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Come Together

Two heads are better than one, so why not use a joint venture to get your invention off the ground?
February 1, 2005
URL: http://www.entrepreneur.com/article/76112

For inventors, a joint venture is an agreement by two parties to work together to design, promote or manufacture a new product. The parties split the work and the profits. Inventors can form a wide variety of partnerships, including:

Inventors form alliances because either they need a partner to help foot the bill, or they need to offer an extra incentive to get help from key people in the market. For instance, an inventor who wants to penetrate the hardware-store market may team up with a top manufacturers' sales representatives agency. Agencies might not be interested in taking on a product for a standard 10 percent commission. But they might be willing to take on the product--and pay for promotion--if they form an alliance and receive 50 percent of the profits.

When forming joint ventures and alliances, you might be hoping to do any of the following:

What You Need to Succeed

Alliance or joint-venture partners look for a significant business benefit when they decide to team up with an inventor. Typically, they are only interested in your product if it can increase their sales 15 to 25 percent, or if it provides them with a market advantage over their competitors. The perfect product, from their perspectives, is one that has considerable market impact.

From the inventor's point of view, perfect products for a joint venture are ones that the inventor doesn't have the resources to produce, or the marketing network or credibility to launch. A joint venture allows inventors to move their products to market quickly with much less financial risk. The key to success is finding the right size companies to approach. If your product can sell $1 million to $2 million per year, a $100 million corporation won't be interested--but a $5 million corporation might be.

Here are some other factors to consider as you investigate joint ventures:

Dos and Don'ts

Steps to Success

You are trying to convince a potential partner that together you can dominate the market. What will really get your potential partner excited are your relationships with key people in the market. Having an advisory board of key end users and distributors is a common tactic to show that you're connected to the market. Here are steps for finding those key people:

Use your key contacts to help you find the right potential partners to approach. Your best bet for a good joint-venture partner is a company that has strong manufacturing skills but weak marketing capabilities.

Next, develop a relationship with a regional manager or marketing person at a company you have targeted as a potential partner. To succeed, you need someone on the inside of the potential partner company pushing for an agreement.

As you search for a joint-venture partner, here's what to expect:

Realistically, most inventors who use a joint-venture strategy would not have been able to launch their products otherwise. A joint venture can place you in big, powerful markets where there is a lot of interest from investors. It also lets you maintain some ownership of the product and make contacts with distributors, end users and key industry people. If you manage it well, a joint venture or alliance can be a steppingstone on the road to launching a full-fledged company of your own someday.

Is a Joint Venture Right for You?

Pros:

Cons:


Adapted from Entrepreneur magazine's Start-Up Guide #1813, Bringing Your Product to Market, by Don Debelak.