Like most businesses, invention has its myths and its maths.
Myths are beliefs that, while intriguing and enticing, simply are not true – they are myths. Maths are the opposite of myths; they are concepts that are intrinsically true, but, far from being enticing, may be quite discouraging.
The key to success is to avoid getting caught up in the siren song of the myths and learn to abide by the maths to achieve success.
Here are the two myths:
- I have a million dollar idea
- There is absolutely nothing like it in the marketplace
There simply is no such thing as a million dollar (or $10 million or $100 million) idea. Ideas, in and of themselves, are worth nothing. Really.
Ideas can never be sold, only products can be sold. For every 20 ideas that may pop into an inventor's head, perhaps 2 or 3 might qualify as inventions and 1 might be translatable into a sellable product.
New inventors tend to be entranced with their ideas; successful inventors focus on a very few products to achieve success.
Often inventors exclaim excitedly, “there is nothing like my idea in the marketplace!” My reply is “Really? That's unfortunate!”
There are over 8 million issued patents in the U.S. For an innovative new product idea, there may be 10 to 100 or more existing issued patents that have at least some similarity. If you do a very detailed patent search and follow up with a professional search, you will most likely discover a fair number of similar items already patented.
But that is not a bad thing. If, in fact, your product was so unique as to be unlike anything else out there, how could you possibly sell it in a crowded marketplace? Your potential buyers would look quizzically at you and say, “what is it and how does it work again?
Here are the 2 maths:
- Less than 5% of patent holders ever profit from their inventions
- Products need a 3X to 5X mark up to succeed in the marketplace
The reality is that inventing is very risky and only a small percent of inventors achieve success with their products (typically less than 5%). Inventors often rush out to file a patent without researching in detail the market viability of the product. Further, they have neither a clear marketing strategy nor capital to move the product into production.
To join the 5% club, know precisely what you can do, what you want to do, and can afford to do. Focus your creativity along paths and plans that optimize your chances for success and mitigate your chances of failing.
A product must have a 3X to 5X mark up from manufacturing cost to retail price to be successful in the marketplace. A product that costs $5 to manufacture, may wholesale for $10 and retail for $20 – $25. In this way, the inventor has a small profit, the distributor or wholesaler may profit, and the retailer profits.
This statistic also gives an early sanity check on manufacturing options. If the lowest cost to manufacture in the U.S. is $8 to $9, There is not enough profit for every link in the retail chain. The inventor is left with two option: decline to proceed forward or manufacture overseas to obtain the necessary cost.