Quirky Products Pay Off : Designer-Phone Venture Finds Profits in Whimsy
A telephone shaped like a pair of lips?
Sure, it smacks of gimmickry. But that didn’t concern movie producer Frank Hildebrand when he went looking for telephones for a scene in the new film “Once Bitten.”
Hildebrand needed a telephone to fit the atmosphere of the movie’s “Dial-a-Date” pickup bar, where patrons call each other from their tables. So he borrowed a batch of “Hot Lips” phones from TeleQuest, the Burbank company that makes them.
“I picked the phone because it’s funny and it has a sexual, sensual connotation,” Hildebrand said.
The telephone as sex object may not be what Alexander Graham Bell had in mind when he invented it in 1876, but, little more than a century later, TeleQuest is using such quirky notions to make a lot of money.
Phones Aren’t Boring
Hot Lips, which retails for $59.95, is one of 12 telephones TeleQuest makes for people who dislike boring ones. “Flexxx” is a one-piece phone that a user bends in the middle to get a dial tone or answer calls. “Wall Talk” is a speaker phone for the kitchen wall. Then there’s “Baseball,” which has an earphone planted inside a baseball mounted on top of three bats.
TeleQuest is selling a lot of phones--about 570,000 this year and a projected 1 million next year, company executives said. Founded with a $2-million investment in May, 1983, the privately held company this year expects sales of $17 million and profits of $1.5 million. That’s nearly triple the $5.8 million in sales and nearly 10 times the $167,000 in profit it had last year, according to the company.
TeleQuest is a beneficiary of the Federal Communications Commission’s deregulation of the U. S. telephone market in the early 1980s, a move that opened a vast market to telephone equipment manufacturers. Another key development was the breakup of AT&T; on Jan. 1, 1984, which provided a large market for TeleQuest among phone companies that were spun off Ma Bell.
Three of the company’s major customers are former Bell System phone companies--Pacific Bell, Northwestern Bell and BellSouth--which buy one of the company’s more conventional desk-top telephones and resell them under their own labels. Together, their purchases make up about one-third of TeleQuest’s sales.
Sales to Manufacturers
Another third of its sales are to telephone equipment makers, such as Northwestern Bell, which have TeleQuest make telephones according to their specifications.
Retail sales under TeleQuest’s name make up the remaining business.
TeleQuest aims at the upscale buyer with what it calls “life-style type” telephones that typically retail for $50 to $125. “We’re in the fashion end of it,” Executive Vice President Thomas Eisenstadt said.
The company’s phones are sold in Macy’s, Gimbels, Bloomingdale’s and The Broadway, among other stores. Five models appear in various editions of the Sharper Image, a popular catalogue for the upwardly mobile.
TeleQuest strayed from the designer market, with limited success, with its Baseball phone, which retails for $64.95. “We wanted to design a telephone for Joe Six-Pack,” Eisenstadt said.
Bought by Dodgers
The Dodgers bought about 200 of the phones last year--labeled with the Dodger name--to sell in the Dodger Stadium gift shop and to give away in promotions. “I’ve got one in my den,” said Jim Campbell, the club’s director of merchandising.
TeleQuest says its success at selling phones is attracting competitors. Panasonic has introduced a telephone similar to the “Grand Prix,” a high-tech, wedge-shaped phone that is TeleQuest’s best-selling model. Mytel International, a company based in Taiwan, is selling a telephone that TeleQuest claims is a direct copy of the Grand Prix. Last month, TeleQuest was granted a temporary injunction in U. S. District Court in Los Angeles preventing Mytel from making and selling the phone.
But some executives with other companies that make and sell phones say they do not care to make similar products, seeing a limited market. They say most consumers want traditional telephones instead of trendy ones that may soon be out of style.
Robert Miller, vice president for consumer merchandise for Radio Shack, said that, although TeleQuest’s products may sell in department stores and boutiques, he does not believe they would do well in a nationwide chain such as Radio Shack.
“Cuteness doesn’t work so well in the middle of Iowa or Wisconsin,” Miller said.
Joyce Simon, AT&T;’s Southern California manager of phone centers, said non-traditional telephones have limited appeal during most of the year but sell well in November and December, when people are shopping for unusual Christmas gifts.
“Last year, the lips phone was the hot item. But I can’t picture people putting that out on their coffee table,” she said.
Nevertheless, TeleQuest executives are convinced that they have found a growing market for their products. “The fact we sell to telephone companies is a good stamp of approval. They aren’t going to buy trash,” said Robert E. Lee, TeleQuest’s president and chief executive.
Lee, Eisenstadt and Eric Geis, who is in charge of strategic and financial planning for TeleQuest, formed the company in May, 1983, after working together as senior executives with American Telecommunications Corp. in El Monte. There they were part of the team that designed the now-classic Mickey Mouse and Snoopy telephones, but they left in the wake of the 1983 sale of the company by General Dynamics to Virginia-based Comdial after unsuccessfully trying to acquire it themselves.
Raised $2 Million
Working out of the offices of a friend in Pasadena, the three raised $2 million in venture capital and headed for the June, 1983, Consumer Electronics Show in Chicago, where they planned to show their phone designs to potential buyers in their hotel suite.
But, without products ready to ship, the three believed they might not be taken seriously. So they called a friend who makes telephones in Italy, who shipped them 26 models of old, ornate European-style telephones with which they could fill their suite.
By October, 1984, the company was profitable, its executives said. TeleQuest, which started with seven employees and now has 40, is projecting sales of $25.5 million next year and $67.1 million by 1988. The company buys the components and assembly is done under contract in Hong Kong and South Korea, with new plants scheduled to open soon in Mexico and Thailand.
The company has attracted several major financial backers, including the brokerage firms Hambrecht & Quist of San Francisco and L. F. Rothschild, Unterberg, Towbin of New York. Next year, the company hopes to raise money by selling stock publicly for the first time.
Power Shared
Although Lee is president and chief executive, he, Eisenstadt and Geis insist that they share power equally. Lee was given the title, they say, to appease investors, bankers and others wary of any company that doesn’t have a president.
TeleQuest’s rapid rise has caused growing pains. The firm operates out of a 12,000-square-foot building near Burbank Airport, with boxes stacked 15 feet high in spots. To alleviate the crowding, the company plans to find a larger headquarters next year, Lee said.
The telephones are created by several designers under contract and by an in-house artist, Chilean sculptor Bill Brignole, who works in a 40-foot trailer parked behind stacks of boxes in the warehouse.
TeleQuest officials said about one design in five becomes a phone. Telephones based on the Smurfs cartoon characters, for example, were rejected because TeleQuest executives thought adults might not buy a telephone for a young child, who might tie up the family’s line. “Money Talks,” a clear plastic phone made to look like a stack of money, and another phone designed to look like a miniature Rolls-Royce, also were rejected.
TeleQuest executives don’t believe in doing market research before introducing a telephone. When the Hot Lips was selected, it won out over a heart-shaped design because, Eisenstadt said, it had a “friendlier feel” to it.
“The real research comes when you put the phone on a retailer’s shelf and somebody pays 60 bucks to take it home,” Eisenstadt said. “That tells you more than $20,000 in research does.”
