Invention Commercialization Process:Marketing an InventionThe Invention Commercialization Steps for Independent Inventors
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The invention commercialization process described below will help you successfully commercialize and market your invention, or help you recognize as early as possible when it might be best to move onto another invention. It provides information about how to patent an invention, and how to license a patent. This page was written for the commericalization of products most often designed by an independent inventor - mechanical devices, widgets and gizmos that solve everyday problems. Many of the invention commercialization steps are also relevant to the commercialization and marketing of new electrical devices, processes, new materials, true R&D discoveries and other inventions. Invention Commercialization Process is a Polson Enterprises web site and part of our Invention Information Center.
Many other sites and companies provide a brief list of the steps to go through to commericalize a patent or license an invention, but this site provides an in depth description of the commercialization steps along with the actual tools you will need to accomplish the task.
If you have any comments or suggestions, please e-mail us. If you are an independent inventor, please do NOT contact us for assistance until you have followed the steps below for a minimum of 40 hours.
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Top Ten Scam Warnings from U.S. Patent and Trademark Office |
Do NOT show, share with or tell others about your invention or any aspect of it until later in the process. It is okay to tell others in very general terms you are working on an invention in very general terms. For example you might tell someone you are working on new wrench, fishing invention, piece of sports equipment or some other general descriptions. Just do not go into further specifics with them at this time.
Do not even talk to the invention marketing companies you see advertising on late night TV or in the back of magazines. They will be discussed later. Be careful of those you may see advertising on this page.
Invention commercialization is a process, not an event. Much needs to be done before you ever think about producing or licensing an invention.
Many companies live off the gullibility of inventors. They try to sell you worthless services and take your money. You know who they are, you see them on late night television commercials or in the back of magazines, maybe even in the ads on this page. Be careful.
Many inventors have an idea involving plastic injection molded parts. Plastic is a wonderful material and injection molding allows high volume production at a low cost per part - BUT mold costs are astronomical. We suggest you investigate other methods of forming plastic (rotational molding, blow molding, machining, extrusion, etc) or manufacture your invention from other materials. If you can get the project profitably up and running (selling thousands of parts) formed in a more economical way, you can move up to injection molding later. If you have to start with injection molding, my advice is, unless you already have experience in this area, or a brother-in-law that will make free molds for you, Forget your invention! It will be a near impossible sell as a license and the mold costs will make it prohibitive for you to enter the market yourself. Mold costs are a risk no one wants to assume until the project is proven and you can't prove the project till you have a mold. Its the old chicken or the egg problem and your invention goes nowhere.
You have learned a little about inventions. The next step is to determine if your invention is unique or
not, and some concept of how unique it is. Are there many somewhat similar products on the market and
many similar patented inventions, or is it truly unique?
Why would someone pay you a royalty vs. paying one of the other folks with similar ideas, or why would they
pay at all. The problem has been identified, they can just look at all the solutions identified so far (existing
patents and existing products) and put together the pieces they want while trying to avoid infringing on the
existing patents. Plus several of the existing patents may be expired or no longer be in force due to
owners not paying their maintenance fees. Areas crowded with prior art can be a big problem! However, if
you plan to build it yourself, you may still be able to get around the prior art, but, you need to realize
you may have to compete against these other approaches in the marketplace.
If your exact invention has been patented and several other patents are very close, its time to forget it.
As Randal Homburg, a Patent Attorney in Oklahoma, said in 2007 at an Intellectual Property Seminar, "If you are
tatooed (by prior art), I have never known a human being who only had one good idea in their whole life. You
are fertile ground for new ideas. Move on. Throw it away, go to sleep and have a brilliant idea again."
Its still very early in the process, but you need to spend some time thinking about the market for your
invention. Who will use the product, how many people will buy it, how much would it cost to make and what
could it be sold for? How can the market be reached (direct sales, Internet sales, distributors, major
retailers, door to door, etc). Bottom line is, your invention may be unique, but not have a profitable market.
Do not spend a lot of time on a product with a very small market, scattered out geographically, with
a small profit potential (unless you are just pursuing this as a hobby). Profitability will be addressed
in much more detail later, but if its not profitable, its not happenin. If your invention is not profitable,
change it or drop it.
There is a nice quote about inventions and profitability in the July 2007 issue of Popular Science, "The Fuel Cell"
on page 78 Jim Sears (promoting making fuel from Algae) said, "No matter how good your idea is or how many
people it might help, if there's not a lot of profit in it, its not going to happen." I add my personal amen
to his statement.
Evergreen IP, a new product development company, has a great
online presentation
about an invention's "Value Proposition" and why profitability is so important. As part of it, they identify
three elements of your product's value proposition: Overt Benefit, Reason to Believe, and Dramatic Difference
and discuss why each is so important to the potential success of your invention.
You may need to rethink your initial decisions about manufacturing or licensing you invention. You should
begin to have an understanding of:
If your plan to license the invention and have found it has little or no licensing potential, you need to
decide if you want to pursue manufacturing your invention or drop it. These decisions need to be made before
you file for patent protection. There is not point in patenting an invention idea with little or no potential
for licensing if you do not want to manufacture it.
If your invention already exists (invented earlier by somebody else), but the patent has expired, or the patent
maintenance fees (fees required to keep the patent active) have not been paid, you may be able to legally
manufacture and sell the product However, others might be able to as well. So if you are wildly successful,
expect competition in a hurry. Before you try this approach, you need to be certain the intellectual property
rights of the original inventor are no longer in place. You do not want to be investing in designing,
manufacturing and distributing a product, then have to stop due to patent infringement.
If your invention has been previously patented in the United States by others (the patent claims cover your
invention and that patent is still in effect), you cannot legally produce the product in the United States,
or produce it elsewhere for sale in the U.S., or license the invention to others for manufacture in or sale
in the United States.
If you have not already started, its time to start building prototypes. Nothing will point out shortcomings,
possibilities for improvement, or aid in visualization your invention like a prototype. Solid models
(3D computer visualization) and rapid prototypes are nice but you can usually start much simpler. Begin
constructing a series of more detailed models of your invention. You may find our
Constructing Prototypes on a Tight Budget paper
helpful. As you begin to solve problem after problem, you model will become closer and closer to the final
product. These prototypes will also be great visual aids for explaining your invention to others later.
You may have already thought of a name for our product. If not, once you begin to see some prototypes,
a name may come to mind. If you think of some names, write them down in your inventors logbook, but DO NOT
waste a lot of time thinking of product names. Your invention has a long ways to go and if eventually are
able to license it, the company will probably come up with their own name anyway. We see many inventions
where it feels like the inventor spent more time working on the name than on the invention. Don't do that.
Note - the information below does not constitute legal advice, or substitute for the consultation of a
licensed patent practicionner (patent attorney or patent agent) or a general practitioner attorney. See our
disclaimer near the top of this page.
Now is a good time to begin developing a relationship with an attorney anyway, not necessarily
a patent attorney.
Non Disclosure Agreements (NDA) are signed legal agreements between you and those you show your invention
to prevent them from manufacturing your invention or telling others about it, often for a certain period
of time. They are also sometimes called Confidentiality Agreements or Secrecy Agreements. These agreements
may vary depending upon the purpose of showing the invention to the person(s). A NDA with a manufacturer
would focus mention the invention is being shown for the purpose of potentially being manufactured by the
company, but the company will not be able to manufacture the invention until a licensing agreement is reached.
An NDA with a marketing or technical consultant would explain the purpose the invention was being
shown to them, and similarly constrain them from using the invention or telling others about it.
Most NDA have certain exclusion clauses, such as a company can manufacture your product if they can prove
they invented it earlier. Our Polson Enterprises NDA
is typical of an NDA between a consulting firm and an inventor.
BitLaw has a nice page on Confidentiality Agreements.
An Inventors Organization in your area may also have similar forms.
Do not show your invention to ANYONE (neighbor, lawyer, consultant, marketing firm, etc.) without having
them sign and date an appropriate Non Disclosure Agreement. Plus always get them to sign two so you can
give them one and retain the other for your records.
Be aware many manufactures will refuse to sign them. You will not be able to approach these manufacturers
until you have at least a Provisional Patent Application. Some may require a full utility patent.
You invention will be evaluated at several steps as you continue to gain more information. Our
Evaluating Inventions paper provides a good place
to begin this process. There are also several fee based services that will perform this task. You might want to
use our paper and if the results look favorable, then use one of the fee based services. If you use a service,
make sure they sign a Non Disclosure Agreement. Most of them have one as part of their process.
Innovation Institute previously known as the Wal-Mart Innovation Network (WIN)
If you invention has made it this far, you have determined the invention appears to have enough uniqueness to be
marketable and began to document your findings. Now it is time to start spending some time thinking about whether
you intend to license your invention or manufacture it your self.
Note - you are not actually getting ready to build or license the product, you are just beginning to think about it.
Most independent inventors want to license. This normally a much tougher road than manufacturing your own invention
in limited quantities till you get things up and going. Many companies have the NIH (Not Invented Here) syndrome.
They do not want to produce anything that did not come up through their own ranks. Also, most companies have a very
strong aversion to dealing with independent inventors and will not even listen to you. Many independent inventors do
have poor business skills and are not capable of running a small company. Others suffer from heath or physical
limitations, including age making it difficult them from running a company. Still others have minimal income and
are not able to fund even a very small operation.,
Independent inventors sit around and tell stories, rumors and urban legends about how a manufacturer stole their
idea, or stopped inventions that would solve the world's problems to protect their existing businesses (like turn
water into gasoline). In real life, executives at most large companies have little or no awareness that serious
independent inventors even exist. Their mail room tosses product ideas submitted by independent inventors or they
send them a form letter telling them thanks, but no thanks. Nobody ever sees the ideas they submit. Companies do
not want to deal with them. They are used to dealing with industry professionals. Lets face it, at least some
independent inventors are kooks. They run around yelling they have the greatest invention that was ever discovered
and crying because no one will license it. Many of us have heard that story a hundred times.
Those kooks fail to mention:
Licensing an invention is very difficult. It does happen, but the invention must be very well developed, have
tremendous advantages over the competition, the inventor must be very knowledgeable about the industry and the
inventor must be willing to deal (give up control of the invention, and be willing to take a royalty in line
with that industry, not the millions of dollars some want).
Producing the invention yourself, or assembling parts produced by others and assuming the marketing risks
yourself typically has a much greater chance of happening than licensing the invention. But, before you
produce the invention you need to make darn sure you have all your ducks in a row and don't sink like a
rock. There are reasons why companies did not want to license your invention. You are assuming those risks.
They may be very large and they may be insurmountable.
Often it is possible to product the product in very limited quantities to evaluate the market. If things look
really good, you can begin to step up production volumes. If sales skyrocket, firms will be coming to you
asking to license the invention. This is often the best path to a successful license. The inventor proves
the market and then, one or more companies license the product.
The first thing to do it to put yourself in the manufacturer's shoes. Why would a manufacturer want to
license your product? High profits and no risk!
Profits - Profits are generated by sales, but they are only what is left after all the costs are taken
out (including taxes). A product has many costs, including:
Potential licensees wants all these costs to be very low and the sales price to be very high (make lots of money). They
also like it when they can sell a lot of the same product at one time to the same customer and that same customer
continues to buy them in the future (like razor blades). Plus they want all those in the distribution channel and
the end user to actually pay for the product in a timely manner.
Risk - Risk also has many elements. Manufacturers are risk adverse. They do not want to assume any risks they don't
have to.Manufacturers feel more comfortable in an industry they already know. They like products that fit well with
their existing products, products with an infinite shelf life that can be distributed in their existing distribution
channels, are used by their existing customers, can be serviced by their existing service network, are made using materials
and processes they already use, etc. The more similar the product (invention) is to their products, the less risk
they are taking. Are there several companies that look like possible fits for your invention? The more companies
that fit, the greater the chance of licensing your product.
Product liability issues, safety issues and regulatory issues are additional risks companies want to avoid. If
your invention has safety issues or is in an area safety or environmental regulations are tightening in on, companies
may not be willing to assume those risks.
Obsolescence is another risk. Some product areas have tremendous turnover resulting in a very short life span, for
example consumer electronics. If you have an idea for an improvement to MP3 players, MP3 players as we know them
may not even be around anymore by the time you have your invention perfected. The MP3 format itself will likely be
superseded like it replaced CDs which replaced cassette tapes, vinyl records and 8 track tapes. The medium the songs
are being stored on is rapidly changing. Many companies are reluctant to take on new products with very short potential
lifespans.
Development stage of the invention is also a risk (how far along the invention is). Does you invention actually
work in the field and can it be produced at a cost that will make money for the manufacturer? Do you just have a
sketch, have you progressed to mockups and prototypes of the portion of the invention that is new, do you have a
full prototype, a fully functioning prototype, some units really running in the field, etc. New risks (and new
problems) often become apparent at each of those stages. The further along your invention is, the more risk you
have removed from the manufacturer and the less risk they have to assume.
It is rare to find the perfect product and perfect match, but if you can show the product has tremendous profit
potential, has very few risks and fits well with several company's existing products, manufacturing and distribution
systems, you may have a chance for licensing your invention. For example if your product has been market tested
and sells like hot cakes at a very strong markup over manufacturing costs and seems to be "pulling" itself through
the system with word of mouth advertising, you may have a winner. If not, it may not be candidate for licensing.
At this phase you are NOT licensing your product, you are learning a little about the basics of licensing.
Just standing up and yelling that you have the greatest invention ever, telling potential licensees it solves all
the world's problems and how everybody will buy a whole bunch of them just won't cut it. You will eventually have
to backup every statement you make to them with sound research OR actual sales if you expect them to license it.
This would be a good time to read some of the licensing stories in Inventors
Digest.
Licensing is a very complex issue. Licenses can be exclusive (you only license one company) or you can license
several companies (non-exclusive). They can be very broad (you license them to sell your invention worldwide to
all sorts of industries and in all sorts of channels, or they can be very specific, including for a set period
of time).
Licensing Executives Society is the professional group for those
licensing intellectual property. They recently published an excellent 45 page paper titled,
The Licensing Decision that is
a "must read" for all independent inventors. It was written in conjunction with the Dept. of Energy, but the
materials are generic and can apply to almost any field of invention.
Technology
Guide: A Practical Guide to Licensing, a New Zealand document, discusses the many nuances of a licensing agreement
and licensing decisions that also apply to U.S. inventors.
World Intellectual Property Organization (WIPO) has a training manual,
Exchanging Value: Negotiating
Technology Licensing Agreements that also provides useful licensing information.
By now you are probably wondering how much you might be able to license your invention for. Although it is
way to early to be establishing numbers, you can begin to learn some about the structure of a license and the
structure of royalty payments. Typically they are setup as an up front fee (sort of like a signing bonus) and
then "x" percent of sales or "y" dollars per unit sold (typically based on wholesale prices). Sometimes additional
bonuses are specified for making certain milestones (first time sales were over 500 units per month, sold 200,000th
unit, on issue of the patent, sometimes minimum royalty payments are guaranteed, etc)
1000ventures.com has Model
Technology Transfer Agreement from the Government of the Republic of Korea that is somewhat representative
of a licensing agreement.
Royalties tend to run between 1/10th of one percent up to ten percent (of wholesale sales) depending on the
industry. Royalties are really based upon the profit potential and the risks involved for the manufacturer.
You may see mention of the "25 Percent Rule". Many think an inventor is entitled to 25 percent of the profit earned
from use of the license. Before you start counting your millions, many companies only make a few percent profit.
25 percent of that is often only a few percent of the wholesale price. Personally, I think this is a good place
(baseline) to begin discussions from and then adjust them based on the specific situation, but you need to remember
we are talking about 25 percent of the profits gained from using the invention, not 25 percent of their total profits.
If you invention costs ten dollars and helps them sell a few more machines that cost hundreds of thousands of dollars
each, you may be entitled to a fraction of the total sales, but if it is just a nice feature and if you can't prove
the additional sales, don't expect much.
You also need to realize sales will not instantly materialize for the manufacturer. Depending on the product,
it often takes a few years to get up to speed. The manufacturer may be ramping up and trying to recapture startup
costs the first few years.
If your project is still in early development stages (as discussed earlier in this section), it may never actually
make it to production. Royalty payments will reflect this risk. Potential licensees basically discount their potential
earnings by the probability of failure at each remaining stage and adjust their royalty payment offer accordingly.
It is obviously very much in your best interest to get fully functioning units in the field. If not, you will be
leaving a lot of money on the table for the risks you are asking them to assume.
"Structuring Royalty Payments to a Mutual Advantage" was online at www.scp.com.au/publications/licensing/mutual.shtml
it provides some nice insights into anticipating possible outcomes and trying to protect both parties.
As an inventor, you may want to break the bank, but you are better off in the long run if you can help the
manufacturer be successful too. Plus you may well come up with a related invention during the process. If you treat
the manufacturer well, they may be interested in licensing them as well.
Several firms specialize in providing industry royalty rates (for a fee):
Techno-L is a mail list devoted to technology transfer. Its archives
contain several discussions about royalty rates. The mail list focuses a little more on biotech and process
related technologies than mechanical inventions, however many of their comments also apply to independent
inventor situations. Techno-L Archives can also be
read from a list serv.
By now I hope you have figured out that if you intend to license your invention, you are going to need some
professional help. However, if you follow the process on this page, you will be well prepared and receive much
better service from the professionals you deal with, plus they will be more successful than if you just show up
with a bunch of scraps of paper and a few greasy parts.
Now that you have learned a little more about the invention process and the level of uniqueness of your
invention, it is a nice time to take a break and decide if you really want to continue. You may think
you have already put a lot of effort into it, but you probably have not yet put in over 2 percent of the
time, sweat and money it will take to eventually commercialize your invention.
You might want to have some friends participate in helping you evaluate your invention according to the
form at the end of our Our Evaluating Inventions
article. Have them sign and date a Non-Disclosure Agreement (NDA) first. The purpose of the NDA might
list something like "to help me evaluate my invention".
Meanwhile, you can complete the more detailed evaluation in our Invention
Evaluation Spreadsheet.
Another problem for independent inventors is they often solve a problem that does not need solved. By
that I mean they may come up with an elegant solution for a day to day problem, but no one is really
willing to pay to make the problem go away. You need to be positive that people will pay their hard earned
money to make the problem go away that your invention solves. Just because your invention solves a problem
does not mean it will sell.
Spend some time deciding if you wish to continue with your invention or not.
We agree with the suggestion made by Martin Ozinga, a Patent Attorney in Oklahoma, at a 2007 Intellectual
Property Seminar. "If you do decide to continue, Write a date on the calendar six months from now and
set a maximum investment in money and time between now and then (such as I will spend a maximum of
$10,000 and 20 hours of my time a week between now and then). When that calendar date arrives, re-evaluate
your situation." Some inventors get caught in the black hole and just endlessly invest dollars and time
in a downward spiral. After a while, they cant pull free because they think they cant afford to give
up their investment. Don't get caught in the death spiral. Set reasonable limits on time and money and
re-evaluate them at fixed intervals. If you are married, get your spouse involved. You will be spending
a lot of time and money in this pursuit, it needs to be a joint decision.
It is much easier to successfully market an invention in six areas are kept in balance.
Read pages 15 to 23 of our Marketing
New Marine Drive Concepts Similar to Outboards and Stern Drives: a Difficult Path for Independent
Inventors and Small Companies paper for details on how you can stay balanced in these six areas.
The Oklahoma Technology Commercialization
Center (OTCC), a state funded group helping Oklahoman's develop high tech businesses, developed a
Commercialization Model that has attracted a reasonable amount of attention. Their model may be a bit
in depth for basic inventions (like a new kind of doorstop), but can still provide you several things
to think about and how you might stay more balanced as you develop your invention.
Keep all six areas in balance. Do not pursue one too far ahead of the others, just keep them all moving
along a little at a time. Its sort of like your invention is learning to walk. Babies don't just jump up
and run. They begin to take baby steps in all directions, learn more about their surroundings, then make
longer journeys. Your invention needs to do the same thing.
Learn everything you possibly can about the industry your invention is in. This takes a lot of work.
We have two tools that can help:
Once you identify companies of interest in the industry, learn more about them using our
Find Information About Specific
Companies in the Industry tool.
As your invention continues to develop and you learn more about your industry you can begin to define
your target market more tightly. Exactly who is going to buy your invention, where are they going to buy it
and how much are they willing to pay? Many inventors say everyone will buy their invention, lets get real.
Many consumers would not even walk across the street and get your invention if you were giving it away.
You need to tightly define your target market. For example, a new, extra long shoe spoon might target
elderly overweight, Christian males (putting on leather shoes for Sunday services and they can't easily
reach the back of their shoes when their toes are entering the front. Once the market is defined, you
begin to determine how best to reach that market, survey some of them to determine what they might be
willing to pay for a solution to their problem, try to determine how many of them there are, where they
are, and how many might purchase your solution at a profitable price. Tell them you are running a survey
for somebody else and you will get more honest answers. Many people are reluctant to tell and inventor
they don't really like their idea and would not be willing to buy one. By telling them you are running
a survey for someone else, you can eliminate some of the natural praise for an inventor and get the
real scoop.
Some products may have more than one target market. Independent Inventors are typically most effective
if they focus on the one market that will be most willing to accept their invention (currently has
the biggest problems, are aware of the problem, and are already actively seeking solutions). For example,
the U.S. government is currently seeking solutions to walling off our nations borders, to screening cargo,
and other Homeland Security issues. Similarly, Many inventions have targeted the problem of inadvertenly
leaving infants and young children in hot cars during summer in the midwest. Most proposed solutions
are somewhat similar (use of a pendant with a virtual leash or wired to sense car door openings). A
novel, economical solution that avoids issues raised by previous solutions might be successfully
targeted at the lower end of this market.
This is perhaps the question we hear the most often. Inventors asking the question have sometimes
put a whole 30 minutes of thought into their invention and absolutely none of their own money. Follow
the process on this page, and IF you have a truly winning idea, decide if you want to "ride this horse
or not". If you do, you need to put a lot of blood, sweat, tears and your own hard owned money into
it. When all of the problems are solved, the invention really shines and nobody can even imagine how
a manufacture would not make a zillion dollars producing your invention, you can get money. Its probably
not that time yet, get back to work.
Possible sources of funds to finance your invention include:
Funding your invention is an ongoing process, not an event. You will need to make sure you have the
funds in place for each step of invention development before you need them. Read more about funding in
"The Balancing Act" section.
The best way to fund your invention is to keep your expenses down (you dont need any funding if
you dont have any expenses). Along this line, don't quit your day job to develop your invention.
You need the steady income to exist because it could be a long time before, if ever, you invention
starts to pay off.
Keep a special eye on recurring expenses (rent, phone bills, storage bills, utility bills, Internet
access fees, website hosting fees, health insurance, life insurance, auto insurance, vehicle payments,
house payments, etc). Get the products and services you absolutely need from companies you can trust, but
dont pay too much for them over and over and over again, and don't be paying for stuff you dont really
need. Triming your reoccurring expenses can result in considerable savings over time.
While you may not be able to get money, you can sometimes get some help. Many inventor associations will
help their members through some problems and provide a listening ear. Some locals who have been through
the process may mentor you, somebody may help you build a prototype, etc, but they will be much more
willing to help if you have great deal invested in it yourself (you have put a lot of effort into your
invention and invested some of your own money in it). When they come to visit you and see your big cars
parked out front, a satellite dish on your house, a boat beside the house, a big flat panel TV on the
wall and the nice watch on your wrist, but you are crying about no one being willing to invest in your
invention, they will not feel very sad for you. But, if they come to your garage shop and see a beat up
pickup truck and dozens of prototypes and parts everywhere, they feel like you are invested and will be
more willing to help you. Would not you do the same?
You might be able to get some assistance from a college marketing, engineering, architecture or design
class. Sometimes they are willing to take on class or group project for free or for the cost of parts
and raw materials. Many VoTech schools provide small business assistance services, can guide you to
someone who assists inventors and you may be able to enroll in some business training classes. Once
you get up and going a bit, some also provide Business Incubators for new technical businesses. Typically
you still pay rent, but you get a large bundle of shared office services at a greatly reduced rate.
The probability of an independent inventor successfully licensing an idea by themselves is EXTREMELY remote.
IF they follow the suggestions on this site (and in the references and tools linked to by this site) and
surround themselves with a team of professionals with expertise in areas they may be lacking, their
probability of success moves up from extremely remote to low. The way increase that probability even more
in many cases is to begin manufacturing the invention on a small scale yourself. By working out some of
the bugs, getting some units into service, proving the product works, making refinements as needed, proving
there is a market for your invention and satisfying your customers makes your invention look much less risky
to potential licensees. Now with that same team of professionals, or an even a better team, the odds of
licensing your invention are significantly increased. In rare cases you might even find potential licensees
knocking on your door instead of the other way around.
Since licensing is difficult, especially in the early stages of a product, many inventors opt to manufacture
and sell their invention themselves. Without proper planning this can result in major problems.
Many indpendent inventors are not good business people. They are ill suited to run a company, plus
they may lack the financial resources to start one.
If you are thinking about manufacturing the invention yourself, in addition to making sure you have
the know how to run a small business you need to think about what it is like to be a one product company.
Entrepreneurs opening small stores such as a new independent hardware store in a small town take
considerable risk. Launching a new company based on an invention is much riskier and often a formula
for disaster. How many one product companies do you do business with? Probably not many. Having several
products allows companies to cross sell other products, accessories and services. Plus they substantially
reduce freight costs by shipping everything in one box and they are also able to spread their overhead
costs over more products and more sales.
With proper planning it is possible for an independent inventor to startup and successfully operate
a small manufacturing operation, maybe even in their garage. Raw materials and parts can be purchased
in quantitites as needed, major machining and processing can be farmed out to job shops, and the inventor
can focus on light manufacturing, assembly, and shipping. Boxes and other packaging materials can be
purchased, printing of instruction manuals, parts lists and marketing materials can be done in house
on your home computer, purchased from some of the online printers, or performed at a local print shop.
If you have not thought about transaction costs (costs involved in making the sale), its time to start.
Some of these costs are one time costs, some tend to vary with the number of customers you have and some
tend to vary with the number of sales you make. Examples of transaction costs include buying a credit
card processing machine, accounting costs, cost of printing invoices, telephone costs for taking the
order, mail cost for sending the invoice, shipping costs to your customer, time to file all the taxes,
and who knows how many other forms with state and federal government, warranty costs, cost of returns
from the customer, time filling out invoices, costs of filling out and processing all the other paper
work, credit card processing fees, shipping boxes, labels, boxing tape, time and gas to take the package
to UPS or another shipper.
Some of these costs are relatively constant for ONE sales transaction. Meaning, the more items you can
sell them (the larger the sales total) the lower the transaction cost per sale. Suppose you sell a really
neat, novel ink pen for $5. The cost to fill out all the paper work, cost of the actual invoices, shipping
labels, shipping paper work, box, shipping tape and the time to take it to UPS may well cost you more
than the sales price of the pen and we have not even got around the cost of shipping it yet. Hopefully
you see you need to be selling high ticket items or a lot of lower ticket items in each sale to keep the
transaction costs down to a small percentage of the total sale. Somebody has to pay these transaction
costs. Either you bill the customer for them (price goes up) or you absorb them and go broke (not a
good plan).
Think about how transaction costs apply to your product at all stages of the distribution system.
Speaking of distribution system, most goods are not sold direct from manufacturer to consumer (or
from manufacturer to business consumer). One (or sometimes several) tiers of distributors stock,
often sell, service, provide technical assistance or other value added services to the next level.
When is the last time you called up Proctor & Gamble and asked them to send you a bar of soap?
Your invention will probably be distributed through a distribution channel. You need to find out
how similar products are being distributed. All those in the chain need to make money from each
transaction. Do NOT be thinking someone can produce you invention for $5, sell it for $6. pay you
a royalty and still have everyone along the chain make money. Most consumer products sell for several
times what it costs to produce them. You need to learn what those ratios are for your industry.
You might also want to consider selling your invention direct, via the Internet. This method provides
its own set of opportunities and problems needing a lot of further study if you do not already have
experience in this area.
Don't get big eyes at Wal-Mart. Yes, a few inventors make a lot of money there, but in general it
takes a lot of selling efforts, a lot of effort in conforming to their exact packaging and delivery
schedules, and a lot of pricing pressure to deal with them. If you are able to deal with them later
on, great. But for now, forget the major retailers.
Trade shows, gun shows, state fairs, and other similar events often offer a great opportunity to
show your invention for minimal costs. You may even be able to share a booth with another inventor.
Be sure to obey all the rules of exhibiting an selling in your state (including sales taxes).
No matter what industry you are working in, your product will have competitors. For example, if
you invented the first microwave, who would your competitors be? Probably things like electric
and gas ovens, small table top ovens, hot plates, grills, bar-b-que grills, kabochas and other
related products. If you were Edison with the "light bulb" you would have been going against candles,
kerosine lanterns, and daylight. Who manufactures products competing with your invention? How is your
invention different from competing products? Start building a list of specific advantages and
disadvatages. You can learn a great deal from your competitors. Begin to envision how your customers
may perceive your invention with respect to competitive products.
Our, How Learn About a Company by
Examining its Products, page provides a procedure for "hands on" competitive product analysis.
Get to know your competitive products and the companies that produce them. One or more of these
companies might also be a potential licensee.
Now that you have identified competitive products and competitive companies, spend some serious
time identifying your invention's disadvantages. Don't get caught thinking, "My product has no
disadvantages". Every product has disadvantages and shortcomings. If they are not becomming apparent
yet, revisit our Evaluating Inventions
article and our Invention Evaluation Spreadsheet.
Start building a list of problems, shortcomings and disadvantages of your invention. Don't get
depressed, all inventions have them. Now start thinking about how you can eliminate or reduce these
problems, without causing new ones.
Think about showing your prototype to a major executive at a large company in your industry.
What objections might they raise about your invention? Put yourself in their shoes, they want
to make a lot of money with minimal risk. What problems do you see now? If you can solve those
problems before they are raised, or have excellent, solid solutions to the remaining ones,
your invention is coming along nicely.
Potential licensees want to minimize risk when commercializing an invention. Three major risk areas
are business, product, and marketing.
Business risks are pretty much within their control (can they actually fund the operation,
do they have skilled people to manufacture it, equipment to make it, capacity - floor space
and people, etc). The other two are more on your side of the equation.
Market risks center on profitable sales. Will enough people really buy your enough of your
product at a very profitable price point considering the distribution channels (must be profitable
for every step along the way). You will need to be able to prove that with prior sales, surveys,
interviews, testimonials, etc. If you can pass this test, distribution chanels, product fit
and other issues can typically be worked out once the right target company is found. The
further you are along in marketing your product (market studies, survey potential customers,
sales of fully functional units, repeat sales, etc.) the less marketing risk the manufacturer
has to assume (IF you have strong intellectual property protection to prevent others from
entering the market).
One major product risk is, will your invention actually work and can it actually be built in
production quantities at a reasonable cost. If all you have is a sketch on a knapkin, its
pretty hard to convince them the end product will really work. More complex products tend
to go through many stages of development. The further along your product is, the less risk
is associated with it actually working or being able to be built.
The U.S. military uses the term, Technology Readiness Level, to refer to how far along a new
technology is. Various military groups begin to consider new technologies when they reach
certain levels. These same levels can be used to estimate how far along your invention is and
point out the next hurdle you need to jump. The papers below discuss Technology Readiness Levels:
Manufacturers hate risk! Even the tiniest step toward pushing your invention along in its technical/
functional development and in its marketing development helps reduce risk. The more risks you eliminate,
the greater chance you have in signing a license agreement.
Another place to turn as you begin to polish up your invention are developement and innovation centers
for specific industries. Several industries have new product development centers that may assist
you in reviewing your product and bringing it to market. For example, in the food industry:
Many inventions are ugly and clumsy to use. Professionals skilled in Human Factors, Ergonomics and
Styling can make your product "shine" and almost leap into your customers hands. You can study and
think about these areas yourself, find a friend with some skills in these areas or possibly have a
college "project" class take on your invention (with proper intellectual property protection in place).
The International Design Association provides some insights into
consumer design.
Packaging is also very important for some products. If your invention needs unusual packaging,
find a solution that really invites customers to purchase the product. It may also serve a purpose
later (store the product, store instructions, store supplies for the invention, or have other uses.)
As mentioned earlier, many independent inventors turn to marketing their own products, collecting
market information online, surveying potential customers and making other uses of the Internet.
If you are not Internet savy, get that way as soon as possible.
Start constructing a web site for your product even it you do not intend to put it online. The exercise
will give you some practice and force you to think about how to best postion your product and appeal to
potential customers. Plus you will probably learn some about your competitors during the process.
Look at some web sites for similar product for ideas. Use our
Web Site Review Procedure to
evaluate their sites as well as your own.
If there is an extremely obvious domain name (URL - Internet Web Address) for your product and it
is not yet taken, register the domain name. You can register them without "turning them on". If you
are looking for a place to register you domain name or possibly to host it, we use Verio and have been
very pleased with them.
Do not spend a lot of time and money registering domain names for a long list of possible
product names. Register one or more that seem spectacular and worry about the others later if
they materialize.
Another great Internet project is to establish a web site in your product's industry. Create a blog,
cover industry news, review products, do something to begin to get into the buzz surrounding your
industry. You will learn a lot and make some good contacts. Do NOT use it unethically to get inside
information on the competition or to belittle their products. A good web site, with strong, frequently
updated content can make you a recongized authority in the industry.
Now and then, independent inventors come up with a truely emerging invention. Some call these
inventions paradigm breakers or disruptive technologies. Sometimes they are used for tasks that
people just dont do now. How can you tell if they will really sell or not. Will people really want to
do this new action and will they buy your invention to do it? Yes there have been tremendously
successful disruptive technologies (microwaves, cell phones, Internet, I-Pod, portable computers,
etc). But there have been many more that never made it.
If your invention is truely disruptive, you may find our
Technology Forecast: A Customer
Validation Tool for Emerging Technologies page helpful.
Invention Commercialization of truely emerging inventions is usually very difficult and may be
beyond the abilities of most independent inventors. It takes a lot of time, money, and connections.
Some countries have innovation centers that may be useful to those living outside
the United States, or to those in the United States with ties to those countries.
If you plan to license your invention you will almost certainly have to have patent protection
of some sort. A Provisional Patent Application may work in some situations, and should at least
help you get in the door and start a conversation, but a full utility patent application will
probably at least need to be filed before serious conversations get underway. Many potential licensees
will want to wait till the full utility patent is issued to be certain your patent will actually
be issued and the exact wording of the patent claims granted.
Mark any brochures, protypes or functioning products with "Patent Pending" once you have filed a
Provisional or Utility Patent Application. Note- you have one year from publicly displaying or
selling your product to file a patent application (provisional or utility).
In your earlier studying of patents you should have become aware that patents boil down to their
claims (the numbered sentences in the claims section). Their exact wording establishes which areas
are actually protected by the patent. Inventors want very broad claims (think of each one like a
large cloud that encompasses a region of possible methods, with some clouds overlapping one another
and others being inside of one another. Inventors want huge clouds, patent examiners want very
small clouds. The give and take between your patent attourney or patent agent and the USPTO during
the examination of the patent will hopefully result in something in the middle. The broader the
claims, the more valuable the patent may be. Very broad claims can keep portential competitors at
a significant distance from the invention (no "almost the same as" products will get to the market).
If you intend to market the product yourself, my personal opinion is that patents are highly
over rated. Just get to the market fast, be flexible, continually upgrade your product and
stay ahead of the competition. Yes, there are some areas where patents can be valuable to
independent inventors who intend to manufacture and market their own product, but as a general
rule, I think many inventors focus too much on patents.
One area in which patents may of value to independent inventors who plan on manufacturing their
own invention, is when the invention is a "different way of doing things" instead of just an
incremental improvement. TRIZ (a Russian innovation process) identifies potential solutions to
what they call technical contradictions. The inventor tries to achieve one thing without losing
another, resulting in a comprimise. For example, yachts need stability combined with minimum
resistance (wide and deep for stability but narrow and shallow for speed, forcing a comprimise).
On rare occassions an invention comes along that removes the comprimise. For example a yacht with an
large internal gyroscope for stability could still be narrow and fast. Another example would be
today's handguns. They are limited in caliber and killing range (knockdown power) by the ability
of the shooter to handle the recoil. Recoil can be reduced by making them heavier, but eventually
they get too heavy and defeat the purpose of being a handgun (trade off is knockdown power vs.
recoil). If you invented a ray gun (think Star Trek phaser), all of a sudden recoil is removed
from the situation. Inventions like these may well be worthy of patenting.
The same TRIZ approach has a 5 X 5 matrix for rating the "Level" of an invention based on the
complexity of the object used to solve the problem and the amount of modification of existing
objects required to come up with the solution. In their classification system, Level 4 and Level 5
inventions are very rare (together represent less than 5 percent of all patents evaluated by
them). These types of inventions may need more serious thought to patent protection.
Another "invention" that may be worth patenting is a truely new technology that might be later
employed by many inventions (think Global Positioning System - GPS). New technologies are
very rarely "invented" by independent inventors, however if you have one, you should consider
patenting it.
In summary (according to us, others may think differently), four types of inventions you
might wish to go through the patent process with are:
Indepedent inventors often ask, How much does a patent cost? A patent agent or patent attourney
typically works the patent through three phases.
Cost vary based on whether you are using a Patent Agent or a Patent Attourney. Patent Agents
are typically cheaper (are not licensed to practice law in court such as to defend your patent
in an infringement suit, but you could hire a patent attourney then if you needed one). Other
factors influencing cost include the level of complexity of the invention, the field of the
invention, and amount of prior art that has to be avoided. Depending on where you live and
the variables mentioned earlier, most Independent Inventors patenting solutions to normal
day to day problems will probably encounter a bill of $4,000 to $12,000 for legal services,
plus the USPTO fees (several hundred additional dollars, plus USPTO maintenance fees). You need
to determine if the potential payout and the probability of sucess (invention actually works,
market accepts it, can be profitably manufactured and distributed, etc) are high enough to
justify the risk of encountering the expense to patent the invention.
In any event, you are in charge of your own destiny and the destiny of your invention. Make
wise, well informed decisions about pursuing a patent and how best to do that. We encourage you
to seek professional help in making that decision. Talk to a licensed patent professional
(patent attorney or patent agent) NOT to one of the late night TV companies. You can find a
list of licensed patent professionals in your region
on the USPTO web site. Most of them will be willing to visit with you once for no charge. Be
well prepared with a good description of your invention, patent searching you have done, and
a prototype if possible. Do not waste their time digging through piles of papers in a big
cardboard box. Put on some nice clothes, give them a nice presentation of your invention and
answer their questions thoughtfully.
Don't forget a Provisional Patent Application may be an excellent stop gap measure available
for minimum cost till you make the larger decision (if you can reach a decision before the provisional
expires).
Many inventors ask about patenting inventions in foreign countries. Again, just my opinion,
but unless it is a truely incredibly unique situation, I would forget other countries and
focus on the United States. It cost a lot of money and additional effort to patent inventions
in other countries. Many countries have unique laws, but most have no grace period (the moment
your invention has been shown it is no longer patentable), and many require the invention to
actually be manufactured in that country within a few years. If you file a U.S. Provisional
Patent Application before you publicly disclose your invention AND your invention starts selling
in the millions and you are receiving huge revenues from licensees, yes you might decide to file
in certain other countries at the same time you file for a U.S. Utility Patent. The United States
is typically by far the largest market for products that solve everyday problems (the type of
inventions most often coming from independent inventors).
Again, seek professional advice. You are the captain of your ship, make the best decisions
possible for your specific situation. Patents are a double edged sword, they can be very costly
in terms of both money and time, but sometimes they can also be of great monetary value. The patenting
process must be studied and used to your advantage, either way you decide to go.
Many industries have one or more companies sponsoring / conducting an Invention Contest. If your
invention looks like a good fit, consider entering. It could bring you a lot of exposure as well
as result in a potential license. Invention contests are often followed by local inventors
organizations. Get involved in your local inventors group to learn more about them. Some contests
are not industry specific and accept a broad range of entries. Be sure your intellectual property
is properly protected before entering your invention in a contest. Also make sure it is a legitimate
contest by viewing information about their previous contests and visiting with prior entries.
If you have chosen to license your product and have completed all the steps above, its time to
do some serious prepartation. You can identify companies that might license your product by
finding companies that manufacture similar products and distribute them through similar channels,
and possibly sold to their existing customers. Our
How to Learn About an Industry or
a Specific Company paper will be helpful identifying these companies and in learning more about
them. Sometimes their is only one logical choice, but most often two or three companies will rise
to the top. Learn everything humanly possible about them, their products, their people, their market,
and their current problems. Prepare to pitch your invention as a solution to their problems. Try to
determine if they have previously licensed inventions from independent inventors.
Your invention must be very solidly proven, well defined and refined, as well as protected
by Intellectual Property. Try to learn from the experiences of others that may have pitched an
invention to these companies.
Be sure you have properly invested in developing your own skills and capabilities as discussed
in "The Balancing Act" section. You will need some business, networking, presentation developing
and presentation skills to successfully pull this off.
Seek professional help if you need it, and begin to develop the best approach for two or
three companies. Preparing for a few companies at once instead of sequentially one at a time
greatly speeds up the process. These things tend to go slowly. If you sequentially go through
the companies you could loose a few months each time, vs. a multiple target approach that goes
through two or three companies in the same amount of time, plus you can immediately apply what
you learned in one situation to the next one.
You will need:
If you want to go ahead on your own, we suggest you make a presentation to yourself (and your
spouse if you have one) as described in the section above. Do you really want to invest in this
invention? If you do, you need to determine how you could best manufacture and distribute
the product. Some products lend themselves to garage manufacturing operations, others
lend themselves to purchasing components, having job shops perform any machining operations,
and assembling them in your garage. Others will require a full blown manufacturing facility.
In this case you may be better off to just purchase a finished product from a manufacturer, and
then sell it yourself.
Don't be afraid to scale your product back (make it out of wood instead of plastic, leave off
some of the options, etc.) Just focus on getting the basic product into the field.
Once you get some of them out, follow up on them and make sure your customers are happy. If
things are going well, ask your customers if they know anybody else that might need one of them.
Don't forget to meet all the business registration and tax requirements and filings. Most states
have small business startup seminars and startup packets. Here in Oklahoma, the Oklahoma Department
of Commerce provides a
Business
Start-up Frequently Asked Questions page that answers many questions surrounding starting a
small business.
Some of basic problems and questions encountered by most inventors are:
After completing the training on this page, you should be able to answer most of these. Some will remain
unknown or slowly reveal themselves as the process moves along. Some of the more nebulous questions are
addressed by Inventors Digest magazine from time to time.
Do some real soul searching about:
Take the above two groups of questions, think about them, and take them with you when you go
somewhere for assistance. You need to find the answers to these questions and others for your
specific situation.
By now you should have some concept of the level of uniqueness of your invention. Are there several
products "sort of" like it? Are there equally good or better ways of solving the problem? Crowded prior
art (many similar inventions, several similar products on the market) can be a big problem if you expect
to license your invention. Unless your invention has significant advantages over them (much cheaper to
produce, has truly important additional features, is much safer, performs much better, etc) you will
have problems trying to license it. Does your invention really stand head and shoulders above the pack?
Yes, you think so, but be honest, think about it from a consumer's perspective. How about from your neighbor's
perspective? Would they really think so? If not, you have a big problem.
Rt. 2 Box 184
Everton MO 64646
The Association of University Technology Managers (AUTM) provides some tools
and articles about licensing, primarily from a university perspective, but many of their comments are applicable
to independent inventors as well.
The military is mostly concerned with functional risk (will it actually work?, is it reliable? , can it
be produced in the quantities we need?, will its useful service life be long enough to meet our needs?, etc).
The higher your product's Technology readiness level, the less risk a manufacturer has to assume and
the greater the probability you can successfully license your invention.
Groups like these often sponsor seminars and other training activities as well. See if you can find
similar groups in the field of your invention.
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