You've heard it a hundred times, just watch a re-run of Shark Tank if you want to hear it again. Or you can find a hundred articles on the internet that say the same thing. To become an inventor takes the following;
It's true, almost every successful inventor embodies these traits. So does every unsuccessful inventor. So does every lunetic.
The fact is, passion and determination are attitudes. They are not actions that you can take, things that you can do. They don't lead to success. It isn't a useful checklist for a businessman. It's just baloney.
Being a New Inventor is a Bit Like Being in a Cave
To learn how to become an inventor, to understand what separates successful inventors from the merely hopeful, we need to focus on the traits and actions where the successful and unsuccessful differ. As we mentioned above, every inventor is passionate about their invention, every madman is passionate about his delusion.
What you must focus on is what successful inventors do.
The problem that new inventors have, is that it is a bit like being in a cave. With your first invention, or any kind of business startup, it is uncharted territory. You have a great idea, but it is new, so there is no clear path through the woods of "do this", "don't do that."
But there are plenty of voices out there, blogs, books, motivational coaches, TV shows, that say, "Be positive, be tenacious, be committed, practice a silly presentation and get a funny haircut like you are a TV personality." Or our personal of favorite, "Practice excellence, exceed expectations."
This is useless advice. We can assure you, Thomas Edison didn't put a lot of time into pondering his commitment, tenacity, passion, or getting a goofy haircut to polish his public personae. He was too busy working on the nitty gritty details of perfecting and patenting successful inventions.
What inventors need isn't a pep talk, but a list of actions they can take that will lead to success. Actions like the following,
- Pick a good invention idea
- Research the industry and your competition thoroughly
- Do the math
- Build the business plan
- Execute the business plan in a professional manner
This is what investors do. You know them, the guys who say "No." There's a reason they say no a lot. It is because most inventions are not actually viable business ideas. We know that, 99% of patents don't make any money. 90% of businesses fail.
In a sense, we are suggesting that you think more like an investor. We are going to expand on the Five Steps listed above, to provide you with an action plan to escape from the cave of uncertainty. You don't need another pep talk. Right now, you need useful advice.
1. Pick a Good Invention Idea
Sure, you've heard that a thousand times. At this moment, you believe that you have the best invention idea ever. Problem solved.
Not so fast. Remember, we're not doing a pep talk, this is nuts and bolts advice. No hopes and dreams allowed for the moment.
The way you determine if your invention idea is a good one is not by judging your personal passion meter, it is by going through steps 2 through 4. You cannot know if you have a good business idea based upon your gut reaction or raves from your friends. It must be based on; research, profit/loss projections, and the business plan.
Completing these steps will tell you if your invention even has a chance.
Be ruthless at this stage. Rest assured, there are plenty of invention ideas that really did look great on paper, the numbers, the plans, the timing, all looked great and they still foundered. Unplanned and unexpected events will present obstacles. You can't foresee everything.
But there is a lot that you can learn and plan for in advance. It's a tough world out there, you must increase your odds of success as much as possible. That is why in the interest of due diligence, you must do your research, apply good accounting to get a realistic profit/loss picture, and create a viable business model.
A fact that is known to business investors, but not to the general public, is that businesses that are financed by outside capital have higher success rates. This is even after having to pay interest and fees. The reason is that to get a loan or attract venture capital you have to do the research, make the profit projections, and develop a business plan. Then it has to be so convincing that a group of hardcore business people actually fork over their cash. It's not easy. That level of due diligence doesn't just weed out bad ideas, it makes the good ones stronger.
If you want to know how to become an inventor, a successful one, look at your invention the way an investor does. Give your business the same once-over that a group of skin-flint businessmen would. Look at your invention not with passion, but with cold hard business assessment. Don't hope. Plan.
2. Research, Research, Research
It's time to do a deep dive into research. This does not mean watching re-runs of Shark Tank. Or reading books by Seth Godin with vague encouragement on breaking out of your cage and flying away on free media, or any of that claptrap.
You need to research your invention and its industry from top to bottom. Good places to start are;
- Industry Trade Shows
- Industry Associations, which often have useful statistics, trends, and contacts
- Spend time at the point of purchase sights. If it is a department store, go there, look at displays, note all the merchandise, take note of retail prices, take of note of discounts, talk to the staff to learn what is moving quickly. If it is online or in a grocery store, wherever, same thing, go to the venue and explore. Know it inside and out.
- Check out ratings agencies and the business press. You can learn a lot about your chosen industry and even particular companies who make up your competition with information services like Dunn and Bradstreet, and Standard and Poor's.
- Use your public library. The research librarian can point you toward all of the business and association journals.
- Most American, Commonwealth, and European cities have a small business assistance organization. These are often staffed by retired business professionals. They have a wealth of information at low or no cost, and in some cases can help you to acquire government funding through grants or loans.
- Consult with a Certified Financial Planner. They have access to business information (the kind you have to pay for) and can help you ask the right questions.
- Find out where your competition does their invention manufacturing. You don't necessarily have to follow suit, but its a good place to start establishing your cost baseline.
- Make a plan to develop your invention prototype, where and when.
- Explore government permits, import quotas or taxes, and safety standards which may apply to your invention idea.
This might sound like a long list, but don't fear. There is a big upside to conducting this research. It helps you to refine your invention. And, while you are digging in, you will probably come up with another dozen potential ideas as you see gaps and opportunities in the industry.
Just to prove how important research is, here are a couple of real world examples; Sarah Blakely of Spanx, and Haney and Abbott who created Trivial Pursuit. Both were billion dollar ideas. Both did a great job with their research.
Spanx is a popular hosiery item, think of the product as pantyhose without legs. Sarah Blakely came up with the idea when she was just 25 years old. It took her years to get the product off the ground, but now she is one of the most influential women in the world. When she was developing her idea, she began with a thorough search and understanding of the hosiery industry. She learned where hosiery was made, who was responsible for buying it, what the price points were, what the packaging looked like,..she became an industry expert. Even the name was chosen based on solid research, "k" sounds tend to do well, as does the "ks" sound; think Xerox, Coca Cola, and Kodak.
Chris Haney and Scott Abbott came up with the idea for Trivial Pursuit over beers. But they then dug into researching. They visited toy shows to learn everything they could about how the industry worked. They didn't go to the trade shows and talk about their invention in the early stages. Instead, they posed as reporters so they could learn as much as possible. Their research paid off, with one of the most popular games in history.
We can't emphasize this step enough. Research does not get in the way of moving forward, it is the basis for all of your future action. Do it well.
3. Do the Math
It is not hard to make something and sell it.
It is very hard to make something, sell it, and make a profit.
The starry eyed inventor, the one who has been blinded by passion, commitment, hard work, and tenacity, tends to think of math as the enemy. Those numbers can smash dreams.
The successful inventor learns to embrace those numbers. They are the numbers that business dreams are made of. They are the only numbers that count in business.
Profit and loss is how the game is scored. Great ideas that don't make money may be delightful in some other way, but they are not business. Business has one score card and that is profit. It doesn't matter if it is a cure for cancer, a new jump rope, or cards for grandparents day.
You have to account for all of your business expenses, including manufacturing, advertising, servicing, taxes, imports, delivery, and still have money left over at the end. And you have to do that at the price point the market will bear.
However, most inventions have an early release stage, where they operate at a loss. Trivial Pursuit is a good example. The inventors knew that their game had to retail at $29.95 or less, or it was a no go. Their first 1100 games, their test market, cost them $75 a piece. They sold them to stores at $15, to allow for the retail price of $29.95. They lost $60 per game.
Clearly their numbers did not add up. But, from their research they knew how the toy industry worked. They wanted proof that the game would be popular with consumers and sell well once it was on the shelves. Their first 1100 games were a test. That test gave them the proof that Trivial Pursuit would be popular. This allowed them to approach large game companies with solid real world information for sales projections. They knew that the large companies could produce the games at a fraction of the cost. And with large production, the numbers were very profitable indeed.
They also knew that they would need funding to get to the stage where they could approach those large businesses with real numbers. Their research allowed them to estimate how much capital they needed to get from A to B successfully. Hopes and dreams weren't going to cut it. They offered shares in their company to 32 investors and raised the $40,000 they needed. It goes without saying, all 32 investors are very happy today.
The numbers are the story in business.
4. Business Plan
A good business plan is your road map to invention success.
It contains all of your research information, as well as your cost, revenue, and funding requirements. It also contains timelines.
Many inventors can do their own business plan initially. But, it is always a good idea to see what other resources are out there, and to seek input from professionals in the financial services industry. You can look for sample plans and information on how to build a business plan at your local library and through business publications.After you have a start, you can have your plan reviewed by any of the following;
- Small Business Aid organizations funded by government (check with your local library for locations)
- Certified Financial Planners (CFPs)
- Certified Public Accountants (CPAs)
- Bankers and lenders who work with new companies
- Lawyers who specialize in new companies
- Provisional Patent Lawyer of Agent
The Small Business Associations are often the best places to start, because they are extremely low or no cost. You might think that a volunteer won't have much in the way of useful knowledge. Think again, many of these volunteers are extremely successful business people with years of experience. They provide these services out of a sense of community spirit. Having them take a look at your plan before you move on to the paid services can save you a lot of time and money in the long run. Many now-successful business people point to volunteer Small Business Aid groups as a critical factor in their early success.
You should also consult with professionals in developing your business plan. But, a word of advice. Don't walk in and ask them to develop a plan for you. This is an expensive and time consuming approach. Instead, develop your preliminary plan and present it to them for review. This is more cost effective than handing it off and expecting a third party to solve all of your problems.
At the same time, don't cut corners by thinking you are going to become your own CPA or lawyer. Take your idea and plan as far as you can, and then get the inupt and approval of the experts.
In the end your Business Plan should tell you or anyone else who reads it;
- Exactly what your company does (this can actually be harder than you think)
- Exactly how you earn income and profits
- How much those profits are
- What your COGS are (cost of goods sold)
- How long it will take your company to make a profit
- How much capital you need to get there
- Timeline of Milestones, including funding, prototypes, manufacturing start dates, sales targets, delivery targets, and more
- Who you need to talk to, specifically named, to sell your product. Projected dates for those meetings to happen.
- Marketing, including Trade Show schedules if applicable, and all other media target dates.
- Entity Structure, for example as an S Corp, LLC or partnership
5. Execute Your Plan
If you have done a good job with your Business Plan and Research, putting it into place should flow smoothly.
This is the point where you feel like all of that "waiting" is finally over. The pieces are falling into place. Orders are coming in, product is manufactured, delivery is underway...in a way, it is magnificent. When Business Plans work, life doesn't get much better.
Of course, most of the time there are a few hiccups. If your plan was really well done and you availed yourself of good solid research and professional advice, your plans should flow along like a clock that sometimes stops, but can always be started again with a few tweaks.
However, if you've cut corners, followed your passion and taken a swan dive based on your commitment rather than your knowledge, then you will probably find trouble with every step of the process. That is why you must first research, then plan your business based on facts, not emotions.
Even if you have a great plan, there are likely to be unforseens. There are three big ones that you need to be on the lookout for and have contingency plans in place to cope with them. They are;
- Funding Sources Failure to Follow Through
- Order Cancellation
- Late or No Payment
In business today, funding sources can disappear just like that. It often has nothing to do with anything you have done, it is generally some other event. The point is, be aware that until you have the money in your account, it isn't certain. Create back up plans or use multiple funding sources so that the risk is dispersed and one failure doesn't jeopardize your entire operation.
As for cancelled orders, the key to avoiding this surprise is to have an attorney draw up iron clad contracts that protect you. You cannot produce mass quantities on a hand shake or a hope of commitment. If you are going to go through the expense of manufacturing products for a particular vendor, you need pruchase orders that guarantee their commitment.
Late payments are particularly difficult for small businesses. Large big box retailers typically pay 90 to 180 days from the date of delivery. The same is true of government contractors. (BTW, government agencies have unusual accounting and invoicing practices, you must consult with a CPA who understands and specializes in your particular agency prior to accepting a contract and adhere to all billing stipulations exactly.)
Late payment can put a small business in a bind. Here you are, with the long dreamed of contract for 100,000 or more of your product. You broke into WalMart. But, you don't necessarily have the capital to produce the product and carry that loan for half a year or more. Be aware that it happens all of the time. Build it into your business plan if you are going to work with government agencies or big box retailers, you need factor loans or a line of credit. Forewarned is forearmed in this case.
The worst is when your buyer faces financial difficulty or goes out of business altogether, leaving you on the hook without payment. You can never plan for this 100%, after all Lehman Brothers had a great credit score the day before they went bankrupt in 2008, but you can protect yourself to some extent by performing credit checks and watching industry trends.
Those are the bad things that can happen. On the other hand, with a great product and a sound business plan, you could well find that your invention idea takes off.
And when it does...well that is a moment to savor. You have just participated in the American Dream as a successful entrepreneur. Congratulations and welcome to the club.