Developing Profitable Concepts

Q: I have a concept for a smoke alarm. So far it's just an idea in my head. What advice can you give me on how to convert this into a marketable commodity? Would it be easier to present something to a major manufacturer of smoke alarms?

A: First, let's break your questions down into a few pieces: concept, marketability and presentation (presumably, with licensing in mind).

• The concept. Concepts, or ideas, are not marketable. First, that's because they're little more than an imagination. Second, because as they say, "Ideas are a dime a dozen."

Your first step here is to protect your idea by using the various methods of patent protection. These include starting an inventor's journal then filing a provisional patent application (actually not a patent, but a provisional application for a patent) or a utility patent.

One of the first requirements of a patent is that you "reduce it to practice." In other words, you need to begin writing your ideas down in an approved inventor's journal and have the drawings and description witnessed and signed, build a prototype, complete some preliminary engineering, or otherwise show you're developing it beyond just having the idea in your head.

There's more to starting the invention process than what I've listed here, and you can find a more thorough description in Patent It Yourself (Nolo Press) or From Patent To Profit (Avery Pub Group), two books available through online bookstores. From these books and others like them, you'll learn why, when and how to retain a good patent attorney.

• Marketability. Much goes into the marketability formula, including the design, features, benefits over other products, price, margin, safety or serviceability issues, looks, durability, packaging, dealer incentives and sales volume projections.

Sounds like a lot more work than the patent process, and it is. But for good reason-95 percent of all inventions fail to even earn back the cost of the patent. This dismal performance isn't because of the invention itself but largely in the failure of the product's marketing program. No product sells itself, so to really build a marketable product you have to become an expert in a particular market.

You'll need to do some serious research to find out what the typical distribution channels are for the smoke alarm industry. Are these products sold through distributors, wholesalers, retailers, QVC, direct mail, school fundraisers or some other profitable channel?

By investigating the distribution channels, you'll learn whether your major competitors control smoke alarm distribution, therefore making it tough to get your product into the system. You'll also learn how much margin each link in the distribution chain makes as they pass each alarm from manufacturer to wholesaler, wholesaler to distributor, distributor to retailer, and retailer to consumer.

Figure out the markup for each link and how much the alarm should retail for. From all of that, determine whether you can manufacture your invention for a price low enough to pay each link in the chain.

Often there are so many expensive features built into inventions, they get priced right out of the market. Make sure your idea can be manufactured at the right price so it can earn a profit for everyone involved (not just you).

• Presentation. Many inventors think that presenting an invention to a manufacturer is the hard part. Not true.

If you've done your market research, your presentation will simply be the delivery of the facts to the prospective licensing manufacturer. Put the following bits of information in a nice format and bind them in a presentation folder:

1. Names of all your competitors in the field

2. Identification of all competitive smoke alarms

3. Identification of your product's features and how those features compare favorably against the competitions'

4. Estimate of manufacturing costs and the potential profits the licensee will make

5. Notice of patent pending-assuming you have at least filed for your patent by that time

In essence, you've shown a licensee how he or she can make money from your invention. Of course, once you're at this point, you may elect to work a little harder and bring the product to market yourself.

Andy Gibbs is president and CEO of PatentCafe.com Inc, a leading intellectual property information and resource Internet portal. He is an inventor with seven issued and pending patents, and an entrepreneur who has started seven companies ranging from product development to low-and high- technology product manufacturing. He speaks to inventors, entrepreneurs and venture capitalists on intellectual property, marketing research, competitive strategy and sales development. Visit http://www.patentcafe.com.