From the October 1999 issue of Startups

"Middleman" is a term usually used in a negative sense--"Eliminate the middleman," for example. But for Vijay Malik, being a middleman is nothing but good news.

Malik is an inventor whose Kansas City, Missouri, company, Max Space Inc., currently has seven products on the market. What makes him different from most inventors is that he acts as a middleman for the concepts he comes up with. He enlists one company to manufacture the product and another to sell it. Rather than just licensing the idea to another company, which can be difficult, Malik retains control of his concepts. He makes more money than he would with licensing agreements and keeps the cost of introducing new products low. In effect, he's a virtual entrepreneur, creating the concept and getting others to execute it for him.


Don Debelak (dondebelak@uswest.net) is a new-business marketing consultant who has introduced new products for more than 20 years. He is the author of Bringing Your Product to Market (John Wiley & Sons, $19.95, 800-225-5945).

Step By Step

The Hang 10, one of Malik's products, is a modular storage strip that holds CDs, DVDs and computer cartridges such as Zip disks. It can be attached to walls, computer monitors or other surfaces. Winner of the Innovations 98 award at the 1998 International Consumer Electronics Show, the Hang 10 sells as an impulse item in supermarkets nationwide.

In developing the Hang 10, Malik followed the same steps he always does: He came up with the product idea, patented it, created a prototype and began looking for a marketing company to sell the product. He attended the 1997 International Housewares Show in Chicago in search of a marketer. At the show, he saw the booth of Maverick Ventures Inc., a manufacturer of innovative impulse items, and after a few preliminary discussions, he entered negotiations with Maverick to market the Hang 10. With an agreement in hand, he worked with Maverick to finalize the product design, and contracted with a manufacturer also in Kansas City to produce the product.

While Malik sells his product on his Web site (http://www.maxspace.com) and through some catalogs, most of the actual marketing work is done by Maverick Ventures. When Malik receives orders through Maverick Ventures, he has his contract manufacturer ship them out.

The Virtual Advantage

Malik's virtual inventor strategy has five major benefits:

1. It gives each of his products a large distribution system, which accelerates sales.

2. Malik's investment is lower, since he isn't responsible for paying the costs required for manufacturing, marketing or distribution.

3. He can introduce two, three or four products per year, instead of one every three or four years--the maximum most undercapitalized entrepreneurs can handle.

4. Because Malik controls how the product is manufactured, he can monitor product quality and make sure it's up to par.

5. He ends up making more money than he would with a straight royalty deal.

If he had opted for the more traditional route of setting up his own manufacturing and distribution company, Malik would have taken on more risk and expense. But by letting go, he shoulders less risk and makes more money. He leverages other people's time, organizations and resources to multiply his own earning power.

It's Showtime!

The most important step in the virtual inventor approach is to have someone with a proven track record sell your product. You'll have no trouble lining up manufacturers if you can show them you have a contract or agreement with a reputable marketing firm.

Malik likes to find his marketing partners at trade shows. "If I have any advice to inventors, it's trade shows, trade shows, trade shows," he says. "They are by far the best places to locate possible marketing partners. You get to look at companies' products, see how they're sold and meet key people at the companies that fit your product."

Most industries have both national and regional trade shows you can attend to find marketing partners or, if you're just starting out, get a feel for what the industry is like. Larger libraries have at least one trade show directory that lists trade shows in your area and industry, or you can log on to the Trade Show News Network (http://www.tsnn.com).

It Beats Licensing

You'll find it's easier to get a manufacturer with the virtual approach than with a standard licensing agreement. That's because the virtual arrangement means a lot less risk for the manufacturer. When a manufacturer agrees to a licensing agreement, he or she has to worry about prototypes, market testing, manufacturing setup, operating capital, sales and marketing costs, and possibly setting up a distribution network. Those are a lot of steps where something could potentially go wrong, and the product might not sell well even if the manufacturer completes all the steps. It's no wonder manufacturers look at licensing contracts with a jaded eye.

Using the virtual approach, all the marketing company has to do is sell the product, and all the manufacturing company has to do is make the product. Malik's partner companies have much less to worry about than they would with a licensing agreement. There's less investment on each company's part, and less risk.

An early stint as an auditor for an insurance company helped Malik develop his approach to inventing. He worked with small businesses and discovered that the entrepreneurs most content were often those who worked from home or a small office and outsourced most of the tasks involved in their businesses.

In the virtual inventor system, everyone wins. The manufacturing partner increases plant production, the marketing partner has more products to sell, and the inventor makes a good profit. You'll also have less risk and more time to do what you enjoy best of all: coming up with new inventions.

Here's The Deal

With the Hang 10, Vijay Malik bought his own tooling and paid the contract manufacturer for the products it made. That produced the highest profit but required Malik to invest in tooling. To keep upfront costs lower, you could offer the manufacturing job to the contract manufacturer and then take a 10 percent sales commission. That way, the manufacturer picks up the tab for inventory, operating capital and tooling, and bears all the risk. You don't have to put up any money, and the risk is minimal. You should be able to find a manufacturer to take the business if you have a firm contract with a reputable firm to market the product.

You can also ask the contract manufacturer to amortize the tooling and give you extended terms in return for a long-term manufacturing contract. Amortizing the tooling means the manufacturer pays for it and charges a small extra fee--say, five cents--on every part to pay for the tooling. The manufacturer might also agree to get paid when your customer pays you.

Be creative. Manufacturers that are running below capacity and need to increase their production have an incentive to strike deals with you.

Wanted: Ideas

Got an innovative idea?

Ron Kuczer could be the man to help you sell it. Kuczer is president of Maverick Ventures Inc., the company that's marketing Hang 10 for Vijay Malik. Maverick Ventures, which sells a line of more than 20 innovative impulse products, is always looking for new products. Criteria: Your product should be unique and inexpensive, have a large consumer base, and have the potential to sell as an impulse item. Maverick Ventures also does straight licensing deals with inventors. The company will sign a Statement of Confidentiality and Non-Use if you don't have a patent.

For a submission package, contact Maverick Ventures Inc., 15698 Ferncreek, Chesterfield, MO 63017, (314) 537-4656 or visit http://www.impulseproducts.com.

Shirting Up

When Vijay Malik was in college, he and a friend introduced a line of T-shirts. It was a small venture, but Malik learned a lot about manufacturing and selling a product--experience that paid off when he went after larger markets. Looking back over the inventors this column has featured this year, I was surprised at how many of them had run businesses when they were in school. None of these student ventures amounted to much financially, but they gave the inventors the tools needed to succeed later on. Don't be afraid to start something small.

You might not make much money, but the experience you gain could be worth millions.