Friday 10 July 2009

I have a great idea, It's gonna make millions! (Part 2)

There you are sat in the green room, waiting to enter the 'Dragon's Den' all dressed up in your Sunday best with sketches in hand and a cardboard and sellotape model, all brightly coloured in with Emily's felt tip pens, tucked neatly inside your brief case... you'll blow them away with your invention... they won't be able to resist the urge to invest.


Ten minutes later you emerge from the den, sweating, stammering, model in tatters and your dreams shattered. How could it come to this you wonder? Why didn't they get it? Why didn't they take me seriously? What on earth is wrong with a one point twenty one gigawatt, automatic potato peeling machine? So just how can a crazy inventor be taken seriously by the suits?




First of you will need a good foundation, something that will say to the designer, patent attorney, bank manager et.al. "Hey, I know what I'm doing". Businesses have begun to borrow from designers more recently, with the current business buzz word being 'Design Thinking' The suits belive that crazy inventors with all of their whacky problem solving solutions, may just yield them their next 'break through idea', so why not take something back? Why not borrow from their 'Business Thinking'?

The cornerstone of your foundation you're going to need is a 'Confidentiality Agreement' or 'Non Disclosure Agreement' (NDA). This will set the tone of any future conversations, it says "I am being professional, and I'm knowledgeable about business practices" it opens conversations up in a business language the suited professionals understand... and more importantly, a language they appreciate. Besides which a NDA will also offer some protection to your intellectual property (IP) and signals you're not about to let yourself get ripped off, something I know many inventors fear.

With co signed NDA in hand, you can then begin to open up some dialogue, but if your brief case still contains that napkin sketch and cardboard model, all your NDA effort is going to go to waste. Sure, in the past a 'back of the envelope sketch' was often good enough, but today investors and manufactures have much higher expectations. Anything less than a functioning prototype is falling very short. That's not to say you must have a working prototype, but trust me, you will find it very difficult to gain the trust of anyone but the bravest visionary with anything less.

Of course a working prototype is going to cost a fair amount. Recently at Buff we commissioned a prototype for Keebunga for what is quite a simple product. The first stage cost was £180 for stereolithography rapid prototypes in unfinished state. By the time the final prototypes where commissioned, some £8,000 had been spent and that's not counting the actual design costs.

On top of your NDA and rather expensive working prototype, you're going to need a business plan of some sort. Even if you're trying to sell a licence to manufacture rather than venture forth into the minefield of manufacturing the product yourself, investors, grant officials, bank managers et.al. will not take you seriously unless you have a very good idea of what the market potential is, who your demographic are, what the capital expenditure and unit costs are going to be and what sales channels you propose. And you'd better be prepared to back up you findings and assumptions with some hard evidence of valid research.

One final thing before I leave you to ponder. You will need a realistic idea of how much your idea is worth. I have seen some licenses sell with a royalty payout of 1% or 2% of retail value... and believe me, that's not a bad return.

If any of you have watched 'Dragons Den' on BBC TV, then you'll no doubt be aware that the dragon business investors often ask for a much higher percentage of the business shares than the inventor usually offers. Why is this? Well lets take a look at a fictitious example of the automatic potato peeler that the wonderful Heath Robinson designed in the picture above. If you have such a drawing its really worth little more than the paper and a token gesture towards your time and intellect... £2,000 would be a good result. A working machine is worth not only the value of the sketch, but also the value of the sum of parts, your time spent developing and tweaking the idea and some recognition that any prospective manufacture/investor is now faced with a much lower risk, as they now know the idea works ... in principle. If you can actually fund the production tooling and run a few thousand off and sell them, then the investors also know the market has been tested. It is this adding value and lowering risk that investors and manufacturers are really interested in.

As a sketch, an idea will need lots of money spent on developing it. One recent example was £300,000 investment to take a concept to a manufactureable product, and that wasn't even a complex product, so with those sorts of development costs in mind, a manufacture is hardly going to offer you the £10,000,000 you believe your idea is worth. Of course if you have manged to get your idea developed to a working prototype stage, the risk to the manufacture and investment they'll need to put in to take the product to market is lower, thus you can command a little more, but it still isn't going to be remotely close to the sorts of figures most people believe their idea is worth, and in my experience nothing... and I mean nothing pisses off an investor more than a prospect over valuing to ridiculous proportions. If you want to be taken seriously, then you need to get serious with yourself first.

In my next blog entry on this subject I'll venture into a little more detail about how to put together a proposal and where you can go to for help. In the mean time download an NDA from the Buff website and get it signed...btw, it's free to download ;-) http://www.buffindustrialdesign.co.uk/NDA.pdf

A special thanks to Raymond Pirouz, who helpd shape some of my thoughs for this post through his tweets on twitter

3 comments:

  1. Hey, you know we're the same age -- I'm 39 as well...turning 40 this October. :)

    Excellent post. I really like the real-world twist you're putting on the information you're presenting. I can definitely confirm from my own experience that you're right on the money on all points.

    lol -- I like the 'business thinking' bit. Good one. :) If anything, there is too little business thinking going on in design school, since it's so closely aligned to 'the arts' where 'business' is perceived as a major sin (even though artists of all stripes are literally kept alive by who else but business interests, but I digress).

    The rule of thumb is that the more you've done on your own before going to investors, the more professional and dedicated you are perceived to be -- but more importantly -- the more viable your idea for success because it will have gone through rounds of concept/design/development/prototyping/user feedback/revisions-updates/niche sales figures even...

    The more you can go in with, the more powerful your position.

    As for NDAs, lawyers and patents, it's something of a power game there---whoever has the most lawyers and $$ can come out on top regardless of whose idea/design it may have started with.

    I think that with new developments like the Internet, YouTube, etc. it is much easier for an inventor to go to a designer and then hit the market w/minimal investment assistance. The trick is to quickly reinvest revenue and grow market share, and THEN go get more cash if necessary so that you maintain more of your position.

    Unless of course you just want to sell out and have nothing more to do w/your initial idea, in which case why get any more than 1-2% if lucky? :)

    Again, nice stuff -- rare for this type of info to be out there.

    - Raymond Pirouz

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  2. My patent attorney tells me I should always ask for a signed NDA before disclosing my ideas, even though I have a UK patent pending. How does this sit with the Dragon’s Den public disclosure do you think?

    Pip Cartwright, fast-fast.co.uk

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  3. i temblog, If your patent is 'pending' then it isn't yet within the public domain, thus anyone you speak with about your ideas could disclose your confidential information before your application is published and potentially give your competitors an early preview of your designs.

    Disclosing your ideas in a public forum such as "The Dragons Den" makes your idea know to others on a much larger scale and could lead to copying sooner rather than later.

    You can of course defend your patent if you eventually have it granted, however funding such a lawsuit can run into tens of millions of pounds, so it would only make good business sence to persue a lawsuit if your idea has a genuinely realistic chance of generation hundreds of millions of pounds worth of sales. That said a 'Dragon' is unlikely to invest if you don't have a patent, and a robust one at that.

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