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In 1995, when Mike Mogadam was laid off from his third job infive years, he wasn't fazed. Understandably sick of thecorporate world, the San Francisco engineer used his spare time towork on an idea he'd been brewing for awhile. A year earlier, afriend had lost his bar business because of bartender theft andchallenged Mogadam to invent a system of liquor control for barsand restaurants. Intrigued, Mogadam used his engineering backgroundto create the Barmate, a wireless point-of-sale system for liquorcontrol. Now 32, he expects to hit $2 million in sales thisyear.
The Barmate, which is designed to prevent over-pouring or theftby bartenders, features a $125 spout that attaches to liquorbottles and pours a set amount of liquor into each drink. It alsosends a wireless signal to the cash register to record the sale,and to a central computer to help management keep tabs on nightlysales volume and liquor-inventory levels. A system for a busynightclub or bar could cost anywhere from $10,000 to $20,000.
Most inventors are reluctant to develop high-tech inventionslike the Barmate because of the large cash investment required. TheBarmate ultimately cost more than $375,000 to introduce, butMogadam himself funded only about $18,000 of that. He was able tocollect the rest in stages that accomplished specific goals.Here's a closer look at his five stages and what wasinvolved:
1. Market research: Mogadam started his project bytalking to local bar and nightclub owners. He wanted to see ifothers would be interested a liquor-control system, and also wantedto ensure the product's projected $12,000 to $15,000 price tagwasn't too high for nightclub owners to afford.
He quickly discovered bar and nightclub owners knew bartendersfrequently dispensed too much alcohol, and that competitive systemswith far fewer features than his proposed system sold for $15,000to $20,000. The owners were willing to buy a liquor-controlsystem--if it could pay for itself in less than a year.
2. Prototype: So far, all Mogadam had were an ideaand a receptive market. Typically, those aren't enough to getan investor. The next step is to create a detailed description ofthe idea, prepare technical specifications and build arepresentative prototype that demonstrates the product will work.Mogadam worked with two engineer friends to build his prototype for$15,000. It took about four months, and most of the money went topay the other two engineers. Mogadam himself worked on the projectfor free.
3. Verification: Mogadam had run up $15,000 oncredit cards, but the next steps in the project--designing theproduct for production and testing it at a nightclub--were going tocost a lot more than he could put on plastic. He needed investors,and he needed to convince them the product would sell.
Mogadam had talked to his father and some family friends. Theyhad money to invest but weren't confident the Barmate wouldsucceed. So Mogadam decided to exhibit at the 1995 InternationalHotel, Motel and Restaurant Show in New York City. Despite a $3,000fee, it turned out to be a great investment, as exhibiting at theshow let Mogadam talk to dozens of potential customers who showedinterest in the Barmate system. More important, his father andother potential investors came to the show. After talking tonightclub and hotel owners there, they went from being skeptics toenthusiastic supporters--and ultimately, willing investors.
4. Final engineering/beta testing: Mogadam'sprototype had been pieced together with available components, andthough it looked OK, it wasn't quite ready for production.After prototyping, the next step in any invention is to design theproduct for ease of manufacturing, durability, quality and costcontrol. Another consideration for the Barmate was ergonomics: Thepart that attached to the bottle had to be easy for bartenders touse.
Once the design is completed, the product should be sent to asite where it can be tested in actual conditions. This is usuallycalled a beta test; the site where the test occurs is calleda beta site. This step cost a total of $100,000, which wasfinanced by Mogadam's father and other relatives. To avoidrunning out of money, "I conducted all my development andbusiness functions from my apartment, and supplemented my budget[by working] as a part-time instructor at San Francisco StateUniversity," Mogadam says.
In almost every case, a new product has only one shot atintroduction. If problems occur, you won't get a second chance.Sure, you're anxious to make money, but you could loseeverything if you don't take the time to complete thisstep.
5. First production run: First production runs areexpensive, since you have to pay for tooling, fixtures, inventoryand packaging.
Most likely, you'll either have to take on some newinvestors or borrow from a bank. Mogadam received an SBA loan for$300,000. That paid for all the tooling, fixtures and inventoryneeded to build enough products for 15 installations. Using theincome from those initial sales, Mogadam built up a cash positionand continued making more product.
Mogadam did a great job launching an expensive, high-techproduct. His engineering background certainly helped, but moreimportant, he introduced his invention in stages. That way, hecould demonstrate at each stage that his investments were beingused for a tangible, achievable goal.
This approach works for anyone--not just a high-tech inventor.If your invention starts looking costly, stop worrying about howyou'll complete the project and start working on completing itone step at a time. Using a step-by-step approach, you cansuccessfully introduce virtually any type of product to themarket.
Don Debelak (dondebelak@uswest.net) is anew-business marketing consultant who has introduced new productsfor more than 20 years. He is the author of Bringing YourProduct to Market (John Wiley & Sons, $19.95,800-225-5945).
Steps
From the idea stage to the Finished product:
1. Stage = Market research
Money Raised = N/A
Source = N/A
Goal = Establish that bar and nightclub owners would buy theBarmate.
2. Stage = Prototype
Money Raised = $15,000
Source = Mike Mogadam's credit cards
Goal = Prove the system would work.
3. Stage = Verification
Money Raised = $3,000
Source = Mike Mogadam's credit cards
Goal = Exhibit at a convention in New York City to verify customerswere interested after seeing prototype and knowing $10,000 to$20,000 price.
4. Stage = Final
Money Raised = $100,000
Source = Family and friends
Goal = Design and produce a system to test in a nightclub.
5. Stage = First production run
Money Raised = $300,000
Source = SBA
Goal = Produce a small-production run for initial sales.
Wanted: Inventors
Have you invented a food-preparation product? If so, NationalPresto Industries Inc. is looking for you.
This longtime manufacturer of kitchen products is looking foroutside inventions. For information on how to submit your idea,call (800) 877-0441 or visit http://www.presto-net.com/invent.html
Now that the first major manufacturer has formally announced aprogram for inventors, it seems as if opportunities are finallyopening up for independent, underfinanced inventors to profit fromtheir ideas.
Family Funds
Your best sources of financing could be right under your nose:friends and family. Even if they don't have extra money sittingaround, there are still ways they can help you finance yourinvention.
For one, they can cosign a loan for you at their bank. Othertactics: Have the friend or relative borrow money from his or herlife-insurance policy. And if a person owns stock, he or she may beable to borrow money using that stock as collateral.
You'll be responsible for the monthly loan payments, sincethe loan is in your name. But your relatives and friends are stillon the hook, since they cosigned the loan. Nonetheless, suchtechniques allow them to help you even if they can't come upwith ready cash.
Contact Source
Mike Mogadam, c/o Barmate Corp., (415) 543-7747, http://www.barmate.com
