Passion and creative energy notwithstanding, launching a new product business, or even developing an invention concept is a significant undertaking. It is an investment of time, resources, and cash. I also make a point to tell my clients that it is one of the riskiest investments they can make… Yes, the potential rewards of success are very high, but the statistical odds of success are relatively low. It’s important to me that my clients proceed with a good understanding of the risks they are taking, so that they can make good business decisions as they move through the process.
Risk must be managed to ensure the highest probability of success, AND the lowest possible cost of failure.
Most financial advisers would agree that a diversified portfolio is an important element of building wealth while managing risk. A savvy investor would never put every penny into a single stock or commodity, unless he had some sort of inside information. Even then, it’s a pretty significant risk to have everything riding on a single opportunity. The stock market could take an unexpected hit. A geo-political event could change the investment landscape. Any number of things can derail a “sure thing”.
Similarly, launching a new product or business involves a myriad of unknowns and ‘un-knowables’, especially during the R&D stage. This is why I strongly discourage anyone from putting everything they have into a single invention or product venture. While the services that I and Product QuickStart provide are carefully geared to reduce risk, even we can’t eliminate all the risks associated with inventing and launching a new product. So, if someone is mortgaging their home, raiding their kid’s college fund, and selling Grandma’s rings to take their one shot at launching a business, I would really prefer that they take a step back, and let us help them think of a different strategy.
The best strategy, of course, is to use someone else’s money if possible. Not to suggest that the inventor won’t invest plenty, but there are almost always those who can better afford to make the kinds of investments that will be required to get a product to market. Angel investors, crowdfunding, and other venues represent great opportunities to accelerate an invention to market, without the inventor having to put absolutely everything on the line.
In many cases, what we encourage our clients to do is to invest in just the right amount of product development and presentation development needed to go out and raise the funds to take something all the way to market. There are a few common push-backs that I sometimes hear from inventors regarding seeking outside investments:
1: I don’t want to give up a large percentage of my idea/company. I understand this concern. But, bear in mind that by giving up some of the company, you are also giving up some of the risk. More importantly, without getting these investments, the inventor risks wiping out before getting the product to market. At the end of the day, they may own 100% of nothing. Personally, I’d rather own 10% of something than 100% of nothing.
2: I don’t want to give up creative control. I get it. This is your baby and your passion. You’ve been working on it for a long time. But, if you can’t get it to market, that creative control isn’t worth anything anyway. Why not launch your product (even if the investor changes it) – then maybe you will have enough funds to exercise complete creative control of your next product launch.
3: I don’t think I can convince an investor to invest. Ummm… okay, then maybe the idea isn’t that great after all? If you’ve got a great idea, and can build a great business plan around it, other people will be able to see that. If your idea is too thin, or there’s no viable business plan, then maybe you shouldn’t invest your time or money in the venture either. If ten out of ten investors agree that your business concept stinks, maybe your business concept stinks. Put your energy into making a better concept!
This may seem like an odd article for me to write, since I make my living providing consulting, development, and manufacturing services to inventor-entrepreneurs. I know that it seems like I’m discouraging inventors from moving forward. But, that is not the case. If you have passion for your idea, if there’s a good business plan, and if the idea is good, I absolutely believe you should move forward. My goal is to help you do that in the least risky way possible.
Product QuickStart provides strategic consulting, product development, design, engineering, prototyping, and manufacturing services for inventor-entrepreneurs, start-ups, and early stage companies. Please visit our website at www.productquickstart.com, or contact us for more information.
Principal, Product QuickStart