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In this series (4 parts) Don will tell stories of inventors who have had to sell their idea, only for someone else to make a fortune, and the steps they should have taken to avoid that from happening. His fourth article will be the exception, showing a very creative inventor with no money who successfully brought a product to market.

How to Succeed with No Money
Part One: Investments (next month, Part two: Partnerships)
Copyright 2007 by DonDebelak.com. All rights reserved

Inventors are often struggling with little or no money to bring their invention to market. This often leaves inventors broke looking for anyone to pay them anything for their idea. When someone else takes their idea and makes millions of dollars, this often leaves those inventors heart broken. Does it need to be like this? Absolutely not. There are many ways for inventors to make money from their idea, even if they have no money to invest.

Inventors need to develop a plan. You need to realize you will need money to make and market your product, not necessarily your own money, but you will need money and probably a fair amount of it. Patents alone can cost well over $10,000 and prototypes can easily cost you as much or more. Then depending on how you want to bring your product to market, there may be untold other costs, but if you develop your plan and have an idea what you will need, you can succeed by using one of the five methods we will discuss in this series.

To help you develop your plan, and guide you through many of the obstacles of bringing a product to market, you will want to find a mentor. This can either be an industry person or a successful inventor in the industry you are trying to reach. This mentor will have an idea of how much money you will need and some of the necessary steps you will need to take.

Then with this mentor develop a plan. I cannot emphasize enough that you need to plan ahead. If you don’t plan, you will probably run out of money and then when people find out that you have run out of money, you will never be able to get a fair price for your invention. If you have a plan from the start, you will guarantee that you will retain a controlling interest in the idea.

In this series we will tell stories of inventors who have had to sell their idea, only for someone else to make a fortune, and the steps they should have taken to avoid that from happening. Our fourth article will be the exception, showing a very creative inventor with no money who successfully brought a product to market.

Scott and Brennan Olson stumbled across a pair of old, unwanted in-line skates in a store in their hometown, Minneapolis, Minnesota. Intrigued by the idea, they redesigned the skates with modern materials and Rollerblades were born.

In a few years, Scott Olson started Rollerblade, Inc. and was mass-producing the first rollerblades. But these first skates were plagued by many design flaws and the interest remained limited. Olson ended up selling the Rollerblade, Inc to another company who could afford to redesign the product. That, with a smart marketing campaign, turned Rollerblades into a huge success.

So what could the Olsons could have done? Don’t larger companies have access to engineering teams and marketing staff that inventors don’t have access to? No. Engineering and marketing only comes down to money, if you have money you can hire a staff. So where does an inventor get that kind of money? Investors.

When you start selling off partial ownership to your product you can raise all sorts of money. Maybe you are thinking, doesn’t everyone know that? But really, almost no inventor knows how to have a reasonable investment plan for their product.

Once you and your mentor estimate how much money you will need for your product’s introduction, you need to decide how much investment you will want at each stage. At each stage you should try to put up some of your own money, as well as have some money invested. Each product introduction goes through roughly seven stages: initial start up, initial market research, patents/intellectual property protection, prototypes, marketing testing, product manufacturing, and product introduction/marketing. At each stage you will need some money and you need to get your investors involved sooner than when you run out of money. Running out of money makes it seem that you don’t know what you are doing and then people are less likely to invest in your product. At the same time if you are not careful with taking on investors you may find yourself with a minority share in your own product.

Before you get started selling off rights to your product, you should consult an attorney about selling shares of your company. This is different that having your company listed on a stock exchange — it is private and within your control — but there are still state laws that apply. Then you must create a number of shares in your company, say 5 million shares. This number isn’t too important, but make sure it is large enough. This is not the number of shares that you own, just the number of shares that the company has to offer for sale. Then when ever you sell ownership of your company, you sell some of these shares.

You also will reward yourself with shares for your own hard work and accomplishments. You should start out by awarding yourself 100,000 shares for starting the company and creating your product idea. You also should pay yourself in shares instead of drawing a salary. This may be another 100,000 every three months. This may need to change as the value of your shares go up. Remember that you should be upfront with all investors about your plan. They will want to know how it will work so that they understand just how much of the company they will own.

The first two stages, initial start up and initial market research, are usually pretty low cost and can be self funded or funded by family and friends.

The third stage, patents/intellectual property protection, is the best time to start getting investors involved. You should have come up with a list of how much money you will invest personally and how much others will invest. Also, you should have come up with a starting share price. At each stage, and as your success looks more promising, your share price will go up, so at this point it will be at its lowest. This encourages people to invest early. You will figure out how much money you need to raise and then divide by the price per share and you will see how many shares you need to sell.

Make sure you award yourself shares for your own investments.

Then you will continue this process for all of your stages until the product is introduced.

You can also express people’s ownership in your idea, instead of a total ownership as in a percentage of the 5 million shares, as a percentage of what you personally own. So if you have 100,000 shares and you sell 10,000 shares, then the buyer owns 10% of what you own. You are not selling your shares, but the company’s shares, but then they are comparing their ownership to your ownership. If you do this, you need to be clear that as the product progresses their ownership as a percentage of what you own will be smaller if they do not continue to invest.

It is important to sit down and think of this plan before you start selling shares. You will want to estimate how much money you will need, your share prices at each stage and how long it will take. With these estimates, figure out at the end of your product introduction how many shares you will own and how many others will own. Make sure you still have a controlling interest in your product. Also, don’t forget to be conservative in your estimates. Things may be more expensive or may take longer than you expect. It is better to be under-budget and ahead-of-schedule than over-budget and behind-schedule.

Copyright 2007 by DonDebelak.com. All rights reserved (Next month, Part two Partnerships