While I’m on a roll with questions (re: my post here yesterday), here’s another one that comes up a lot. Specifically, it came up this week in Ask Entrepreneur:
Question: How can I approach investors for my invention? My patent professional says I should look for capital. I have no idea what it would cost to manufacture, and patents aren’t cheap. How can I write a business plan when I have no information?
First, some facts:
Before I give you the formal answer posted on the Web, let’s take a minute to contemplate reality. The chance that your idea is really worth something is very, very small. You have so much going against you. Selling an idea is something like selling a book, a movie or a painting before the book is written, the movie filmed or the painting painted. The value ahead of time is very low. It’s after you realize the idea, by turning it into a business, that gives it real value.
Sadly, when an idea is turned into a business, it’s the building of the business that creates the value. Not the idea. You’re an idea person, I suppose, so you hate that, but it’s pretty much realistic. IMHO, as they say.
People dream about thinking up some new thing and getting a lot of money for it, but who’s going to pay you that money? The manufacturer or large company that you think can use the idea? Fat chance. They have teams of researchers. They don’t even want to talk to you about it because your idea, if it’s really interesting, is one in a million, and to talk to you they’d have to talk to the other 999,999 people.
Furthermore–and here’s where the patent comes in–you’re on the right track there. But still, you don’t really own that idea. The government protects creative works with copyright and inventions with patents, but those are rare. Most patents are worthless.
So, after that burst of cynicism, let’s get to the more optimistic side of all this. I am not saying inventions are worthless or that your ideas are worthless, just that they are more likely to be worthless if you think you can just sit around thinking up things and make money while somebody else builds the business. That’s not realistic. Maybe you are the one-in-a-million exception, but only then.
And now, the answer I gave:
Answer: Sorry, but nobody will take you seriously if you say, “I have no idea what my product will cost.” If you don’t know, who does? You are expected to come up with a good estimate. It doesn’t have to be exactly correct; everybody understands that it’s just an estimate and that you’ll eventually get detailed costs from a manufacturer (or somebody will).
So your next step is to get an idea of what your product will cost. Find a way to make a reasonable estimate. Call somebody who might know more than you do and, if that first person doesn’t know, ask him or her to suggest somebody else who might.
And don’t overestimate patent protection. Not only is it not cheap, but it won’t protect you that well, either. Our patent system is broken.
You need some estimated numbers. Costs are essential. Sales price is, too. And in truth, the likelihood of being able just to sell your patent rights is low.
I agree with your patent professional. You need to ally with somebody who has useful experience in this area and whom you can trust. You can’t get this to the point where you can talk to arms-length investors without having a stronger team. You can’t take the next steps without having a much better idea of what goes on, or a trusted ally. You also need some good professional advice. If (and only if) you really have something that is a real business opportunity, then you’re in very dangerous waters, full of sharks. Get an attorney you can trust. If you know somebody you can trust with more business experience in your field–and I mean real experience–ask him or her for help.
Sorry. I’d like to be more positive, but I think this is the truth.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
