Pump Up The Value Strageties for turning your good idea into a hot seller.

Many letters and phone calls I receive go something like this:"Ms. Edmark, I have this great idea, and I just know millionsof people will buy it. If you develop and market it, I'mwilling to split the profits with you 50/50. What do yousay?"

I always say, "No."

Those letters and calls always remind me of the story of a manin New York City who was selling apples on the corner for $100,000each. When asked how he expected to sell any, since his apples wereso expensive, he answered, "But I only have to sellone."

The apple vendor is as unrealistic in his expectations as anyentrepreneur who thinks a potential buyer would agree to developand market a product for just 50 percent of the profits. Theentrepreneur who thinks up the idea has provided only one piece ofa very complicated and time-consuming puzzle.

An idea is worth very little if it is nothing more than aconcept and has not yet been proved. The good news is, there areplenty of things you can do to make your idea more valuable--andthus more likely to be purchased by a buyer or licensee.

Patent Power

Your idea is likely to have more moneymaking potential and thusbe more valuable to a prospective buyer or licensee if it ispatented. In fact, many companies won't even talk to you aboutbuying your idea unless you already have a patent, have filed forone, or can prove that one is attainable. The reason is simple:Patents give the holders the right to stop anyone else from making,using or selling their ideas without their permission.

Without a patent, anyone can duplicate your idea and sell it.While there are many examples of products that have been successfulwithout patent protection, in general, patents add value to anidea.

Trademark Time

Registered trademarks can also increase your idea's value.Having a trademark gives you the right to bar others from usingyour registered trademark. Ruffles is an example of a registeredtrademark for a product owned by Frito-Lay Inc. Under trademarklaws, no one can make a potato chip using the Ruffles name withoutthe permission of Frito-Lay. Frito-Lay has the right to sue anyonewho does so without its permission.

Trademark rights can make your idea even more valuable if youhave developed a unique and marketable name, logo, slogan or symbolfor your idea. For example, it would be hard to come up with abetter name than "Tickle Me Elmo" for last year'smegahit Tyco Toys doll. Clearly, the name added value to theidea.

However, your product's name, no matter how clever, may notbe valuable to a prospective licensee if it uniquely distinguishesyour company. Many companies, for example, use a product-namingstrategy so their products sound like part of the same group.McDonald's puts "Mc" in the names of many of itsproducts. If the company had bought the licensing rights to TickleMe Elmo, it would probably have named it "Tickle MeMcElmo."

Prototype Pointers

A prototype of your idea also provides extra value in the eyesof prospective buyers because it allows you to demonstrate youridea and proves it can be reproduced into a tangible form.Obviously, a prototype that looks and works exactly the same way asthe eventual marketed product is best because it leaves nothing tothe buyer's imagination. It is also a positive reflection onyou as a serious and professional individual who understands thesales process.

I have been sent an array of prototypes from people wanting meto buy their ideas. It is just human nature to conclude that asloppy prototype, poorly painted and held together with duct tape,has a lazy and unrealistic seller at the other end.

If a quality prototype sends the message that you are seriousabout your idea, imagine the message you convey to a prospectivebuyer when you show and tell them exactly what is necessary tomanufacture your idea. Now that's real added value!

Granted, gaining manufacturing know-how can be complex becauseyou'll probably be researching areas you may be unfamiliarwith, learning terms such as injection molding, fabrications andsurface mounting. However, this information is very valuable topotential buyers because it reduces their research time and speedsup their purchasing decision.

Some of the information that must be determined includes how theproduct will be manufactured, the cost to set up the manufacturingprocess (tooling, molds, patterns and the like), and the cost ofmaking each piece. If you go to the added expense of making moldsor having a manufacturing firm ready to start production, this addseven more value for a buyer.

I entered into a licensing agreement with Tyco to sell a smallversion of my TopsyTail tool in conjunction with a doll itdeveloped and sold as My Pretty TopsyTail. I was able to offer Tycothe use of the injection molding company that was making myTopsyTails. My relationship with that manufacturer saved Tyco thecost of going through a learning curve with a new injection molder,as well as the expense of negotiating for the best pricing. As aresult, I received a higher royalty and could be assured theTopsyTails sold with the dolls would be of the highest quality.

Economics 101

Knowing the basic economic factors associated with your ideawill not only add value to your idea but will also allow you tonegotiate from a position of strength. Basic economic factorsinclude raw material and labor expenses, manufacturing overhead,advertising and shipping costs, sales commissions, stocking fees,target markets and selling price. Determining these factors givesyou a better understanding of the costs a potential buyer will beconsidering.

For example, if you determine it will cost $19 to make an itemyou suggest be sold for $20, you're looking at a very tough rowto hoe. If, however, your $20 item can be made for $4, you have anopportunity to negotiate a higher royalty because you know there isa large profit margin. Moreover, calculating these expenses willgive you greater knowledge and expertise. As a result, a potentialbuyer will have less opportunity to take advantage of you.

If The Idea Fits . . .

In addition to the things you can do to add value to your idea,another factor you must consider in evaluating the worth of youridea is the idea itself. Fair or not, certain types of ideascommand higher prices.

Low-value ideas typically include improvements to existingproducts, clothing, and mechanical devices such as a can opener ora wiper blade. Medium-value ideas include developing new electronicdevices and computer hardware and peripherals. High-value ideasinclude creating pharmaceuticals, software, videos and medicalproducts.

The reason for this phenomenon is based on differentindustries' practices and the size of their profit margins. Forexample, once a piece of software is written, it can command a highprice, even though the actual cost of manufacturing a disk ispennies. On the other hand, no matter how revolutionary a canopener is, there is a pricing threshhold of how much someone willpay for it. You need to understand the industry you are sellingyour idea to. If you don't, you may look foolish for asking fora price that is much higher than the industry standard.

How much money can you expect to see from selling your idea?Robert Chiaviello, a licensing and intellectual property attorneyat Baker & Botts LLP in Dallas, offers the followingguidelines: Assuming your idea is in a finished form, a patent hasbeen issued or you've received a notice that your patent willbe granted, and all the basic economic factors are known, you couldexpect the following royalty ranges:

*Low-value ideas: Less than 1 percent of revenues

*Medium-value ideas: 1.5 percent to 6 percent of revenues

*High-value ideas: 5 percent to 25 percent of revenues

One important final thought: No potential buyer is going to buya product that doesn't "fit" with his or hercompany's image. As a seller, your objective is to make it aseasy as possible for the buyer to say yes. Give a great deal ofthought to your presentation, and make certain it meshes with thepotential buyer.

Prove that your idea can be sold using the buyer's existingsales force, complements its existing product line, does notcompete with any of its current products, looks like one of itsproducts (either in its packaging, color or shape), and can workwithin its pricing structure.

Your personal presentation can also influence a sale. If youshow up in a Hawaiian shirt and jeans, Proctor & Gamble may seea problem with you fitting into its corporate culture. However,that same outfit may score points for you at a high-tech firm inthe Silicon Valley. Find the perfect fit . . . and you could be onyour way to success.

Contact Sources

Baker & Botts LLP, (214) 953-6677, fax: (214)953-6503.

Tomima Edmark is the inventor of the TopsyTail, the KissingMachine and several other products, as well as author of TheAmerican Dream Fact Pack ($49.95), available by calling (800)558-6779. Write to her with any questions you may have regardinginventions and patents in care of "Bright Ideas,"Entrepreneur, 2392 Morse Ave., Irvine, CA 92614.