A few years ago, we had an idea for a new business opportunity. One of our colleagues owned a restaurant and was hbr_130x130complaining about the amount of money he lost because expensive bottles of liquor often went missing (the industry calls this “shrinkage”). This is a problem affecting tens of thousands of restaurants —an attractive target market. So, like good innovators, we began working on a solution to our colleague’s problem by building an automatic liquor inventory-management system.

We partnered with a company in a Singapore that had expertise in RFID technology, and began to put together a solution involving tags on bottles, a customized storage unit that could read the tags, and a software management system. The system would give owners real-time inventory information, which would help them to identify shrinkage early. Wall-mounted cameras near the storage locker would allow them to see precisely when a bottle left the locker, which would serve as a strong deterrent. A matching tag reader in the bar allowed the software to send out alerts when a bottle was removed from the storage locker but never showed up at the bar.

As we went through various iterations of the solution and spending mounted, it became increasingly clear that there were good reasons why no one had tackled what seemed like an obvious opportunity. The integration between the tags, the storage unit, and the software was technologically tough to pull off. What’s more it required busy bartenders, who weren’t particularly interested in making their jobs more complicated, to scan new bottles before putting them in the locker. Integrating our software into the myriad inventory systems used by restaurants across the United States was even trickier. When we finally had prototypes to show customers, they balked at the idea of investing in expensive hardware when they could simply hire an individual consultant to provide occasional advice about stopping shrinkage. In 2009, we decided to shut the business down.

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