Common Sense Inventing - Educational articles to help Inventors make informed decisions

(Excerpt from the Ebook “Common Sense Inventing”)

Getting an idea is not hard. Finding one that is profitable takes a lot more effort and research than most Inventors want to pursue. Almost daily I get emails from Inventors asking me to review their ideas and give them my opinion on them. The main problem I see is the Inventor has not thought out the idea to the point they can see its value or lack of value. They seem to only be concerned with how they are going to spend the millions of dollars they assume they will receive from this idea.
When you come up with an idea there are numerous questions you need to be answering before you spend any money in its development.

Here are just a few of the questions that you should be asking yourself:

• Have you done any research on your idea to see if it is already on the market?

• Is this something that adds value, solves a problem or will make a consumer happy?

• Is it something mass consumers would use?

• Who will be your end user?

• Is it a niche market product?

• How many end users do you think would use the product? (and don’t say everyone will because that is not realistic. Example: even if you
invented a car that got 70 MPG is everyone going to immediately throw their current car away to get yours? No they will not)

• Is it a onetime purchase or a recurring purchase such as toilet paper?

• Does it stand alone and make a new category or will it be competing against products already established and on the market?

• If it stands alone how will you get the company to see this as a profitable venture since they would be breaking new ground?

• If it is going against established products with a long history of sales what makes yours better and not just another of the same old thing
on the shelf?

• Is it unique to a certain gender/age demographic such as a training bra?

• Is your idea a really small niche market? For example, left handed males between 18 and 25 that live in desert climates working on oil rigs?

• If needed, how much do you estimate it will cost you to build a prototype, make a Sell Sheet, or CAD drawings?

You may be thinking why am I asking all these questions up front? Because most of these can be answered without going into debt and can help you get a big picture of where you will need to focus your efforts or should you stop before you go any further.
I want you considering all the factors of your idea. You can’t inflate the figures and expect to get a reliable answer.
Granted you may not know the answer to all the above questions, but it should get you thinking before you start putting down money and further time into the project. If you do as a number of Inventors have done before you and go into automatic mode and rush to your nearest patent lawyer you are doing yourself more harm than good. You are also needlessly putting yourself in debt.
Companies look for products that have mass appeal because they are more profitable and secure a larger customer base. You need to consider your ideas value and what you realistically (not what you want it to be) see it selling for in stores. You can do this by simply looking at what is currently available to get an idea of what the public is accustomed to paying for such a product. If you see the majority of them selling in the $5 to $12 range and you feel yours should be selling in the $89 range, you need to be able to justify this higher expense. Is your product so superior that the consumer will see that difference and be willing to pay the extra money or would they see it as a bunch of features they would never use and not worth the expense?

A good example would be; if you are wanting a knife that you plan on only using to spread peanut butter on bread. Would you buy a plain knife or a Swiss Army knife? The Swiss Army knife has several attachments that can be used to cut, slice, saw, and more. It is also more expensive than a plain simple single blade knife. For that matter you could use a plastic knife you got for free at McDonald’s. So, sometimes bigger and better are not always selling points.

Once you have an idea what your competitors are selling for in the market take that price and divide it by 4. This will give you a very rough idea what you need to be able to make your product for in order for it to make it to the consumer. Because once you have a licensing agreement the company pays X to have them made. Then they sell them to a distributer or store chain for X. Then the distributer sells them to a chain or if the manufacturer sells directly to the store, the store then sells it to the consumer for X. Each stop along the way adds cost to the product as they each add their cost and profit margin to the price. These additions happen until the product reaches the store and the consumer. So, by the time your product reaches the store it can be 3 to 6 times the original cost or more.
You are the first link in a long chain of events that have to happen for it to go from an idea to a finished product. And they each want to get paid for their efforts. So make sure you do your research up front to know your product and its industry as well as you can so you are making informed decisions along the way.

A common mistake Inventors make when sending out submissions for their new product idea is timing. No matter what category your invention falls into every industry has buying and selling seasons. It is a continuous circle of conventions, trade shows, meetings with potential buyers, suppliers and manufacturers. There is a possibility a trade show or convention for your particular product market is going on somewhere in the world right now.

As an example in January most toy companies are gearing up for the February Toy Fair in New York. They have just returned from the Toy Fair in China the middle of January. So, sending them ideas now will only get you put on their desk in the wait pile.

When they return from Toy Fair the last thing they want to do is go through that large stack of mail sitting on their desk. They also have to return calls, answer emails and touch base with all the contacts they made at the convention.

One way of knowing if your contact is on the road and not just ignoring you is if you call and it says their voice mail box is full or you get emails bounced back. I can tell you that a number of them will read the most recent emails when they get back and mass delete the rest. They figure if it is important that person will write again.

So, knowing when to send your material can be just as important as the material itself. The internet is a valuable asset looking for this type of information. Some companies even list when they will be appearing at certain events. This information is crucial when you are getting your material together for submittal. Try to give your contact person at that company at least a week after an event to get things back to the normal hectic pace.

You will increase your odds of them giving your material a more favorable review over the hurried review you may get if they are leaving the state or country in the next day. Remember they are juggling a number of projects at one time. The easier you make it for them the better for you.

NEVER send a prototype to a company without them requesting you too. They know when they will be in the office, you don’t. Sending a prototype blindly will increase the odds of it getting lost or broken waiting for your contact to get back in the office.

Don’t take for granted the companies mailing address and place you need to send your prototype are the same. A large number of companies have satellite offices that handle specific functions such as legal, shipping, etc.

I have Inventors email me all the time saying the same thing “I sent a package to_________ a week ago and haven’t heard a word. Is this normal?” Most of the time, their contact isn’t aware they were sending them anything and is out of the office. Inventors don’t consider their contact has other meetings, conventions, sales trips, other emails, projects, phone calls to return/make, other Inventors sending product ideas, working on current products and occasionally taking time off. It seems that the majority of Inventors have the attitude that the company contact should magically know they are going to call and be sitting by the phone waiting for them to call. It just doesn’t work that way in the real world.

There isn’t a week that goes by that I don’t have several Inventors contact either asking if I would like to invest in their idea or can I direct them to someone that would invest. The thing that troubles me is the lack of understanding of what they are asking and what it will require. I have listed some questions and information below that you need to consider before asking for an investment. Can you tell me any other questions you would ask or information you would want if you were the investor?

1. Not knowing how much they realistically need in the form of an investment to get their product from idea to the store.

2. Not knowing the value of their product so they can break the investment down into percentages. The Investor will need to know what percentage of the product/company they will own for their investment. Example: Does a $50,000 investment get them 10% of the company?

3. Not having a business plan detailing how they plan on spending the money once they have the investment.

4. What ROI (return on investment) the investor can expect and how soon after the investment can they expect to see a return?

5. Will you need more than one round of investment money?

6. Do you have a distribution network for your product?

7. Do you already have other Investors?

8. Do you have a working model?

9. What protection do you have for the idea, if any?

10. Who are your competitors?

11. Do you know the regulations for taking an investor’s money for your state? (some states have limits on what can be invested and the person investing has to have x amount of worth before it is allowed)

12. Do you know how to administrate the shares certificates?

13. Will you be an LLC or Corporation?

14. Who will be on your board and what responsibilities will they have?

15. Do you have an exit strategy and what is it?

16. Are you selling strictly online, brick and mortar, combination of both?

17. Will your product sell local, regional, seasonal, national?

18. Are you compliant with the laws and regulations of your state for taking investments from outside parties?

19. If you are licensing it what is the lowest percentage you will accept?

20. Will you be asking for an advance and how large of an advance?

21. Will investors be reimbursed based using the net or gross income?

22. Will payment to investors be monthly, quarterly, annually?

23. Does the Investor add value other than just their money? Do they have contacts that could increase your companies value, get you more business, expand your distribution, lower your manufacturing costs, etc?

24. How has your companies money been spent up to this point? Are you frugal with your money or make poor choices wasting money? Investors want to see you use their money wisely and not spend it on items that do not add to the value of the process.

Another point about investors that Inventors need to consider is the fact that once they invest their money a number of them take a hands on approach to the company they invest in and want a say in the how their money is used to protect their investment. And your vision and theirs may not be in sync which can cause conflict in the business. So you need to have a clear understanding between you and the investor what their role is and your and their expectations before you take any money.
Have seen an Investor show up to the business and direct employees to do other tasks than the boss had assigned them. The employees were confused on what to do because they knew the person invested a large amount to the business and did not want to make them mad. The Owner of the business had a habit of leaving others in charge as he went out foolishly wining and dining his friends trying to impress them on the Investors money. The Investor ended up pulling out of the investment demanding all his money back. The owner ended up having to liquidate a majority of the company assets to refund the Investor. He tried for three months to get other Investors interested in his company but the original Investor made a point of letting other Investors in his circle of friends that the business was a bad investment. The business went bust a couple months later due to lack of funds.

When many Inventors think about licensing their idea/invention they think of Exclusive and non-exclusive as the only options. What may be overlooked is the way these can be used to your advantage. Example, if I licensed my idea to a toy company and they wanted an exclusive contract it can say that I am exclusive to the toy industry but open to any non toy markets. So I can go to the pet industry and get an exclusive deal there and not violate the contract with the toy company.

This can work well in your royalty percentages because most companies want an exclusive deal for their industry to keep their competition at bay and will give a better royalty percentage for that deal. And this allows you to seek other markets that do not affect the company you already have a deal with. Now you can still go after multiple non-exclusive deals in a particular industry but the percentage is normally lower because they know they will possibly have competition. Going the non-exclusive route can also have its pitfalls.

Lets say you go to SpinMaster toys and get a non-exclusive deal for 3% royalty.But had it been an exclusive license they would have paid you 5% royalty. And now you approach Lego with the same non-exclusive deal and they have interest. You have to disclose to them you already have a non-exclusive deal with SpinMaster Toys. This information may cause Lego to pass on the deal because they know they already have competition in the market and SpinMaster already has a leg up getting to market since they are already in the process of making the toy. So does Lego take a chance they can still grab a large portion of the market or do they pass because of the competition?

This will be the challenge for every company you approach after getting the first deal.

If you sign a exclusive deal with a company that states they are the only licensee, you can not go after any other industry even if the other industry is not in their competition area.

If you have a technology that can jump to other markets make sure you indicate this once you have interest from a company. You do this for a couple of reasons. One to let them know you will be pursuing markets outside their area and it needs to reflect this in the contract and it also lets them consider it for other markets they may be in you are not aware.

There are many companies known to consumers for being in one market, but are also in a diverse multiple of markets. So, by doing your research and knowing the other markets they are in you can tailor your pitch to show how they can possibly get multiple market sales off of one product idea and grab a larger market share before the competition. And you can be prepared to negotiate the type of deal that works best for you and your idea/product.
Here is a good example. Look at the Newell company. Were you aware they are in all of these markets? http://www.newellbrands.com/OurBrands/Pages/our-Brands.aspx

I don’t know any Inventor that has submitted an idea for review by a company that has not gotten a rejection. The question is how do you react to that rejection? Below are things that Inventors have done when they received the dreaded rejection. Do you see yourself or any of your fellow Inventors falling into these traps?
Rejection is part of the business. No matter how good your ideas are you WILL see rejection. Learn from it and make informed decisions. Don’t let anger ruin what could be turned into success with more research or going in a different direction.

Are these things you might do?

Do you rant and rave to yourself at home or to anyone that will listen about how stupid the company is for turning you down?

Do you send a nasty email to the company telling them they will be sorry for turning down your million-dollar idea? Because you will now sell it to their competitor and destroy their company.

Do you teach the company a good lesson for turning you down by not submitting anything else to those stupid people?

Do you toss your idea in the trash and just forget about it ever again?

Do you wish the company was closer so you could go there and give them a piece of your mind?

Do you call and email the company daily telling them they need to reconsider your idea because they are passing up the opportunity of a lifetime?

Do you send them even more information on the rejected idea to try and change their mind?

Do you look for someone else to blame for them not “Getting” your idea?

Do you tell the company you are going to tell all your friends not to buy any of their products since they were stupid enough to pass on your idea?

Do you now hate anyone that has succeeded in getting their product to market and you have not?

Do you get friends to write the company and tell them they would buy your product if the company made it?

Do you toss away all your other ideas because no company is going to be smart enough to see your genius?

Do you decide you will show them and pay a company to make your product for you when you have no idea where to go next?

Now, these next two have to be the top winners for what not to do when you get rejected by a company. I was speaking to a couple of Inventors this weekend and was surprised when one of the Inventors told me her plan to get back at a company that rejected her idea. She said she had sent her product to a company that was a perfect fit since they do most of their products in plastic and hers was a plastic product. She was devastated when they said it was a decent idea but just wasn’t what they were looking for and with a limited R&D budget to work with they were going to pass.

Her reaction was that the company was worth millions, had enough of a budget to cover her product, they said it was a decent idea and was just turning her down because she is female. She wants to file a discrimination lawsuit against them. I tried explaining that a company no matter what they are worth generally has a budget they work within for R&D and the people running that budget are looking for the most bang for their buck. If they thought her idea was decent but not great and saw it as high risk on getting a return on investment I understand and agree they should not go forward with it. It has nothing to do with gender, it is a financial decision. She said I sounded just like the lawyer she talked to and stormed off. Glad I am not working with her. LOL

This is another example of why many companies are reluctant to work with outside Inventors.
Here is the second winner. Talked with an Inventor last week that wanted to take out an ad in their local paper blasting the company that rejected their idea. When I asked if they thought that would help or change the company’s mind about their idea she said “No, but I am so frustrated I don’t know what else to do.” After talking for a few minutes, she decided that was probably not in her best interest.

Are any of the above items options you think would help you or build a better relationship between you and the company that rejected your idea? I have gotten rejected by plenty of companies and I don’t like it any better than the next person but I have also licensed products to those very same companies that rejected my other ideas. You must be willing to take criticism, rejection, learn from it and improve your ideas if you plan to succeed.