| When inventors contact my company, about Due | | | | seen to describe the diligence process are: |
| Diligence I like to explain the concept with a simple | | | | - Due Diligence |
| example. Think of it this way, if a manufacturer | | | | - Marketing Evaluation |
| is getting ready to make the decision to develop, | | | | - Commercial Potential |
| manufacture, and market a new product that | | | | - Invention Salability |
| could potentially cost $50,000 to $150,000 to | | | | - Profitably Marketable |
| produce plus inventory costs, they would most | | | | - Market Research |
| certainly take their time to ensure that they are | | | | - Invention Assessment |
| making a good business decision in moving | | | | Each of these terms is basically referring to the |
| forward with the product (i.e.: have they done | | | | research to assess the likelihood of an |
| their homework on the product). Therefore, you | | | | invention’s salability and profitability. The |
| can sum up “due diligence” as the process | | | | question of whether your invention will sell can |
| of gathering all the information necessary to | | | | never be known with certainty, but you can |
| make a good business decision prior to making | | | | perform some steps to help you better |
| the large financial expenditure. It can generally be | | | | understand the likelihood of success. |
| assumed that the more time, effort and money | | | | Again, if you are planning on manufacturing your |
| (i.e.: “risk”) that a company must spend to | | | | invention on your own, you should consider |
| develop an invention, the more they will evaluate | | | | performing marketing due diligence on your |
| the potential license. Keep in mind that even if a | | | | product. If you are planning on licensing your |
| product appears to be simple and low cost, the | | | | invention for royalties the company licensing your |
| process of developing and manufacturing is rarely | | | | invention should perform this research. |
| simple and low cost. Companies will evaluate | | | | Some suggestions for marketing due diligence are |
| such criteria as customer feedback, retail price | | | | listed below. |
| points, unit cost to manufacture, competitive | | | | 1. Ask and answer some basic questions |
| landscape, manufacturing feasibility, market | | | | - Is your invention original or has someone else |
| opportunity, etc. | | | | already come up with the invention? Hopefully, |
| Inventors often wonder if they need to perform | | | | you have already answered this question in your |
| Due Diligence on their invention.As discussed, this | | | | basic research. If not, check trade directories or |
| will depend on the option you have elected for | | | | the Internet. |
| taking your product to market. | | | | - Is your invention a solution to a problem? If |
| Option 1 - Manufacturing on your own - If you | | | | not, why do you think it will sell? |
| are planning on manufacturing and marketing the | | | | - Does your invention really solve the problem? |
| invention on your own, then yes you will need to | | | | - Is your invention already on the market? If so, |
| perform due diligence. Essentially, you become | | | | what does your invention offer over the others? |
| the manufacturer of the product and as a result | | | | - How many competing products and competitors |
| you should perform the due diligence on your | | | | can you find on the market? |
| invention just like other manufacturers would. | | | | - What is the range of price of these products? |
| The problem that I have found is that many | | | | Can your product fall into this range? Don’t |
| inventors who elect to manufacture their own | | | | forget to factor in profit and perhaps wholesale |
| inventions do little, if any marketing due diligence, | | | | pricing and royalty fee, if any. |
| which is a big mistake. | | | | - Can you position your invention as a better |
| Option 2 - Licensing for Royalties - if you are | | | | product? |
| planning on licensing for royalties, then I believe | | | | 2. List the pros and cons that will impact |
| you can minimize your due diligence efforts, | | | | how your invention sells and objectively evaluate |
| because prior to any company licensing your | | | | your list |
| invention, they will perform their own due | | | | - Demand – is there an existing demand for |
| diligence. If you are working with a company | | | | your invention? |
| such as Invention Home, the costs to market | | | | - Market – does a market exist for your |
| your invention to companies can be minimal - | | | | invention, and if so, what is the size of the |
| therefore it could cost you more to actually | | | | market? |
| perform the due diligence than it would to just | | | | - Production Capabilities – will it be easy or |
| market the invention to companies (which, is | | | | difficult to produce your invention? |
| ultimately your best form of due diligence | | | | - Production Costs – can you obtain accurate |
| anyway). Remember, you should have taken | | | | manufacturing costs (both per unit and setup |
| the time to do your basic market research and a | | | | tooling)? |
| patent search earlier in the process to be assured | | | | - Distribution Capabilities – will it be easy or |
| that your product is worth pursuing in the first | | | | difficult to distribute or sell your invention? |
| place (i.e.: the product is not already on the | | | | - Advanced features – does your invention |
| market and there is a demand). | | | | offer significant improvements over other similar |
| Let me summarize. If you are planning on | | | | products (speed, size, weight, ease of use)? |
| investing a large amount of money on your | | | | - Retail Price – do you have a price point |
| invention, then you should always analyze the | | | | advantage or disadvantage? |
| opportunity first to make sure it’s worth | | | | - Life – will your invention last longer than |
| pursuing; however, if you can actively market | | | | other products? |
| your invention to companies with minimal cost, | | | | - Performance – does your invention perform |
| you can be assured that an interested company | | | | better than other products (including better, faster |
| will perform their own due diligence (not rely on | | | | output, less noise, better smell, taste, look or |
| yours). Note: it is always helpful to have | | | | feel)? |
| marketing due diligence information available as | | | | - Market Barriers – is it difficult or easy to |
| you discuss your invention opportunity with | | | | enter your market? |
| prospective companies; however, it is not always | | | | - Regulations and Laws – does your invention |
| easy to obtain this information so you need to | | | | require specific regulatory requirements or are |
| balance the effort and expense of gathering the | | | | there special laws that must be followed (i.e.: FDA |
| information with the real need of having it. | | | | approval) |
| I also will provide you with some due diligence | | | | 3. Seek advice or input from others |
| tips.As discussed, the idea of marketing due | | | | (consider confidentiality) |
| diligence is to gather as much information as | | | | - Target professionals / experts in the field. |
| possible to make a well-informed decision on | | | | - Ask for objective feedback and advice. |
| investing in any invention. In a perfect world, we | | | | - Talk to marketing professionals. |
| would have all the relevant information on sales | | | | - Ask sales people in the field. |
| projections, retail pricing, marketing costs, | | | | - Ask people you know in the field. |
| manufacturing setup and unit costs, competitive | | | | - Talk to close friends and family members whom |
| analysis, market demand, etc. However, this | | | | you trust. |
| information is not always easy to come by. | | | | - Ask for input on the invention such as features, |
| If you are not in a position to pay a professional | | | | benefits, price, and if they would buy it. |
| firm to do your marketing evaluation, it is possible | | | | During the diligence stage, existing manufactures |
| to perform the research on your own; however, | | | | have an advantage in that they have the ability to |
| you need to understand that research should be | | | | talk with their customers (retail buyers, |
| interpreted and used for decision-making and on | | | | wholesalers, etc.). In my experience, one of the |
| its own, it has no value. It is what you do with | | | | most important factors that a company will |
| the information that matters. Note: I would | | | | consider is whether their existing customers would |
| recommend that you DO NOT PURCHASE | | | | buy the product. If I took an invention to a |
| “market research” from an Invention | | | | company to discuss licensing (assuming they could |
| Promotion company. Often sold as a | | | | produce it at the right price point), there is a very |
| “first step” (they’ll usually approach | | | | high likelihood that they would license the product |
| you again with an expensive “marketing” | | | | if one of their top customers agreed to sell it. |
| package), the information is largely useless | | | | Whether a retail buyer is interested in purchasing |
| because it is not specific research on your | | | | a product is a driving force for companies |
| invention. Rather, it is off-the-shelf | | | | considering product licensing. I’ve seen many |
| “canned” industry statistics, which will not | | | | scenarios in which a company had interest in an |
| necessarily help you make an informed | | | | invention but they ultimately decided to pass on |
| decision. | | | | the idea because their customer (the retailer) did |
| Before we get to the “tips”, let me clarify | | | | not show any interest in the product. |
| that “due diligence” can come under | | | | Conversely, I’ve seen companies with mild |
| various names, but essentially they all mean the | | | | interest in an idea who jump at a new product |
| same thing. Some of the terms that I have | | | | when a retailer expresses interest in it. |