From the January 1998 issue of Entrepreneur

At some point, you'll need to share your idea with others who can help you. This can be very frightening. Who can you trust? How do you find the right people to do business with? Let's be candid. You may be inexperienced in many areas of business, so you are a likely target to be taken advantage of. Well, here is some help.

First, let me say there are many respectable people with whom to do business. Many individuals will go to great lengths to be fair and honest. At some point, however, most of us will come in contact with less-than-scrupulous people. To protect yourself, you need to know the signs and what to look out for.

Blatant crooks who will steal your idea are not very common. More common are people who charge for useless and unnecessary services, give unusually high quotes for work, tie up your idea without doing anything with it, or analyze your intellectual property and develop a legal knockoff. These people are especially dangerous because the law won't necessarily protect you from them.

The possibility of someone stealing your idea is a very real concern, but probably not in the context you initially imagine. Instead, they will wait in the bushes and watch while you do all the work and spend money advertising and marketing your idea. The moment it becomes successful, they'll arrive on the scene to catch the wave of your success and sell your idea for less.


Tomima Edmark is the inventor of the TopsyTail and several other products and is author of The American Dream Fact Pack ($49.95), available by calling (800) 558-6779. Questions regarding inventions and patents may be sent to "Bright Ideas," Entrepreneur, 2392 Morse Ave., Irvine, CA 92614.

Know The Type

There are basically three types of companies to be wary of: invention development companies, knockoff companies and large corporations.

1. Invention development companies. If you've been looking through inventors' magazines, you've probably seen their ads. An invention development company or invention marketing company offers to help you make your idea a reality for a fee (usually upfront) and a percentage of the profits. These companies provide services such as a patent search, marketing reports, and development and distribution contacts, and their sales approach is usually high-pressure. They'll flatter you by telling you how great your idea is and play on your sense of guilt because you don't have what it takes to develop your idea. Steer clear of these kinds of companies.

2. Knockoff companies. You won't find these companies in the phone book under "Knockoff." They specialize in finding successful products in the marketplace, making another version of it and distributing it to retailers. They vary in sophistication from a one-person company with a P.O. box and a foreign connection to a manufacturer to multimillion-dollar companies that pay their attorneys to advise them on how to manufacture a product without violating your patent.

These companies fit a profile you should watch out for. Their product lines are generally less expensive versions of products made successful by other companies. The names of their products are very similar to the originals. Most of the time, their products are manufactured "off-shore," meaning in a country where labor is cheap, and they will more likely be privately owned, rather than publicly traded. They will not necessarily market the product under their company name but will private-label it for a store. They generally do not use registered or trademark symbols on their products.

You don't find these companies--they find you. They have representatives who attend trade shows. They monitor infomercials, home shopping channels and catalogs looking for the next product to knock off. Another sad reality is that many times retailers team up with them. The retailer gives them a product that is doing well, and the knock-off company makes it for them under the store's name.

3. Large corporations. The large corporation that markets a copy of your idea is a formidable adversary. It has strong brand names and established relationships with store buyers so they are able to distribute a product quickly and in larger quantities than you.

These companies have many advantages over you. In fact, many times these companies have been assigned or have purchased shelf space from retailers. You, on the other hand, are most likely a new vendor with the retailer. You'll have to negotiate to get your product in the store, which can take as long as a year.

The good news is big companies also have the Goliath syndrome: Everything they do is expensive and done on a large scale. Therefore, they aren't going to develop a new product unless they are sure it's going to sell in big numbers. The likelihood of your idea being copied by these companies in the beginning is very low. It's when your idea becomes a success that the big guys will want it.

Partnering Up

There is no guaranteed method for determining a potential business partner's legitimacy other than to do business with them. You can increase your chances of finding good people, however, if you take the proper precautions and consider the following tips:

1. Check references. Any legitimate person or company is more than happy to provide references--and more than one. If they are not, or have excuses why they can't, you should see this as a red flag.

2. Find other references. A company will give you its best references. It's also helpful to find others who have done business with the firm. In conversations, make note of people or firms the company mentions having done business with. Later, ask if you may call them. If there was a problem, the good business tells you up front and explains its side.

3. Get industry referrals. I have found that if you can hook up with one good person in the industry, he or she knows who the other good people are. For example, my injection molder, who is trustworthy, has referred me to several other companies, which have all been very reputable.

4. Don't pay in advance. If someone is going to represent you, he or she should work on a percentage basis with no upfront fees (with the exception of out-of-pocket expenses). If someone is going to make something or provide services, only a partial payment, if any, should be required upfront.

5. Don't immediately choose the "Big Name." Many people feel if they use the largest law firm, the biggest printer and the dominant supplier, they'll be safe. The truth is, you will be a very small account to them and possibly get lost in the shuffle. When starting out, I've found it's best to find a small but reputable company that is hungry for your business. If you are trying to find financing, however, it can be a plus to have a large or well-known business partner to add credibility.

6. Visit the company's location. You can learn a lot from just looking around. Is the company organized? Does the place look safe to work in? Do the employees appear happy? Is the environment friendly? Are they willing to take you on a tour?

7. Find a "player." A player is a person or company that has been in the business for a number of years. It is a pretty good bet that if they've been around for a while, they are legitimate. Players can also help you in ways you might not have considered. One player I used was very connected with city hall; through this person, I was introduced to people who have been very helpful to me.

8. Don't agree to long-term contracts. Personal managers and agents deserve some protection if they are going to invest in you and your idea; however, they should also be able to prove themselves within a year. A contract should have a reasonable escape clause should you not see results or feel uncomfortable working with them.

9. Create a relationship. On a first date with someone, you are friendly and on your best behavior. If you want your spouse to do something, you finesse him or her. These are the same skills you should use when you establish a business relationship. I have had several business partners jump through hoops for me to help me make a deadline. They didn't have to, but they did because I had a good relationship with them.

10. Don't work with friends or family. Time and time again, I have seen friendships and families fracture because they worked together. Think twice before doing this.

11. Don't allow yourself to be pressured. Some companies may offer to give you a discount if you agree to do business with them at the first meeting. Others might try to scare you by saying raw material prices are going up or they have an opening to do your work but need an answer right away. Any respectable business will agree to let you sleep on it before making a commitment.

12. Remember the old adage "If it sounds too good to be true, it probably is."

In developing your idea, you'll eventually need the assistance of others. Be careful and thoughtful when selecting business partners, but don't be afraid to risk. The American dream cannot be achieved without taking some chances.