Lets assume you have an idea for the next great thing. Where do you go from here? Based upon extensive experience in developing products for both large and small companies, I offer a road map of the major steps and important choices faced by inventors
Inventors benefit most from their inventions when they have commercialized and patented them. Inventors should seek a patent to protect their invention.
Patenting is only the start of your work. You must decide how far to bring the idea. Your choices range from licensing the patent to starting a company based upon the idea. In general the more work you do, the less uncertainty your partners (such as licensees or investors) face and the higher your profit.
Your main emphasis in development of products should be to reduce risk and allow people to see the benefits of the invention.
There are several stages in the path to becoming a product that can be sold commercially.
First is the “idea” stage. The idea is roughly defined. You want a “Widget” that performs some function and has certain properties. The product does “this” in “that” way.
Next is “developed idea” stage, where materials, specifications, all relevant specifications are quantified and modeled. Development often includes making CAD models or product prototypes. With the documentation that is made at this stage, one can quote tooling, and manufacturing costs accurately. With prototypes, you can test your product concept (and usually refine it).
Next is “Prototype or small lot manufacturing” stage. You usually are looking for manufacturing problems. Before committing to large volume and cost tooling and final development, it is conservative to test your idea in small volumes. This allows other people to evaluate your idea and suggest changes. This also identifies the tradeoffs between product function, product cost, and product specifications.
At the end of this stage, you have a tested, manufactured product. You must decide whether to approach a major company with your idea for distribution and/or manufacture or to manufacture and sell the product yourself.
Last is the “Product ” stage. At this point regulatory and legal issues are addressed. Quality specifications are established. Product costs are known. The product can be manufactured and sold.
Next, your attention should shift to sales and distribution issues. What is the best way to bring this product to market? Is it complimentary to some existing products or procedures? Is it better to go it alone or partner with established distributors? Who would use the product and why?
Risk versus Reward
A typical manufactured product has 40-60% gross profit. If it sells for $10, it costs between $6 and $4 to make (materials, labor, packaging and direct manufacturing overhead).
Why? Risk Reward! An invention starts as an idea of how to provide some new benefits. When the idea is “sold” or “licensed” to a major company as an idea, it is worth less to the company. This is because it is “risky”. The product may not work. It may cost more to manufacture than the end user is willing to pay for the derived benefit. The company must spend money to make prototypes to test the idea to prove its effectiveness and understand the manufacturing problems. The product may be difficult to manufacture. If the inventor does not believe enough in his/her invention to invest their money, why should the company? For 100 ideas submitted to a company, one may be worthy of development each year.
An idea is not worth much. A patented idea is worth 1-5% of net sales price.
A tested idea that has been patented and manufactured in small lots is worth 5% of net sales price (in typical licensing fees).
A proven patented idea without much competition and with a strong go to market strategy is worth 5-20% of net sales price (in typical licensing fees). idea for invention The more is known and tested, the less the risk to the licensing company. The lower the risk for the manufacturer and distributor, the higher the reward to the inventor.
Problems of Company Commercialization idea for invention
“Idea Creep” is a common problem for an inventor after a company licenses the invention. The product idea (probably patented) is passed to the engineering department of a company. The engineer will make some “minor improvements”. The manufacturing department will make “more minor improvements”. Marketing and sales will make a few improvements. None of these improvements by themselves is huge but the additive effect of improvements by non-product users can make a good idea into a poor product.
America is tremendous source of creativity. Many products come from small inventors working quietly in small companies. The strong guiding hand of the inventor to maintain the focus of the invention during the development process is very important to deliver a final product that has the initial invention’s benefits.
The larger companies tend to excel at distribution and refinement (“line extensions”) of existing products. Larger companies also excel at using the latest high technology to make superior products. A barrier to entry for small companies is often that they cannot afford to use the latest high technology or cannot combine multiple advanced technologies.