Friday, October 18, 2013

About Your Invention: Introducing A New Product Or Service

Finally, the high risk alternative is to introduce something wholly new and untested. 

From talking with hundreds of prospective entrepreneurs - inventors and people with ideas for innovative new products - I realize that many people feel that this is the way to go: to invent and cash in on something the world has never seen before. 

Some people I've met seem to be addicted to building better mousetraps in the misplaced hope of getting rich.  Misplaced because the sure way to get rich isn’t with a new product or service.  It's through a sales job, but that's another story for another post.

The history of new product introductions is a history of abject failure, even new products from huge, multi-national firms that specialize in innovation.  The reality is that with a new product or service you are treading unknown ground from beginning to end, and any number of very minor occurrences along the way can trip you up and cost you everything, the most common occurrence being that there are no customers for the product or service.
Historically, this alternative is unbelievably expensive, with terrible odds of success.  I remember hearing a new-product development manager for a large national consumer goods marketer say that introducing a new product cost his employer around $5,000,000 and more just to test market in the Portland, Oregon, the country's 40th largest market, with but a 1 in 20 chance of breaking even.  Note he said breaking even -- not making a profit.
Of course, when something wholly new hits, it can hit really big, making the owners rich beyond anyone's dreams -- and we all know people with some pretty pricey dreams.  What few people consider is that very, very few of these ventures succeed.  Still, many people are attracted and even obsessed to this option, and are willing to make this investment in time and money. 

The question is -- is this the best opportunity for you?  If you really believe in your product, and can afford to lose your money, go for it.  If your idea seems completely unique, your first task, before you go any further, is to find out why.  In most cases, I’m sorry to say, someone else had a similar idea and found there is no market for what you have in mind.  So you need to know: 
  • Has someone tried to introduce a similar product or service? 
  • What happened to them? 
  • Why did their variation fail? 
  • How was their product or service like yours?  How was it different? 
  • Why do you think your version will succeed when theirs failed? 
If you decide to pursue your idea, remember that your chances of success are low and that your costs quite high.   You are likely to lose your money.  If you believe in your idea, here are some alternate strategies to risking your financial future.
  1. First, make sure your legal ducks are in order.  Have a qualified patent attorney do a patent search then file a patent if your product can be patented before you take it out on the market.
  2. Find a corporate partner to whom you can license or sell your idea.   Many large companies accept new-product submissions for consideration, and others don’t.  You will need to do some research and do a good job of selling your idea, but this could be a profitable way to make money on your idea.
  3. Another option is to prove that there is a market for what you have in mind.  This is what the big players in new-product development are up to when they test-market something.  Starting a business to test a product or service is a perfectly good approach.  The pay-off comes when you take the track record you have established for your product or service in a small, localized  market to a large company, and license the product or service to them.   Of course, if the idea really does well, you still have the option of continuing to run the company yourself.
Bear in mind at all times that new product and service introductions are very expensive with a very low success rate.  Do not follow this course unless you can afford to lose the money you have invested.  (Have I said this enough times?)
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