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SMALL BUSINESS: INNOVATION

Entrepreneurs can profit by riding on the coattails of stars

Making accessories for a hit product such as the iPod can pay off for a start-up.

May 16, 2006|Terril Yue Jones | Times Staff Writer

When Apple Computer Inc. first announced its iPod digital music player 4 1/2 years ago, people were enamored of its compact form and ability to store and organize hundreds of recordings.

Entrepreneur Gary Bart obsessed over the chance to piggyback on Apple's innovation and technology. Bart saw his opening after learning that Apple wasn't making protective cases for the groundbreaking device.

The iPod roared to success. Apple has sold more than 50 million devices to date and expanded the device's capabilities to include displaying photos and playing video. Bart's company, XtremeMac, jumped on for the ride. The Weston, Fla., company has sold more than 3 million iPod cases.

XtremeMac is one of many companies that have blossomed thanks to the iPod. The family-owned business is an example of how insightful entrepreneurs can exploit the success of a much larger company's products and technology, spending little or nothing on market research, focus groups and technical innovation.

"You're seeing the phenomenon where a company kind of bets on the success of an ecosystem," said Haim Mendelson, a professor at Stanford University's Graduate School of Business. "The basic idea is that we're producing or creating something that complements the core product. The success of the core product will result in our success."

Many industries have spawned such products, said Robert Foster, a professor of high-tech strategy at UCLA's Anderson School of Management. Hand-held devices such as cellphones and remote controls are ripe for accessories made by third parties, he said, because it is easy to design items such as cases and mounts.

But the opportunity for such piggybacking extends far beyond consumer electronics.

The U.S. automotive aftermarket is enormous at $32 billion, but consists mostly of small companies, run by entrepreneurs, that make parts to customize such vehicles as Subaru Imprezas, Honda Civics and Scions, said Peter MacGillivray, vice president of marketing for the Specialty Equipment Market Assn. Some start-ups make only one component.

"It's a market of little people with big ideas," MacGillivray said.

It's that same type of businesspeople who are capitalizing on the iPod's success.

Cupertino, Calif.-based Apple is selling more than $6.9 billion of the devices annually. The wider iPod economy encompasses more than 1,000 companies with an estimated $1.4 billion in annual sales, according to NPD Group.

"Apple recognized early on that third-party developers are very important," said Bart, who sees a benefit in his company's relationship with the computer maker. "When the consumer looks and sees this world of support, it's very helpful."

Bart picked the right music player to bet his business on. The iPod has captured more than 70% of the MP3 player market in the U.S.

Another company jumping on the iPod juggernaut is MCE Technologies, a 12-employee start-up based in Irvine that makes accessories for computers such as laptop batteries, disk drives and external hard drives. About 25% of its $5 million in annual revenue is iPod-related, including battery chargers, speakers, headphones and cases.

MCE is looking beyond simple add-ons for the music player by developing a device to load songs onto iPods without using a computer.

Think of a stand-alone CD player that transfers music to iPods, said Arnie Ramirez, MCE's founder and president.

"We're going after people who don't necessarily have the latest

XtremeMac's Bart was a developer of computer storage and server systems in Florida and an avid user of Apple computers when he learned of the iPod. He was intrigued that Apple planned an initial run of 600,000 units and that the company was not going to sell cases for the device.

To figure out what might work, Bart took a block of balsa wood, glued on an iPod picture, cut the wood to size and grabbed some pieces of leather. He didn't know how to sew, so he stapled and taped the leather onto the model to make a prototype case.

But Bart didn't know what to do with his balsa wood model.

"I did an online search for handbag manufacturers in Asia. I think I used the first one that came up," he said. "We talked on the phone and I sent some photos. They said send us all the money, and we'll do it."

Bart quit his job in December 2001 and, with $70,000 in start-up money, ordered 20,000 cases, biting his nails as he waited for delivery in time for the annual Macworld convention, which opened less than three weeks later.

The first shipment of 4,000 arrived at Bart's hotel the morning Macworld started.

"At the booth, customers were lining up four across and 30-40 deep," he said. "People were bringing in their iPods in socks, then buying a case and throwing the sock away."

He sold all 4,000 at the event.

XtremeMac's name subsequently spread through word of mouth, the trade media and the Web.

Today, XtremeMac is devoted exclusively to making iPod accessories, including cases, cables, transmitters to play iPods over radios, and speaker sets.

Starting out, Bart said, one needs conviction to forge ahead.

"I thought there was a fair amount of risk involved," he recalled. "But you have to start doing something."

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