelardino, cutting them from 27% to 10%. Such a small company going through a complete restructuring phase could prove to be detrimental if it is not handled properly.

Copyright/Patent Infringement and Breach of Confidentiality

X-It applied for a U.S. patent in May of 1998 while simultaneously applying for intellectual property protection for their new fire escape ladder, Kidde came in and took their idea and product. Copyright or patent infringement occurs when a company or an individual uses or sells a patented invention, such as the fire escape ladder in question during this case. While a patent infringement can only occur in the country of origin, since patents do not hold worldwide, bu both of these companies operate in the United States market. The two companies signed a confidentiality agreement that stated, Kidde would only use the pendingthependingthe patent information t analyze their potential purchase of X-It. Nothing within the agreement said that it would be okay for them to use the patent to make their therthreesomeduct. Another thing that they agreed upon within the confidentiality agreement was that thereitsthere would be a limited number of individuals involved in the transaction and the patent information would still be private. Kidde went against what they said and signed within the agreement and reproduced an almost the IveIsame copy of the escape ladder that X-It made.

Competitive Position

X-IT founders IveI’veIveI and DeBelardino were aware of the two main competitors in the market, Kidde and First Alert. However, they were comfortable because they believed in their design even though Kidde and First Alert had significantsignifia cant financial advantaI’vege over X-IT.

Recommendations

Our first recommendation that we have for the company is to cut their costs. Cutting costs is an easy and great way to try to save the company some money overall. Cutting one person’s salary would help the company, with I’vefinding stepping down it would have helped the company do just that. With Ive stepping down, that would be one less salary to pay, one less phone bill, and one less office space. Another way the company would cut their cost would be by findingbyfinding new workers. If X-It could find low labor costs in the United States for the company, it would shrink their costs to costs largely. Thirdly, X-It could relocate to new office space to save money and rent a space for offices. We also suggest that DiBelardino attempts to raise more money from family and friends to bring in more money for the company itself. Las,tly we suggest that the company goes back to Angel Investors and try to get another round of funding. If DiBelardino could get more Angel Investors that could open up a whole new door for X-It.

Our second recommendation is to file a lawsuit against Kidde. X-It could file a lawsuit against Kidde for copyright infringement, X-It has many eyewitnesses from the hardware show that can attest to the fact that Kidde used an exact copy of the X-It product. That even includes the packaging with DeBelardino’s family members on the outside of it. X-It should have held its ground and keptithereanalyzeeir innovation there’s. They should have contacted an attorney to analyze the case, and with the money, been they saved from our first recommendation they would behave Bebe haveen able to afford an attorney and all the legal fees. X-It had plenty of key points that would take down Kidde if they had the money to do it at a time.

Our third recommendation would be to regain competitive advantages. One way that they could regain space in the competitive market would be through price. If X-It would have dropped their prices they could have undercut Kidde and offered the same product but at a lower price point. The second way that they could regain space in the competitive market would be through promotion. If X-It would change their methods of promotions promotion and gain an advertisement budget from investors they could promote themselves more than Kidde and have buyers only looking at them. The third way that they could regain space in the competitive market would be through througproductsct. If they went out and researched what customers liked and didn’t like from Kidde’s product they would revamp their product to be what customers wanted and needed.

Our fourth and final recommendation for X-It to regain a competitive market would be innovatingtoinnovating to innovate the company. We would suggest that X-It could innovate the company by keeping up with how they were innovating before. One thing that this company did so successfully was innovated and, innovate very quickly. There are a couple of ways that they could keep innovating, for an example would be finding ways to get pets and small children safely out of windows during a fire. This would be very beneficial to many customers and is a need within the market. Another way X-It could innovate the company is through Elderly folks as well, finding an easy but supportive and beneficial way to get them out of their homes or care units. Another way the company could innovate would be through its, ladders in general. Current a ly they only had one standard size/length ladder, making more ladders of different lengths makes it more valuable for customers.