While in design school, I created a product that I’ve been refining over the years. Well, technology has finally arrived at the point where it’s cost-effective to bring it into production. Thing is, I haven’t been able to sell the design off so I’m going to do it myself! I have a patent-pending on it and have hired a business development firm to prepare the professional business plan as well as acquire credit lines upwards of $300K. I’ve also partnered with an electronic engineering firm that can do everything for me turn-key. My overhead is basically myself and maybe some marketing and sales assistance.
Just wondering who has done something similar and if so, can you give me any general advice or words of wisdom. It’s VERY stressful!
Be careful. If an established company isn’t showing interest in your idea it might not be as strong of a concept as you think it is. That isn’t meant as an insult, its just that there is a ton of risk in starting your own company, with one of the biggest risks being the loss of your time. You can easily go from being a designer to someone trying to keep a business afloat. Take a good long look at what you are about to drop 300k into, and ask yourself if you know something that these other people don’t. If the answer is yes, go for it!
When you talk about little overhead, consider that being an independent designer with a laptop is much easier to maintain that a warehouse full of widgets.
So do you have that line of credit, or are you trying to get it? Because that is going to be the hardest part by far right now. Banks are not lending large sums of money to startup businesses with no revenue, no assets, and no track record. Do you really need that much money to start it up? That’s a lot. I obviously don’t know the product, but you really don’t want to get stuck with $300k (or $200k or whatever) in inventory. Do you have the sales channels to move the product, or are you just taking a flyer on it? At the very least I would look at using a smaller chunk of money to do some sales testing to prove the idea and business first. Try to get preorders, get a large retailer to write a PO based on a prototype, anything to show that you can actually move the product at the price you need to get.
I would also be wary of these business development people. It is not in their interest to tell you your idea sucks and is a money loser, even if it is. Patent attorneys are the same way- if they tell every yahoo who walks in that their idea is a stupid waste of time, they don’t get paid. Again, I’m not saying you fall into the yahoo category , just saying you should get some truly independent advice on the product and business case for it. The fact that you’ve been unable to sell the idea is a warning sign. More than one person thinks there is no business case for it- you need to assess why that is. There are lots of reasons that could be unrelated to the basic soundness of the idea (e.g., maybe your royalty demands were too high).
Keep in mind if you do get that line of credit, you will almost certainly be signing a personal guarantee on it. That means if you default, they will come after your personal assets. I can tell you that signing one of those is stressful, especially when your assets are far less than the amount you’re borrowing. More so when the banker at the signing table describes to you in detail the lengths they will go to to get their money back.
I have done what your considering a few times, some successfuly other less so. Here is the short and sharp about it.
The reason to write a buisness plan is for YOU to understand the inflection points in the buisness, its not a recipe but education. If you hire out a BP your getting a boiler plate, and thats not bad however it really just says “i dont know/care about the buisness side” and thats bad.
Designers make in generaly poor buisness people, sorry its the hard truth.
My primary rule is this, never ever finaince a startup with credit card money, you are paying a lot for the money, and if you fail (80% chance) your not only deep in the hole but might screw your credit up but good.
300 k is about “right” dont know your product, but by the time you go through proto, dev, testing, tooling,pre production, production run, market test, marketing you will eat up that money fast. Your over head must remain as low as possiable, but still remain effective and that might mean hiring a few people.
Its been said before, its all about sales and cash flow, no matter how cool the product is no matter how passionate you are, if your not closing sales and making money your sunk.
Patents are in effect worthless unless you have the war chest to defend them. The hard truth here is that if your product is any good, it will likely get copied, not ripped off but you will have competitors.
A brand is better than a patent, brands can be expenisve to build and can take a lot of time but they have real value that is less transitory than a product.
Never partner with a spouce or SO (esp a SO) as your doing something very stressful, with long odds against, so you want to leave your support systems in place.
If you do bring in investors, or sweat equity, remember that what you have now is a pre cash evaluation and that can mean its worth from 0 to X so be careful how much you give away.
Angel money/VC money is like the most beautiful girl at the dance, she gets to pick whom she wants to dance with and on her terms. Dont get me wrong, there might be mutual attraction but in the end “she” can find lots of “guys” like you…but there is very few of “her”.
Your going to need more money, so plan for it.
Get a buisness person involved, not a newly minted MBA but somebody with success and experiance.
There is more, lots more, thousands of books have been written on this subject but the 13 above will get you started…An yes i am availble for consulting.
Thanks for all the great comments and suggestions. I’m scared to death now!! I’ve already sunk quite a bit of my own personal money into this endeavor and feel it has enough momentum behind it to not back off.
As for the idea, I’ve been approached by a number of, let’s just say major, manufacturers. I’ve been in deep discussion with one of them but we couldn’t really land on an amicable agreement. The amount of exposure and number of emails I’ve received from people wanting the product has been overwhelming and makes me confident.
In short, it’s the digital bicycle mirror I developed back at Purdue. www.cerevellum.com. The final product will be completely wireless, using ANT+Sport technology. I’m hoping to have it available in time for Interbike.
The only things I own are a house and car. I’m still young at 31 and I just feel like this is something I’ve got to do. This product needs to see the light of day.
Cool product. Yeah, you need at least $300k. It’s always hard to go back and get more, so make sure you ask for what you really need first time out.
Another thing to consider- if you’re having this made in Asia (and that price point you probably have to), you will need to be over there a lot. Finding the right factory will make or break your whole business. Do not trust the factory to QC your first run, and be very careful if you choose a 3rd party QC company. (A significant percentage of them are on the take.)
And another thing: this is a novel, useful idea, but it’s also very vulnerable to being knocked off. China is a “first to file” country. If you’re not careful, you could send these drawings out to be quoted, and some factory can go file the Chinese patent. And then sue you (in China) if you try to have them produced. And they’d win, because that is perfectly legal.
Just how far apart on terms were you and that manufacturer you talked to?
I worked in the bike industry for years, did most of vetta’s electronic products back in the 90’s as well as a “best of interbike” award. I can tell you some free info, others it would cost, but the bike industry is full of sad stories with a few successes. PM me if you like
I’m looking at a company that already produces electronic gizmos for a cycling accessories company and they have two factories in asia. It’s the best thing for me at this point because it’s complete turn-key. Packaging, instructions, UPC code, etc. All of that should be included and, hypothetically, should arrive on my doorstep. I know I’ll have a significant amount of fees associated with this approach as opposed to doing it entirely myself. Before it goes into production, I’ll procure patents in those countries of origin. Thanks for the little heads up!
As for the original manufacturer that expressed deep interest, let’s just say they were one of the top 4 in the country and like aluminum a lot. Anyhow, they backed out when they saw that it would have to be developed outside and that the patent had yet to be granted (still waiting.) In short, they were very interested but things just didn’t work out. I’d much rather just sell the idea, but since that doesn’t seem to be happening and I’ve exhausted nearly all of my industry contacts, I’m just going to do it myself.
Ok, still have some real good contacts into that market, know interbike well. Vetta had for a long time a very profitable buisness model ( i saw it in action) but when the founder died and it was bought by some NYC guys (who KNEW they knew better) it went down the tubes fast.
at 31 already owning the house and the car you use shows you are
in front of the rest of us. In front of most people, who simply can’t
decide to take a risk, because they don’t have anything to gamble
Your idea seems to be strong and it looks as if within the last years you sorted every niggly bit out.
For me this one looks ripe to go to market ( I am only 4 years your senior,though). But I wonder how much revenue one could generate before competition hits Walmart with a clone. (Ever read the BIO of Dyson?)
However, I wish you could luck ! Take on Zippy on his offer.
all the best
P.S. I honestly like your portfolio. I was looking for a new Icescraper for the car within the last weeks and here in Euro Land I only found malfunctioning junk.
While I haven’t independently brought a product to market I consult with many who have.
My thoughts follow-
a concept is different from reality.
Having access $$$ and being able to use it effectively are 2 totally different things. I’ve had many clients with $ to burn but still at the end of the day, you can’t buy success. Knowing the market and what you don’t know are key.
Distribution is more important than you think. A great product is nothing if you don’t have the connections or industry knowledge to get it on the shelves.
Brand (as keenly mentioned by Zippy is also very important and overlooked y many. Without a solid brand foundation, all you got is another widget. A crappy product with a great brand pull is 10x better than a great product with crap branding.
Totally agree on the advice from Zippy and others about who you get the $ from and the agreements you make. Not enough caution can be paid here…
Likewise same goes for patents. IF you don’t have the coin to fight infringements, don’t waste the $ on the patents in the first place. This is the first mistake many “creators” make thinking a patent is the key to make XXXX$.
Again, know what you know and know what you don’t. Hire as many skilled professionals as you can. This goes for everything from business planning to identity design, packaging, logistics, sales, etc. If you think you can do it all, you will be your own downfall and have no one to blame.
most important among all these I’d say is hiring the pros and distribution. I’ve seen many a project fall apart just based on lacking those things…
www.cerevellum.com Website has been updated a bit. Now even includes a video under the “technology” section.
A lot has happened in the past few weeks. All of the financial forms have been completed and the business plan should be finished in the next 2 weeks. At that point, I’ll be trying to get the appropriate funding in the amount of $150K (that includes the $60K required for electronic development and about $40K for over-seas tooling.) The numbers are staggering. I just need to sell 1500 units to basically cover my initial start-up expenses and that’s completely achieveable during the first year.
Getting really excited and am ready for a wild ride, that’s for sure. It’s amazing how much I’ve learned about business in general. Even if you don’t go through with it, I advise everyone here to look into bringing one of their own designs to market. It will make you a better designer.
Best of luck, man. I look forward to seeing your product on the peg board at the shop I work at part-time (you know, for the discount).
Thank you for sharing your trials and tribulations 6ix.
Mods: can someone sticky this? This post is full of great advice on start-ups and it will be nice to follow the action, either success or failure. I’m sure many frequent readers of the boards have or will have similar questions some day.
Have you tested the price point with your distribution channel and target market consumers yet? Your payback calculation assumes that people will pay the $300+ for the unit - and if they don’t?? What if the choke-point is $199, how badly does that trash your financial model? As an ex-cyclist and avid gadget guy I’m comparing your price point against the latest iPod or GPS unit and ask myself if it’s a value. Trip computer + video camera = $???
I’m also in the process of ramping-up a new product myself and pricing is a critical element in our process. We asked some trusted buyers in our category about our proposed retail prices. If you don’t do some testing you may be in for a big surprise when it’s time to sell the product.
Keep us updated. It’s a great concept! Maybe a Core77 discount?
Agreed. Pricing is incredibly important and can be very tricky. I’ve done testing and think i’ve landed at a comfortable price. See, if it’s priced too low it will be seen as just a beginner’s device. Considering power-measuring systems run from $1200-3500 and the latest Garmin GPS for bikes runs $450, I think I’m coming in at a fair price. Also consider the fact that the Hindsight will display data from these power-measuring systems and have plug-ins such as GPS and heart-rate available, it’s actually a pretty good deal. It’s not really fair to compare it to a Nintendo DS or Ipod because of the numbers involved. They have quantity on their side. The price will drop next year when new models come out (and I have those in the works already.)
Best of luck to you. I think more of us should be looking into similar ventures.
-Hey, where’s the link to buy directly from the site?! Getting them into stores is nice but couldn’t you bring in more profit if you sold them from your own site in addition to stores that could carry them?