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Launch Your Invention as a Joint Venture

Two heads are better than one, so why not use a joint venture to get your invention off the ground?

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Opinions expressed by Entrepreneur contributors are their own.

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

  • A partnership with a manufacturer who will help design the newproduct, build prototypes and eventually produce the product. Theinventor is responsible for all sales and marketing activities andmay also pay for the patent and other tooling expenses.
  • A contract with a sales and marketing group that agrees tomarket the product
  • An agreement with an expert in the field--such as a pro golferor a well-known doctor--to present the product to consumers
  • An alliance with an engineer or industrial designer who willfinalize the product design
  • A joint venture with another marketing company to exploit amarket other than the one originally targeted
  • An agreement with an overseas manufacturer to make your productfor a reduced price and extended terms in exchange for overseasmarketing rights

Inventors form alliances because either they need a partner tohelp foot the bill, or they need to offer an extra incentive to gethelp from key people in the market. For instance, an inventor whowants to penetrate the hardware-store market may team up with a topmanufacturers' sales representatives agency. Agencies might notbe interested in taking on a product for a standard 10 percentcommission. But they might be willing to take on the product--andpay for promotion--if they form an alliance and receive 50 percentof the profits.

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

  • Introduce and penetrate the market as quickly as possible
  • Receive sufficient funding and support for a project that isbeyond your resources and experience
  • Have more involvement in the ongoing success of the productthan you would get in a licensing arrangement
  • Develop the product further before it can be licensed. Analliance can be a precursor to an eventual licensingagreement.
  • Generate additional market information and distribution-channelcontacts that can be used for subsequent inventions
  • Obtain management, administrative and manufacturing support fora new product. A company with experienced personnel can do thesetasks far better than most inventors.

What You Need to Succeed

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

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

Here are some other factors to consider as you investigate jointventures:

  • Money matters: Typically, the main advantage of ajoint-venture strategy is that you get funding from your potentialpartner. For example, you may have identified a big marketopportunity, but lack the money to create prototypes. You approacha potential partner company and discuss a possible alliance if theproduct is successfully developed. You can then ask for money orengineering support to finish the prototype. One strategy is to askfor support only for this first step; once the prototype isfinished, the two parties can decide if they want to proceed. Thisstep-by-step process is usually much easier to sell to a companythan a licensing agreement.
  • Protection: You don't really need a patent to strikea joint-venture agreement, but it does improve your negotiatingposition and helps ensure that the product's intellectualproperty rights belong to you. You could apply for a provisional ordesign patent, but this can be dangerous. The provisional patentgives you only one year to apply for a utility patent. That yearcould easily run out before you finalize your agreement and finishthe product design. You're better off applying for a very broadpatent, knowing your initial application will be contested by thepatent office. Then you can keep going back and forth with thepatent office for several years. This tactic can keep your patentrights open for three to five years.
  • Prototypes: Many inventors choose a joint venturebecause they don't have the experience or the money to finalizea "looks like, works like" prototype. But a drawing oftenisn't enough to get a positive response from a potentialpartner. Having a prototype is important. Don't spend too muchmoney creating a prototype; just take it far enough so the partnercan see your product's sales potential.
  • Research: You won't have any trouble finding apartner if you uncover a product that satisfies the needs of alarge market. But it's up to you to prove the market is there.Your research should show that customers need and want yourproduct, and that they're willing to pay a reasonable price forit.
  • Manufacturing: Most inventors create a joint venturewith a manufacturer that can make the product. Most sales andmarketing partners won't form a joint venture with you unlessyou have a manufacturing source.

Dos and Don'ts

  • Don't ask for too much of the profits. Other companies arenot going to work hard to make you rich. You won't get a dealif you ask for more than 50 percent.
  • Do bring something to the table--either engineering know-how tocreate the final product or numerous contacts in the distributionnetwork to expedite sales.
  • Don't approach a potential partner without several piecesof market research from target customers. Your position is morefavorable if you have survey results from at least 15 to 20potential users, and even stronger if you have results from 15 to20 people in your potential distribution channel.
  • Do have a professional in charge of every phase of youroperation. If you plan to handle sales and marketing and don'thave marketing experience, you need advisors who do. Ditto formanufacturing.
  • Don't be a pain. Companies won't proceed with a jointventure, no matter how profitable, if you appear difficult to workwith. Don't call constantly with questions, revisions orsuggestions. Limit your contacts to one or two per week where youmention major concerns.

Steps to Success

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

  • Meet as many people in the target market as you can, and startidentifying "early adopters"--people who buy productsbefore anyone else.
  • Meet as many people in the distribution channel as you can, andget their input.
  • Read trade magazines, and identify the key players in themarket.
  • Go to your target customer's local association meetings tofind new contacts and to get a better understanding of what peoplewant.

Use your key contacts to help you find the right potentialpartners to approach. Your best bet for a good joint-venturepartner is a company that has strong manufacturing skills but weakmarketing capabilities.

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

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

  • Potential partners will not be easily convinced that you have aunique, profitable opportunity.
  • You will have trouble getting an appointment if you don'tfind a company contact who will recommend that the company look atyour offer.
  • You will have to push for a formal agreement to establish yourrights in the relationship. (The partner will try to keep theagreement on a more informal basis.)
  • You will have to persuade the partner that you can do your partin the promotion.
  • The company will want to proceed slowly to ensure your idea haspotential and they can count on you.
  • You will be responsible for keeping the momentum going.
  • You will have to take charge of finalizing the product design,even if the partner does most of the work.
  • Sales for most joint-venture partners take three to four monthsto ramp up. Don't be alarmed if it takes six months for theproduct to show true sales potential.

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

Is a Joint Venture Right for You?

Pros:

  • Allows you to introduce new products that are beyond your reachin terms of either resources or experience
  • Helps you gain production experience that you can use in thefuture
  • Speeds up the introduction and market penetration of a newproduct
  • Offers you greater control of the product and its subsequentdevelopment than a licensing agreement
  • Is a much easier sell than a licensing agreement
  • Allows you to introduce new products when you can't affordto produce a "looks like, works like" prototype

Cons:

  • Doesn't give you total control of the product
  • Depends on another party to do their jobs effectively for theproduct to succeed
  • You can't withdraw the product to start a company on yourown.
  • May not establish you as a market force capable of launchingyour own company
  • Your input may be overridden by the joint-venture partner.

Adapted from Entrepreneur magazine's Start-UpGuide #1813, Bringing Your Product to Market, by DonDebelak.

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