From Idea to Product: Lots of Work

By , July 30, 2009

I just finished a very interesting conversation with a nice, articulate young man who had sought my marketing advice.  Unfortunately, I quickly determined that he didn’t need marketing help — he needed legal and practical advice regarding intellectual property (patent & trademark law), import/export law and practices, and business planning.

He had a great idea for a technology product, and had even talked to manufacturers who could make the product to his specification in China.  But he hadn’t considered the legal and practical issues, and he doesn’t have the money to build his company “the right way.”  Let’s pretend tht his name was “Joe.” Here are some of the issues I identified:

Intellectual Property: The manufacturer in China provided actual samples of one of the core components, and quoted Joe a price to manufacture them.  But Joe didn’t ask whether the company had the legal right to manufacture the item, including licenses for any patents.  Although Joe had considered the possibility of patenting his product idea, it never occurred to him that he might need to deal with other people’s patents on the underlying technology.  He needs to consult with attorneys familiar with patent law and “import” issues.  He may need to seek out patent licenses (and if someone offers to sell him licenses, he needs to do “due diligence” to insure that they own the rights they are granting — just look at how Amazon suffered last week when it discovered that the license it bought from an intermediary for e-book editions of George Orwell’s books was void because the intermediary had never actually obtained a license from Orwell’s estate).

Manufacturing, Quality & Composition Issues: It never occurred to Joe that the product might contain some lead or any other materials whose use might be restricted in the U.S., or might trigger special “disposal” requirements under federal or state law.  Nor did he really have any idea how to specify the product’s design and quality in any way that could be objectively evaluated (voltage variations, defect rates, discoloration).  I’m sure he never considered how to deal with a “bad batch” of products — if they didn’t meet his requirements, would the manufacturer turn around and sell them to others, possibly selling defective products (or “over-produced” products) with his company’s name on them to “discounters” and “black market” resellers?

Other Legal Issues: I asked Joe whether he might need to have the product evaluated and “approved” by anyone (such as the Underwriters’ Laboratory), to meet applicable laws or the requirements of distributors or retailers who would resell the product. He didn’t know.  He also hadn’t considered the possibility that the product might generate “signals” that might trigger FCC scrutiny.

Packaging: Joe also hadn’t considered how the product would be packaged, nor what variations might be required by the “distribution channel.” He wasn’t aware that some distributors and retailers (Wal-Mart, Best Buy) require the manufacturer to insert security tracking tags inside packages before they are shipped to retail stores.

Distribution Business Questions: Joe had also never considered the “business issues” involved in his transactions.  When would he need to pay the manufacturer? Who would be liable if the shipment was lost at sea? Who would be responsible if the shipment were seized by Customs because of intellectual property claims by others?  Who would pay legal fees and settlement costs if Joe were sued by competitors, alleging patent, trademark, copyright, or trade-secret violations?  For products Joe sold to distributors and retailers, when and how would he be paid? What return rights would other retailers have? How would Joe handle products returned as “defective”?  If retailers were given 60 days to pay and a 60-day return period, what would Joe do if 90% of the products were returned on the 59th day?

Business Operations: Joe also hadn’t considered his office and warehouse needs.  He didn’t know how the products would be stored, nor how would orders be picked, packed and shipped.  He had no idea how to approach distributors or retailers to sell the product. We never even discussed issues like incorporating the business, property and liability insurance, business license, paying taxes, or hiring staff.

After 40 minutes on the phone, I told Joe that I might be able to help him market his product, one day, but that he was very, very far from having a product that could be sold — even though the manufacturer had told him he could have finished products in hand within 60 days.  Joe needs a business plan, of course, but before he can prepare a business plan, he needs to “identify issues” and understand the obstacles that his company will face.

I often encounter prospective clients like Joe who “aren’t ready” for my services.  Often, they “have an idea,” and sometimes they even “have a web site,” but they aren’t ready to accept orders for products (and it’s unclear when they might be ready — nor if). Of course, in theory, Joe could benefit from my planning services now, to lay the foundation for a marketing plan — but clearly, Joe doesn’t yet have the budget or the skill set to actually benefit from my work. I also frequently encounter clients who could benefit from my services, and who can pay me, but whose plans are so unfinished or tentative (or scattered or incoherent) that I feel I must decline the work.

During the past few months, I’ve encountered more and more people who “aren’t ready,” yet are seeking advice (and running “help wanted” ads) from people like me.  Sometimes, as with Joe, I find it engaging and refreshing to have a half-hour discussion about an interesting idea.  More often, I find that I must end the conversation quickly, and wish the caller luck with their ill-conceived “idea.”

Of course, many folks like Joe will decide to “cut corners” — for example, with his eye on prospective Christmas-season orders, Joe might still decide to “just go ahead” and place an order for 1,000 or 5,000 units of the product, and cross his fingers that he’ll get the product he wants, that it will clear Customs, and he will be able to quickly start selling it online, without any business plan.  Many new-business owners (and some experienced business people) make a conscious decision to “assume the risk” of complications, and often none of the complications arise.  Unfortunately, far too often, people who decide to “just give it a try” end up losing their entire investment, followed by lengthy litigation and collection efforts.  I don’t like to work with clients like this, mostly because of my “business ethics,” but also because I know that I might not get paid, either, and I might even get dragged into legal disputes.

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