Taking Your Invention to the Market

February 2, 2010

I have received inquiries about how to go about sourcing manufacturers, particularly early in the short run stage, both domestically and in China as well as how best navigate the route to market with one’s invention or product line.  Here are guidelines from inventor expert Bob Dematteis, whose inventions exceed $25 million a year to companies like Sears, Wal-Mart and Kroeger:

A smart inventor will build a team as soon as possible. The four principal team members will be you, a patent attorney, a manufacturing expert and a marketing expert. Again, keep in mind that sales generate income, which will generate profits or royalties. And, since inventors are usually not very good at sales, your marketing expert is the most important key member you will want on your team as early in development as possible.

An inventor can brainstorm the basic concept and even make a crude prototype. But prototyping should not be advanced without substantial input from the marketing expert. After all, this marketing expert (or group) is the one that is going to generate the sales. It makes no sense to spend your valuable time and money on developing an idea that no one wants to buy. Having the right marketing person on your team, at the earliest possible moment, will ensure that you will be developing your invention with all the right attributes. This marketing expert will provide valuable input into evaluating the invention and can even provide sales projections.

The simple flow chart below shows how the initial invention evaluation process dovetails with your patent protection process. You basically have three alternatives to start the patent protection process of an idea while it is being evaluated.

The first and best alternative is to evaluate your invention’s merits and its sales potential with an expert you know and trust. Second, if you do not know any trusted experts, you can use confidentiality agreements. Third, if you want to spend the extra money and speculate on having your invention ready for mass production and producing income in a year, you can file a simple, provisional patent application for as little as $75.

As you can imagine, many larger companies will not sign confidentiality agreements as a matter of policy. Filing a provisional patent application can replace the need to use confidentiality agreements and serves to protect your invention’s priority date (the date you file for patent protection). If you file a provisional application you can more openly talk to and interview those marketing experts working with larger companies. The downside of filing a provisional application at an early stage is that you will be incurring the higher costs of filing the regular patent a year later. One year is not necessarily a lot of time to build your team and fully develop your invention. But it should be adequate if you plan your development well.

All three methods are viable approaches for inventors and have their merits. You only need to determine which works best for you in your particular situation. To give you a little insight into my invention activities, I prefer to work either with those marketing experts I know and trust, or using confidentiality agreements with those I do not know well. Any company that will not sign one of my confidentiality agreements I will not consider as a viable team member. And, I will never sign one of their agreements, which invariably protects them a lot more than you.

Figure 6-1 Invention Evaluation – Patent Protection Flow Chart

In your pursuit of finding that key team member, a marketing expert, you will want to interview them based upon several factors. Just remember that some marketing experts will not have any interest in selling your invention and others will simply not have the ability. You would be wise to keep searching until you find just the right match.

If you receive a lukewarm response from one or more, don’t give up right away. Try to field, as many objections as possible from the interviewees to better understand why the objections exist. These problems can invariably become opportunities once they are resolved. Discuss the various alternatives with the expert.

Finding the right marketing expert for your team can quickly propel your efforts forward and can even encourage manufacturers to invest their resources to gear up to manufacture your new invention.

Smart marketing experts who understand the benefits to your invention and have the right contacts can pre-sell your product based upon some simple prototypes. Think about it… can your marketing expert get a commitment for an initial sample order of $20,000 [for instance]? Then it would be easy to assume that subsequent orders from others would probably total 10 times (or more) that amount. With pre-sold orders, it is a lot easier for your manufacturing team member to make a commitment to spend its resources and get the product launched and producing income.


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How to Apply For a Business Loan

February 1, 2010

Here is some quick and straightforward advice on how to get a business loan today from Barbara Weltman. In today’s tough credit market, if you need a commercial loan to buy equipment or machinery or to expand your business, be prepared (and qualified) for the loan process.

Have the right numbers
While lending standards vary from bank to bank, the following is a good rule of thumb if you expect to get a commercial loan:

  • Business owner’s FICO score of 680 or better. Since small business owners must give their personal guarantee for loans to their business (with the possible exception of mortgages on business property), they must have a good FICO score.
  • Cash flow (or debt service) rate of 1.5. Figure the rate by dividing income by debt. Lenders want to see that income is at least 40% greater than debt to achieve a cash flow rate of at least 1.5 to serve the debt.
  • Net operating profit of 15% to 20%. Net operating profit is your gross profit less expenses (selling, general and administrative costs; interest; depreciation; etc.), including officer’s compensation, provision for bad debt, and other expenses. If your gross profit (net sales less the cost of goods sold) is $1 million, then your expenses should be no more than $800,000 to produce a net operating profit of $150,000 to $200,000.

These are not the only numbers that a lender will review. Be prepared to show a balance sheet with a favorable debt-to-equity ratio, a profit and loss statement, and any other financial documents requested by the lender.

Find the right loan program
Look for loan programs that make sense for your business. The Small Business Administration (SBA) increased its guarantee and waived fees on two of its popular loan programs — 7(a) and 504 — through the end of this month (legislation could extend this). Check with SBA lenders about these programs. Find a complete list of SBA loan programs here.

If you can’t qualify for an SBA loan (one that is guaranteed by the SBA but made through a commercial lender), consider alternative financing. Key options:

  • Vendor financing. If you need to buy inventory, machinery, or other items for your business, look to the seller for assistance. Vendor financing is typically short term and available on attractive terms.
  • Factoring. If you need cash quickly and are sitting on accounts receivable, use them to get the cash now. Factors can advance you cash based on your receivables and can usually arrange this payment to you within a few days. Your credit history is not taken into account in factoring. Learn about factoring from Smart Money SmallBiz. Find a factor through the International Factoring Association.
  • Credit card financing. If you need to buy something and expect to pay off the loan quickly, this is the easiest (though not the least costly) way to finance a purchase. Check with your credit card company for details; some cards, such as Chase’s Ink, let you choose which charges you’ll pay off immediately and which you’ll finance. View your credit card options at LowCards.