Can You Make Money with Your Idea or Invention?
Innovative ideas are essential to business progress. It is very difficult, however, for innovators to get the kind of financial and management support they need to realize their ideas.
This Aid, aimed at idea people, inventors, and innovative owner-managers of small companies, describes the tests every idea must pass before it makes money.
You've Got an Idea? Great!
So, you've had an idea for an invention or an innovative way of doing something that will boost productivity, put more people to work, and make lots of money for you and anyone who backs you? As you've probably heard, you're the kind of person your country needs to compete in world markets and maintain its standard of living. You're the cutting edge of the future.
You are another of those individuals on whom progress has always depended. We all know that it hasn't been huge corporations that have come up with the inventions that have revolutionized life. As the discoverer of penicillin, Sir Alexander Flemming, said, "It is the lone worker who makes the first advance in a subject: The details may be worked out by a team, but the prime idea is due to the enterprise, thought and perception of an individual." Innovators like you are business's lifeblood.
Owner-managers who have started companies on new ideas know first hand about the innovation process. They also know that you can expect to hear....
You've Got an Idea? So What?
In the first place, the chances that you are the first to come up with a particular innovation are somewhere between slim and none. Secondly, even if you have come up with the better mouse trap, nobody--but nobody--is going to beat a path to your door. In fact, in the course of trying to peddle your BMT, you'll beat up plenty of shoe leather wearing paths to other people's doors. You'll stand a good chance of wearing out your patience and several dozen crying towels as well.
Why is it so hard to find backers for your brainchildren? One consultant put it: "Nobody wants unproven ideas. Nobody wants to be first. Everybody wants to be second." Why this fear of the new?
Well, new product failure rates are estimated conservatively to be between 50 and 80 percent. One survey of major companies with millions of dollars to spend on R & D, market research, and product advertising, and with well-established distribution systems found that of 58 internal proposals only 12 made it past initial screening. From these 12 only one successful new product emerged.
Another group set up to help innovators has found that of every 100 ideas submitted 85 have too many faults to bother with. They can be eliminated immediately. Of the remaining 15, maybe five will ever be produced. One of those might--only might--make money.
With odds like 99 to 1 against an idea being a monetary success, is it any surprise that your idea is greeted with a chorus of yawns? People--companies, investors, what have you--are basically conservative with their money. Ideas are risky.
Does that mean you should forget about your idea? Of course not. It merely means that now you're beginning to see what Edison meant, when he said, "Genius is one per cent inspiration and ninety-nine percent perspiration."
Again, those of you who own small firms started on innovations are well aware of the truth of Edison's words. You've been through the hard work.
Can You Exploit Your Idea?
Although coming up with what you think is a sure-fire idea is the biggest step, it's still only the first one. You've got the other thousand miles of the journey to success still ahead of you.
Many things remain to be done before you can expect to realize the first dollar from your invention or other innovation. You should be prepared for the unhappy discovery that the end of the line for your idea may turn up well before the point you needed to reach to make money from it.
At a bare minimum, your idea will have to pass the following tests:
Is it original or has someone else already come up with it?
Can someone produce and distribute it if it's an invention or other product, or use it if it's a marketing innovation, a new use for an existing product, or the like?
Will it really make money? (Will someone buy it?)
Can you protect your idea?
That seems to be a modest enough list, and it is. The problems arise from the dozens of underlying questions that must be answered before the major questions can be resolved. Here, for example, are the 33 areas that the University of Oregon's Innovation Center runs each submitted idea through to determine if it has commercial merit:
Legality Safety Environmental Impact Societal Impact Potential Market Product Life Cycle Usage Learning Product Visibility Service Durability New Competition Functional Feasibility Production Feasibility
Stability of Demand Consumer/User Compatibility Marketing Research Distribution Perceived Function Existing Competition Potential Sales
Development Status Investment Costs Trend of Demand Product Line Potential Need Promotion Appearance Price Protection Payback Period Profitability Product Interdependence Research and Development
Now that is not a modest list. However, for the moment let's ignore the 33 and look at the four broad questions.
Is Your Idea Original?
Obviously, if somebody has already come up with and produced as good an item or a better one, if would be pointless for you to pursue a similar idea any further. You'd only be wasting your time and money.
There are lots of places to look to find out. If your idea is for a consumer product, check stores and catalogs. Check trade associations and trade publications in the field into which your invention or innovation fits. Visit trade shows relevant to your idea. Look in the business and popular press. (Here, you can consult The Reader's Guide to Periodical Literature to help you in your search. Your public library has a copy.)
Don't be afraid to ask people in the field if they've ever heard of anything along the lines of your idea. In the pure idea stage it's not very likely that somebody will steal your idea--all the hard work still has to be done. Besides, you can ask general sorts of questions and keep the details of your idea to yourself if you're really anxious that your idea will be pirated. Patent rights to an idea in major foreign countries will be jeopardized by uncontrolled disclosure prior to filing a patent application in the United States.
Obviously, if what you've come up with is an invention or an idea that can be put into patentable form, you'll eventually have to make a patent search. You could do that in this early stage, but it's probably a better idea to hold off until you've taken a look at your idea in the light of the next two questions.
How Will the Invention Be Produced and Distributed?
The first thought many innovators have is to take their ideas to a big national company. Provide the dazzling idea, they think, and let the giant work out the details. After all, the national company has the money, the production capability, and the marketing know-how to make this surefire profit maker go.
Unfortunately, the big companies are almost never interested in ideas from outsiders. Whether that's because, as one innovation broker has suggested, that outside technology is "a risk, a threat," or simply because large corporations need potential sales of an item to be in the tens of millions of dollars, doesn't matter. The cold fact is that selling a big firm on your idea is in the 100,000 to 1 shot range.
On the other end of the scale, you may be able to produce some items yourself, working out of your home and selling by mail order. This method can be a good way to get started, but after a while you may find yourself getting tired of having 200,000 better mouse traps stashed in your bedroom.
To be sure, if you can start (or already have) your own company, you will be better off. It's easier to sell a company than a patent, even if the company is losing money.
Many potential buyers understand a company much better than they understand the technology of an invention. Business people usually look at the profit-and-loss possibilities differently from the way an innovator does.
Many of these business people follow what one innovator has called "the `Anyhow' theory of economics": "We have a plant anyhow. We have a sales force anyhow. We advertise anyhow. We're smarter anyhow." Such business people also know that by the time they purchase a company most of the bugs are out of the technology and customers exist.
Between the extremes of starting your own company or having big business buy you out is taking your idea to small and medium-sized businesses. Such firms would be happy to produce an item producing sales in amounts that simply don't interest large companies. Smaller firms may lack marketing and distribution expertise, but again your major problem is even finding one that can help you realize your idea and is interested in trying.
Will Your Idea Make Money?
This is the question that worries everybody. Here is where the risk arises that makes it so difficult to interest people in backing your idea. It's a question that's really impossible to answer with any assurance. After all, major corporations even with massive market studies hit clinkers all the time. Remember the Edsel? On the other hand, an idea so seemingly stupid that you'd think it was somebody's idea of a silly joke might make millions. Don't you wish you'd thought of the pet rock?
So many factors need to be considered to answer this question. Is there a market? Where is it? Is it concentrated or dispersed? Could the size of the market change suddenly? Will competition drive you out? These questions are by no means the bottom of the iceberg. Yet, answering the money question to the satisfaction of potential backers is the key to the other questions.
Can You Protect Your Idea?
Once you've come up with tentatively satisfying answers to the originality, production and distribution, and salability questions, it's time to consider protecting your idea. After all, it looks like you may have something.
If you do have a patentable item, it's time to look into trying to protect it under the patent laws. Here briefly are the steps you'll need to follow:
Get a close friend (who understands your invention) to sign his or her name on a dated diagram or written description of the invention. Or, you can file a "disclosure document" with the Patent Office. Taking one to these measures will provide evidence of the time you came up with your invention in case of a dispute with other inventors over who conceived it first. Sending yourself a registered letter describing the invention is useless as evidence. Filing a disclosure document does not give you any protection. Get patent protection as soon as possible.
Make a patent search to see whether or not the invention has already been patented in as good or better a version. You can make a search yourself. The only place to make such a search efficiently is at the Patent and Trademark Office in Arlington, Virginia. The staff at the Office will help you. You may find, however, that the only practical way to proceed from patent search on is with the help of a patent attorney.
If the invention has not been patented, prepare a patent application and file it with the Patent and Trademark Office.
Again, you can do this yourself, following the pattern you find in similar, recent patents, though, again, a patent attorney will be helpful. If you have an attorney prepare your application, go through the exercise yourself, anyway. Compare your application with your attorney's. Make sure all of the points you regard as important are covered and that the attorney has written what you want to say. Work out differences together.
Promptly file amendments or additional patent applications with the Office if you make important changes in your invention.
Having a patent won't mean you have absolute protection. In fact, one survey found that in over 70% of the infringement cases brought by patent holders to protect their patents, the patent itself was held invalid.
Defending your patent can be very expensive. If you don't have a patent, however, the probability of successfully protecting your invention approaches zero.
Mere ideas or suggestions can't be patented. Some of these you may be able to be put in patentable form, but for those that you can't it's pretty much do-it-yourself. Consult with a patent attorney or the Patent Office about the classes of patentable subject matter.
Say, for example, you think you have a great gimmick for selling more of Company A's products. Leaving aside the likelihood that Company A won't be interested, how do you approach Company A with your idea with any assurance they won't simply use it without paying you a cent?
About the best you can do is write them a letter telling them you have a promotional (or whatever) idea and, without giving them any details, offer to send it to them. Include in your letter a statement to be signed and returned by a Company A representative promising they won't divulge your idea or make use of it without compensation (to be negotiated between them and you), if they'd like to know the details of your plan. They'll probably say thanks but no thanks or that they can't promise any such things without seeing the idea, but it's the only course open to you.
Is There Any Hope?
Each section of this Aid seems to be packed with bad news, but the Aid wouldn't be doing you any favors by raising false hopes. The point is, you need to be more than an idea person to make money out of an invention or other innovation.
Many small businesses have been doomed from the start because of false hopes. Those of you who already operate going firms have avoided wishful thinking in other business areas. You need to avoid it where innovation is concerned, too.
What are potential idea and invention backers looking for? If you read around in the subject, you'll run across many comments to the effect that:
What we want is an entrepreneur, someone who cannot only invent a product but find capital and a way of getting the product on the market.
It's better to have a fair new product and a great manager than the other way around.
Management is the most important element for success of an invention.
Edison wasn't only an inventing genius. He was also a promoting genius, a publicity genius, a capital-raising genius, a genius at seeing potential markets for inventions.
Have you ever heard of Joseph Swan? A strong case could be made for saying he invented the electric light eight months before Edison. Who got the patents? Who got the bulb to the market? Edison. Who invented the electric light bulb? Edison.
Few of us are Edisons. We may have brilliant product ideas, but we aren't usually knowledgeable, let alone brilliant, in all the of the areas that need to be covered. We need help.
Where Can you Go for Help?
While you probably still have to invest considerable perspiration yourself, you can get help with some of the sweating. Even Edison had some help.
Patent Attorneys and Agents. Attorneys and agents can help you make patent searches and applications, if you can't do them yourself. The U.S. Patent Office has geographical and alphabetical listings of such people, but doesn't make recommendations or assume any responsibility for your selection from their lists. You can also find attorneys and agents by looking in the classified section of your telephone directory under "Patents."
Invention Promotion Firms. Also likely to be listed in the "Patents." section of the directory are firms that offer--for a fee--to take on the whole job of protecting and promoting your idea. Caution is necessary in dealing with such promoters.
Federal Trade Commission investigations found that one firm, which charged fees ranging from $1,000 to $2,000, had ten clients who made money on their inventions--that was out of a total of 35,000. Another firm with 30,000 clients had only three with successful inventions. If you elect to use an idea promotion firm, make sure:
They can provide you with solid evidence of their track record--not just a few flashy success stories, but verifiable statistics on the number of clients they've had and the number who have actually made money.
They don't collect the entire fee in advance.
They will provide you with samples of their promotional materials and lists of companies to whom they've sent it. (Then check with those companies yourself.)
You check the promotion firm's reputation with the local Better Business Bureau, Chamber of Commerce, a patent attorney, or a local inventors or innovators club.
Invention Brokers. Brokers work for a portion of the profits from an invention. They may help inventors raise capital and form companies to produce and market their inventions. They often provide sophisticated management advice. In general, you can expect these brokers to be interested in more complex technology with fairly large sales potential.
University Innovation/Invention/Entrepreneurial Centers. These centers, some funded by the National Science Foundation, show promise for helping inventors and innovators. The best known one, the University of Oregon's Experimental Center for the Advancement of Invention and Innovation (The Innovation Center no longer exits), for example, evaluated an idea for a very modest fee. The Center evaluated an idea on 33 criteria (listed earlier in the Aid) to help inventors weed out bad ideas so they won't waste further time and money on them.
The Center also identified trouble spots that required special attention in planning the development or commercialization of a potential new product. If an idea looked like it had merit and was commercially feasible, the Center tried to link the innovator with established companies or referred him or her to sources of funds.
The Small Business Administration. The SBA's Small Business Institutes (SBI's) are located at more than 450 colleges and universities around the country. While currently few SBI schools can provide much help with the technical R & D aspects of innovations, they certainly can provide the market research, feasibility analysis, and business planning assistance necessary to make an innovation successful.
SBA field offices (see your local telephone directory under "U.S. Government") can provide you with information about the SBI program. You may find other management assistance programs offered at the field offices of help in realizing your idea as well.
National Bureau of standards. The Office of Energy-Related Inventions in the U.S. Department of Commerce's National Bureau of Standards will evaluate non-nuclear energy-related inventions and ideas for devices, materials, and procedures without charge. If the office finds that the invention or idea has merit, it will recommend further study by the Department of Energy. The Department of Energy may provide support for the invention if it shows promise. This process may take from nine months to a year.
Inventor's Clubs/Associations/Societies. You may have such clubs in your locality. You can share experiences with kindred spirits and get good advice, low cost evaluation, and other help.
Talking with other inventors is probably the most helpful thing you can do. Find someone who has been through the entire routine of patents, applied R&D, and stages of financing. It doesn't matter if the end result was a financial success or failure. Getting the nitty-gritty of the process is what's important.
Are You Being Unreasonable About Your Chances?
If you have read this Aid and still think you can make money with your idea, some people might think you've missed the point. If you continue to believe in your idea after looking at the odds and obstacles, you ore being unreasonable.
That's exactly what you should be. You're in good company.
All progress is made by unreasonable people, George Bernard Shaw observed. Reasonable people adapt to the world around them; unreasonable people try to change it.
Checklist for Going Into Business
Thinking of owning and managing your own business? It's a good idea--provided you know what it takes and have what it takes.
Starting a business is risky at best; but your chances of making it go will be better if you understand the problems you'll meet and work out as many of them as you can before you start.
Here are some questions and work-sheets to help you think through what you need to know and do. Check each question if the answer is YES. Where the answer is NO, you have some work to do.
Before You Start
How about You?
Are you the kind of person who can get a business started and make it go? (Before you answer this question, use worksheet number 1.)
Think about why you want to own your own business. Do you want to badly enough to keep you working long hours without knowing how much money you'll end up with? Have you worked in a business like the one you want to start? Have you worked for someone else as a foreman or manager? Have you had any business training in school? Have you saved any money?
How about the money?
Do you know how much money you will need to get your business started? (Use worksheets 2 and 3 to figure this out.) Have you counted up how much money of your own you can put into the business? Do you know how much credit you can get from your suppliers--the people you will buy from? Do you know where you can borrow the rest of the money you need to start your business? Have you figured out what net income per year you expect to get from the business? Count your salary and your profit on the money you put into the business. Can you live on less than this so that you can use some of it to help your business grow? Have you talked to a banker about your plans?
How about a partner?
If you need a partner with money or know-how that you don't have, do you know someone who will fit--someone you can get along with? Do you know the good and bad points about going it alone, having a partner, and incorporating your business? Have you talked to a lawyer about it?
How about your customers?
Do most businesses in your community seem to be doing well? Have you tried to find out whether stores like the one you want to open are doing well in your community and in the rest of the country? Do you know what kind of people will want to buy what you plan to sell? Do people like to live in the area where you want to open your store? Do they need a store like yours? If not, have you thought about opening a different kind of store or going to another neighborhood?
(Questions continue after Worksheets No. 1 and 2.)
Worksheet No. 1
Under each question, check the answer that says what you feel or comes closest to it. Be honest with yourself.
Are you a self-starter?
* I do things on my own. Nobody has to tell me to get going. * If someone gets me started, I keep going all right. Easy does it. I don't put myself out until I have to.
How do you feel about other people?
* I like people. I can get along with just about anybody. * I have plenty of friends--don't need anyone else. Most people irritate me.
Can you lead others?
* I can get most people to go along when I start something. * I can give the orders if someone tells me what we should do. * I let someone else get things moving. Then I go along if I feel like it.
Can you take responsibility?
* I like to take charge of things and see them through. * I'll take over if I have to, but I'd rather let someone else be responsible. * There's always some eager beaver around wanting to show how smart he is. I say let him.
How good an organizer are you?
* I like to have a plan before I start. I'm usually the one to get things lined up when the group wants to do something. * I do all right unless things get too confused. Then I quit. * You get all set and then something comes along and presents too many problems. So I just take things as they come.
How good a worker are you?
* I can keep going as long as I need to. I don't mind working hard for something I want. I'll work hard for a while, but when I've had enough, that's it. * I can't see that hard work gets you anywhere.
Can you make decisions?
* I can make up my mind in a hurry if I have to. It usually turns out O.K., too. * I can if I have plenty of time. If I have to make up my mind fast, I think later I should have decided the other way. * I don't like to be the one who has to decide things.
Can people trust what you say?
* You bet they can. I don't say things I don't mean. I try to be on the level most of the time, but sometimes I just say what's easiest. * Why bother if the other fellow doesn't know the difference?
Can you stick with it?
* If I make up my mind to do something, I don't let anything stop me. * I usually finish what I start--if it goes well. If it doesn't go right away, I quit. Why beat your brains out?
How good is your health?
* I never run down! * I have enough energy for most things I want to do. * I run out of energy sooner than most of my friends seem to.
Now count the checks you made.
How many checks are there beside the first answer to each question? How many checks are there beside the second answer to each question? How many checks are there beside the third answer to each question?
If most of your checks are beside the first answers, you probably have what it takes to run a business. If not, you're likely to have more trouble than you can handle by yourself. Better find a partner who is strong on the points you're weak on. If many checks are beside the third answer, not even a good partner will be able to shore you up.
Now go back and answer the first question.
Worksheet No. 2
Estimated Your estimate Your estimate What to put in Monthly of monthly of how much column 2 Expenses expenses based cash you need (These figures are on sales of to start your typical for one kind
Checklist for Going Into Business Copyright (C) 1988, Microsoft Corporation. All Rights Reserved. $_____________ business of business. You will per year (See column 3) have to decide how many months to allow Item for in your business)
Column 1 Column 2 Column 3
owner-manager $ $ 2 times column 1
salaries & wages 3 times column 1
Rent 3 times column 1
Advertising 3 times column 1
Delivery Expense 3 times column 1
Supplies 3 times column 1
Telegraph 3 times column 1
Other Utilities 3 times column 1
Insurance Payment required by
Social Security 4 times column 1
Interest 3 times column 1
Maintenance 3 times column 1
Legal and other
professional fees 3 times column 1
Miscellaneous 3 times column 1
Starting Costs You Have to Pay Only Once Leave column 2 blank
Fixtures and Fill in worksheet
equipment 3 and put total here
Decorating and Talk it over with a
Installation of Talk to suppliers from
fixtures & equipt who you buy these
Starting Suppliers will help
inventory you estimate these
Deposits with Find out from
public utilities utility companies
Legal and other Lawyer, accountant,
professional fees and so on
Licenses and Find out from city offices
permits what you have to have
Advertising and Estimate what you'll use
promotion for opening
Accounts receivable What you need to buy more
stock until credit
Cash For unexpected expenses or
losses, special purchases
Other Make a separate list and
Total Estimated Cash You Need To Start Add up all the numbers
in column 2
* Have you found a good building for your store? * Will you have enough room when your business gets bigger? * Can you fix the building the way you want it without spending too much money? * Can people get to it easily from parking spaces, bus stops, or their homes? * Have you had a lawyer check the lease and zoning?
Equipment and supplies
* Do you know just what equipment and supplies you need and how much they will cost? (Worksheet 3 and the lists you made for it should show this.) * Can you save some money by buying second hand equipment?
* Have you decided what things you will sell? * Do you know how much or how many of each you will buy to open your store with? * Have you found suppliers who will sell you what you need at a good price? * Have you compared the prices and credit terms of different suppliers?
* Have you planned a system of records that will keep track of your income and expenses, what you owe other people, and what other people owe you? * Have you worked out a way to keep track of your inventory so that you will always have enough on hand for your customers but not more than you can sell? * Have you figured out how to keep your payroll records and take care of tax reports and payments? * Do you know what financial statements you should prepare? * Do you know an accountant who will help you with your records and financial statements?
Your store and the law
* Do you know what licenses and permits you need? * Do you know what business laws you have to obey? * Do you know a lawyer you can go to for advice and for help with legal papers?
Protecting your store
* Have you made plans for protecting your store against thefts of all kinds--shoplifting, robbery, burglary, employee stealing? * Have you talked with an insurance agent about what kinds of insurance you need?
Buying a business someone else has started
* Have you made a list of what you like and don't like about buying a business someone else has started? * Are you sure you know the real reason why the owner wants to sell this business? * Have you compared the cost of buying the business with the cost of starting a new business? * Is the stock up to date and in good condition? * Is the building in good condition? * Will the owner of the building transfer the lease to you? * Have you talked with other business owners in the area to see what they think of the business? * Have you talked with the company's suppliers? * Have you talked with a lawyer about it?
Making It Go
* Have you decided how you will advertise? (Newspapers--posters--handbills--radio--mail?) * Do you know where to get help with your ads? * Have you watched what other stores do to get people to buy?
The prices you charge
* Do you know how to figure what you should charge for each item you sell? * Do you know what other stores like yours charge?
* Do you have a plan for finding out what your customers want? * Will your plan for keeping track of your inventory tell you when it is time to order more and how much to order? * Do you plan to buy most of your stock from a few suppliers rather than a little from many, so that those you buy from will want to help you succeed?
* Have you decided whether you will have sales clerks or self-service? * Do you know how to get customers to buy? * Have you thought about why you like to buy from some sales clerks while others turn you off?
* If you need to hire someone to help you, do you know where to look? * Do you know what kind of person you need? * Do you have a plan for training your employees?
Credit for your customers
* Have you decided whether or not to let your customers buy on credit? * Do you know the good and bad points about joining a credit-card plan? * Can you tell a deadbeat from a good credit customer?
A Few Extra Questions
* Have you figured out whether or not you could make more money working for someone else? * Does your family go along with your plan to start a business of your own? * Do you know where to find out about new ideas and new products?
Checklist for Going Into Business Copyright (C) 1988, Microsoft Corporation. All Rights Reserved.