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Inventions Joint Ventures – Great Way to Sell
Selling through a joint venture can be a great opportunity for inventors. Not are many only are many industries open to inventors but inventors can build sales fast and generate income, while otherwise they might have trouble introducing their product.
Types of Partnerships
For inventors, a joint venture is an agreement by two parties to work together to design, promote or manufacture a new product . The parties split the work and the profits. Inventors can form a wide variety of partnerships, including:
· A partnership with a manufacturer who will help design the new product, build prototypes and eventually produce the product. The inventor is responsible for all sales and marketing activities and may also pay for the patent and other tooling expenses.
· A contract with a sales and marketing group that agrees to market the product.
· An agreement with an expert in the field–such as a remodeling expert or a well-known repair person–to present the product to consumers.
· An alliance with an engineer or industrial designer who will finalize the product design.
· A joint venture with another marketing company to exploit a market other than the one originally targeted.
· An agreement with an overseas manufacturer to make your product for a reduced price and extended terms in exchange for overseas marketing rights.
Inventors form alliances because either they need a partner to help foot the bill, or they need to offer an extra incentive to get help from key people in the market. For instance, an inventor who wants to penetrate the hardware-store market may team up with a top manufacturers’ sales representatives ‘ agency. Agencies might not be interested in taking on a product for a standard 10 percent commission. But they might be willing to take on the product–and pay for promotion–if they form an alliance and receive 50 percent of the profits.
Reasons for Forming a Joint Venture
When forming joint ventures and alliances, you might be hoping to do any of the following:
· Introduce and penetrate the market as quickly as possible.
· Receive sufficient funding and support for a project that is beyond your resources and experience.
· Have more involvement in the ongoing success of the product than you would get in a licensing arrangement.
· Develop the product further before it can be licensed. An alliance can be a precursor to an eventual licensing agreement.
· Generate additional market information and distribution-channel contacts that can be used for subsequent inventions.
· Obtain management, administrative and manufacturing support for a new product. A company with experienced personnel can do these tasks far better than most inventors.
Finding Potential Partners
Most inventors don’t have the time or experience to market their product, so they hope to find a marketing firm to take over sales. How do you find a firm that will work for you?
Marketing partners
The best approach is to attend one or two key trade shows in your target industry. You can find shows at www.tsnn.com or www.tradegroup.com . When you get to the show, you’ll find booths selling products from many companies. They are either distributors or marketing agents, and you can talk to them about carrying your product. Meeting people in person at shows is by far the best way to land a partner.
If you can’t attend, call the show’s promoter, and request a directory that lists the exhibitors. Contact the firms with “marketing” or “distribution” in their names, and also call those that carry products sold to the kind of retailers or distributors that might carry your product.
Steps to follow
Before you contact companies produce a sales flyer. If you don’t have a product or prototype to take a picture of, use a drawing of your product
In a separate report identify the competition and explain why your product is better.
In another document, list all the items you can that show the product will be a success. Include testimonials, market research, any sales results and any other encouraging results that show your product will sell.
Attend a trade show if at all possible.
If you can’t attend, first request literature from a company. It will normally come signed by a person in the sales department. Contact that person and tell them you have a great product and wondered if the target company would be interested in looking at your information. Normally the person will request your information. In a follow up contact, find out who in the company you should present the idea to. If the person likes your idea, in many cases they will present it for you and make a case. Other times they will just give you the name of the person, but then you can still state that you were referred to the person in charge by your original contact.
If the company likes your product and is willing to market it for you, offer 20% to 25% of the sales revenue for handling the marketing and sales work.
For more information on using joint ventures, check out Don’s book, The Risk-Free Entrepreneur.
Manufacturing Partners
Typically you want a manufacturing partner when you can’t afford the tooling or initial production run costs. You might have to call on several manufacturers to find one willing to be a partner. Look for companies currently running at 50 to 60% capacity. That is enough volume to ensure the company will keep operating, but enough below capacity to make the manufacture hungry for some new business.
Steps to follow
Before you contact companies produce a sales flyer. If you don’t have a product or prototype to take a picture of, use a drawing of your product
In a separate report identify the competition and explain why your product is better.
In another document, list all the items you can that show the product will be a success. Include testimonials, market research, any sales results and any other encouraging results that show your product will sell.
Use you State’s Manufacturing Directory, available at most local libraries or the Thomas Registry, available at larger libraries or online at www.thomasnet.com to find local manufactures that could make your product.
Do a sales projection on what the product will sell based on what industry people, or your potential marketing partners have told you.
Approach the manufacturers, tell them you have a great product and have had strong industry support with real market opportunities but you don’t have enough money to introduce your product on your own. Tell them you would like to see if there is a way you can work together to both profit from the opportunity.
What Partners Want
Alliance or joint-venture partners look for a significant business benefit when they decide to team up with an inventor. Typically, they are only interested in your product if it can increase their sales 15 to 25%, or if it provides them with a market advantage over their competitors. The perfect product, from their perspective, is one that has considerable market impact.
From the inventor’s point of view, perfect products for a joint venture are ones that the inventor doesn’t have the resources to produce, or the marketing network or credibility to launch. A joint venture allows inventors to move their products to market quickly with much less financial risk. The key to success is finding the right size companies to approach. If your product can sell $1 million to $2 million per year, a $100 million corporation won’t be interested–but a $5 million corporation might be.
Other Considerations
Here are some other factors to consider as you investigate joint ventures:
· Money matters: Typically, the main advantage of a joint-venture strategy is that you get funding from your potential partner. For example, you may have identified a big market opportunity, but lack the money to create prototypes. You approach a potential partner company and discuss a possible alliance if the product is successfully developed. You can then ask for money or engineering support to finish the prototype. One strategy is to ask for support only for this first step; once the prototype is finished, the two parties can decide if they want to proceed. This step-by-step process is usually much easier to sell to a company than a licensing agreement.
· Protection: You don’t really need a patent to strike a joint-venture agreement, but it does improve your negotiating position and helps ensure that the product’s intellectual property rights belong to you. You could apply for a provisional or design patent, but this can be dangerous. The provisional patent gives you only one year to apply for a utility patent. That year could easily run out before you finalize your agreement and finish the product design. You’re better off applying for a very broad patent, knowing your initial application will be contested by the patent office. Then you can keep going back and forth with the patent office for several years. This tactic can keep your patent rights open for three to five years.
· Prototypes: Many inventors choose a joint venture because they don’t have the experience or the money to finalize a “looks like, works like” prototype. But a drawing often isn’t enough to get a positive response from a potential partner. Having a prototype is important. Don’t spend too much money creating a prototype; just take it far enough so the partner can see your product’s sales potential.
· Research: You won’t have any trouble finding a partner if you uncover a product that satisfies the needs of a large market. But it’s up to you to prove the market is there. Your research should show that customers need and want your product, and that they’re willing to pay a reasonable price for it.
· Manufacturing: Most inventors create a joint venture with a manufacturer that can make the product. Most sales and marketing partners won’t form a joint venture with you unless you have a manufacturing source.
Dos and Don’ts
· Don’t ask for too much of the profits. Other companies are not going to work hard to make you rich. You won’t get a deal if you ask for more than 50 percent.
· Do bring something to the table–either engineering know-how to create the final product or numerous contacts in the distribution network to expedite sales.
· Don’t approach a potential partner without several pieces of market research from target customers. Your position is more favorable if you have survey results from at least 15 to 20 potential users, and even stronger if you have results from 15 to 20 people in your potential distribution channel.
· Do have a professional in charge of every phase of your operation. If you plan to handle sales and marketing and don’t have marketing experience, you need advisors who do. Ditto for manufacturing.
· Don’t be a pain. Companies won’t proceed with a joint venture, no matter how profitable, if you appear difficult to work with. Don’t call constantly with questions, revisions or suggestions. Limit your contacts to one or two per week where you mention major concerns.
Steps to Success
You are trying to convince a potential partner that together you can dominate the market. What will really get your potential partner excited are your relationships with key people in the market. Having an advisory board of key end users and distributors is a common tactic to show that you’re connected to the market. Here are steps for finding those key people:
· Meet as many people in the target market as you can, and start identifying “early adopters”–people who buy products before anyone else.
· Meet as many people in the distribution channel as you can, and get their input.
· Read trade magazines, and identify the key players in the market.
· Go to your target customer’s local association meetings to find new contacts and to get a better understanding of what people want.
Use your key contacts to help you find the right potential partners to approach. Your best bet for a good joint-venture partner is a company that has strong manufacturing skills but weak marketing capabilities.
Next, develop a relationship with a regional manager or marketing person at a company you have targeted as a potential partner. To succeed, you need someone on the inside of the potential partner company pushing for an agreement.
As you search for a joint-venture partner, here’s what to expect:
Is a Joint Venture Right for You?
Pros:
· Allows you to introduce new products that are beyond your reach in terms of either resources or experience
· Helps you gain production experience that you can use in the future
· Speeds up the introduction and market penetration of a new product
· Offers you greater control of the product and its subsequent development than a licensing agreement
· Is a much easier sell than a licensing agreement
· Allows you to introduce new products when you can’t afford to produce a “looks like, works like” prototype
Cons:
· Doesn’t give you total control of the product
· Depends on another party to do their jobs effectively for the product to succeed
· You can’t withdraw the product to start a company on your own
· May not establish you as a market force capable of launching your own company
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