The stories are legion of inventors spending $20,000, $50,000 or more to push their product out into the competitive marketplace – in many cases, hoping to grab the mythical ‘first to market' advantage.
James Dyson did this with his ‘cyclone technology' vacuum cleaner. It only took him 15 years, over $1 million in borrowed capital and very large sums of money over the years to keep his enterprise going. Sara Blakely started Spanx with only $5,000 of her own and in the second year, her business grossed over $4 million. Today she is a billionaire.
So, the DIY approach for inventing can work, but for many, they must put almost every other aspect of their life on hold for years, borrow significant sums of cash and take lots of risk. It is a big sacrifice that can have a big payoff, or you can go bust – as with all inventing.
Do you have a great product? Does it have potential to sell millions of units? Great!
But, what if you have neither the capital, the time or risk tolerance for a long, bruising voyage to manufacture and sell your great product and get it into the marketplace in a big way?
Isn't there some other way forward that is less risky, capital intensive, and life consuming than the DIY approach? Yes, instead of vacuuming up large of your own capital – try OPM, Other People's Money. Read on.
OPM – How to Leverage What You Lack
OPM has been a key tenet for wealth building for a very long time. All borrowing of capital, that is later paid off, with interest, over time is a form of OPM. We all talk of ‘owning our home' when, in fact, we don't actually own it until the mortgage is paid off many years later.
Crowd funding – many small contributions from a large base of people – is a creative form of OPM. Millions of dollars of funding and thousands of new ventures have been started from Kickstarter, Indiegogo and other crowd funding platforms. Crowd funding is a great option for inventors for three reasons:
- The inventor does not have to pay back the crowd funded capital
- The inventor is able to test out the appeal of their product, risk-free
- The campaign may create market buzz that can fuel an ongoing business
Kickstarter, et al, have become much more sophisticated in recent years. You should plan your project at least 6 months in advance and you must create a compelling video for the campaign to succeed. For this reason, it's a good idea to hire someone with video expertise to produce and edit a strong video for you.
Another form of OPM is licensing your product in exchange for a small royalty percentage on each sale (minus returns) of your invention. There are several advantages to licensing, versus DIY:
- You transfer all the risk of manufacturing, marketing, and product returns to the licensee
- The licensee may have an extensive distribution into thousands of retail stores
- Your time is freed up to pursue other projects
If your product sells well in the marketplace, a licensing deal may be quite lucrative for you. Licensing is likely the lowest cost way for you to get your product into the marketplace in a big way.
You must be flexible, however, in negotiating terms – especially royalty percentages – to secure a licensing deal. Also, be prepared for some tradeoffs as the licensee may choose to use less expensive material and make other changes to your product based upon their expertise.
To my experience, with a strong licensee and distribution network, the tradeoffs are worth it.