Face it: inventions are cash-eating pigs.
Why? Inventing is an extremely risky business venture that is front-loaded with costs and profits, if any, come much later, sometimes never. Your invention is a hungry pig that will happily consume all of your capital and oink for more. It is up to you to put him on a diet before he drains your bank account. Below are three pigs you must manage very carefully.
The Patent Pig: Patent Here, Patent There, Patent Everywhere
Many novice inventors latch onto patents as metaphorical logs of safety in the turbulent river of chaos and uncertainty that is inventing marketing. Patents are very expensive: a typical US utility patent for a simple product can easily cost $5,000 – $10,000. European patents may cost more to prosecute and Asian patents, particularly Japanese patents, may cost a lot more (so I have been told).
I'm a patent-positive person: I believe a strong US patent is almost always essential whether you build a business around your product or choose to license it. The US market is the best in the world, so put your patent pig on a diet and just pay for a US patent. Of course, your product may sell in Europe and in Asia too. But patents are sunken investments – short term liabilities, the cost of which you may never recoup. Why break the bank funding European and Asian patents before you know if there will be any demand for your product there. Plus, you can sell your product worldwide, you just cannot sue an infringer in a country where you are not patented.
The Price-per-Each Pig: Save Later by Buying in Volume Now
Product manufacturing costs are very much tied to economies of scale: the more units you commit to buy, the lower your cost-per-each falls. If you buy 500 units, your cost per each is $2.00, but if you commit to a minimum order quantity (MOQ) of 20,000, your cost per each is only $0.75.
Wow! That's cheap. No it's not. Oink, oink.
In the beginning, you don't know how your new invention will sell – it may sell very well or it may not. Your focus must be on the total incremental capital risk. In the first scenario, the capital risk is only $1,000 (500 units at $2.oo per each). In the second scenario, your capital risk balloons to $15,000 for 20,000 units.
Take small incremental risks until you can judge your sales potential. Buy the 500 units at $2 each and perhaps sell them for $5. Leverage your profit to order a bit larger quantity. Never buy a warehouse full of product before you know whether you can sell one. There are many sad tales of inventors draining their IRA accounts to buy a mountain of product that never sells. That pig can eat your house!
The Invention Marketing Company Pig
So-called invention marketing companies spring up daily in new places. Much like the mythical Sirens in The Odyssey, they play beautiful music luring the modern day sailors (inventors) to their (financial) destruction. “We have relationships with all the big box retailers,” they cry. “If you don't believe enough in your million dollar idea to invest $20,000, why will anyone else,” they ask critically.
The reality is the number of bona fide companies that help inventors with marketing probably can be counted on one hand. Most, like Lambert & Lambert, charge a small evaluation fee and receives a portion of any royalties if the product is successful.
Don't attempt to put the invention marketing company pig on a diet, turn him out to pasture. Someone else will invite him to their house.
Put your cash-eating pigs on a strict diet or turn them out to pasture. Your spouse will thank you.