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Magnet Driver’s Inventors Follow Tradition Path for Successful Launch
Spanish inventors Michael Pérez and Luis Vaamonde believe that a better method was needed to hold screws in place during DIY projects for consumers as well as in industrial application. They invented the Magnet Driver® (www.micaton.com) , a magnetic bit holder, which consists of a rubber boot and a magnet holder designed to be used with both conventional screwdrivers and power bits. The product’s benefits include allowing you to screw faster, offering more flexibility, as you use the tool with only one hand),and enabling you to reach inaccessible places since you don’t need to hold the screw in place for the first few turns. The product has been selling in Spain since 2011 and has used partnerships with other companies to expand sales into major European retailers including Carrefour, Adeo Group – AKI, Bricoking , Leroy Merlin, Auchan and Castorama . Today they are getting to launch another Kickstarter Campaign to raise money for international launch.
Path to Success
Perez and Vaamonde followed a path to success.
1. Create a marketable idea. Perez and Vaamonde saw there were many applications where it was impractical to use two hands , one to hold the screw, and one to hold the it holder, when starting a screw. Their solution was an magnetic bit holder.
2. Work through several prototypes to finalize a commercial design. Invention success depends not only having a good idea, but also an effective commercial design. The invention has to work well and meet consumer’s expectations. Perez and Vaamonde needed several redesigns to bring the product into a commercial state.
3. Fund small local production to prove the design and construction of the product. The inventors’ initial production was in Spain, where they could work out production bugs. They self-funded this stage of the business.
4. Find initial partners to help market the product and prove marketability. Micraton’s initial partner was Egamaster, one of the leading Spanish manufacturers and suppliers of special tools.
5. Raise additional funds to secure large scale lower priced production units. With success in the Spanish market, the company was able to raise money through a Kickstarter campaign and funding from private investors, through a private placement, to move production to China, which lowered costs and allowed more aggressive pricing.
6. Develop a network of partners to expand sales in an initial targeted geographic area. Micraton formed online relationships with Amazon Europe and several companies selling online including Brico-Privé, ManoMano and Toolboost.dk.
7. Run publicity campaigns to build consumer awareness. Micraton’s campaign include publicity releases in several major European magazines, awards from several major trade show contests, including First prize for the BEST NATIONAL INVENTION, awarded by the Biennial Fair Ferroforma 2015, and Award for the BEST INNOVATION, granted in the Biennial Fair Ferroforma 2017, by AFEB Association of Spanish DIY and Hardware Manufacturers. The company also started major trade shows including the National Hardware Show in Las Vegas, NV.
8. Secure additional funding for a broad product launch. Micraton has received funding from the inventors, an initial Kickstarter campaign, and two private placements. The company is now ready for a larger product introduction to markets around the world and is launching a new Kickstarter campaign in the next few days. Check out https://goo.gl/8RMk1x for more details.
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Everything Inventors Need to Know About Selling Big
Selling Big: Finding the Right Marketing Partners
Once inventors have a product ready to sell they need to decide how to market the product. They might choose to sell the product themselves, the benefits are that they generate the most profits for themselves, the drawback is that sales might get off to a slow start. Or they might decide to land a marketing partner, another company already selling into the target market, the benefits are a fast sales growth, the drawback being they will need to give 20 to 25% of their sales volume to the marketing partner to cover sales and marketing costs. At first glance the 20 to 25% seems high, but in reality most consumer products companies spend approximately 20% to cover sales and marketing costs. Selling through a marketing partner may not be viable if you have small margins, but it is often the best course for fast sales growth for inventors with high margin products, where the product’s wholesale sales price is at least twice the products manufacturing costs. This chapter covers how to find a strong marketing partner to sell your product.
There are several principles to follow when selecting a partner. The partner needs to be selling to the right market and they need to be able to generate significant revenue per year with your concept. The partner should also have a strong reputation and have had strong sales growth. But the critical point is to work with companies where the inventor can find someone inside the company who is willing to push management to carry your product. Ideally this person is a regional manager or marketing person with enough clout to move the project forward.
The marketing partner can be chosen from a wide range of businesses: a manufacturing company that makes other products it sells; a distributor who sells to the same target market; a manufacturer’s representative firm that plays an important role in a particular market; a large end user of an industrial product; or even a major retailer looking to sign a private label agreement for its stores.
Potential Marketing Partners
Typically when people think of a marketing partner, they are thinking of bigger companies that have large marketing and sales staff. Those companies can be good partners, but they are also partners that can take a long time to sell. What you need from a marketing partner is a commitment to take the product for a period of time, which means a marketing partner is a very broad term for inventors. For example, a retailer is a partner if it agrees to buy a fixed number of units for three years in return for an additional ten percent discount and an exclusive sales agreement.
Companies with Branded Offerings
Products and services are branded when they are sold under a name the company promotes. The Geek Squad sells branded computer repair services and the Crank Brothers sell branded bike repair products to bike shops. Companies with branded products typically sell through established distribution channels, compete with many other companies, and have a somewhat steady stream of business. These companies will be interested in marketing inventor products when those deals improve their competitive situation.
Distributors often look for exclusive deals on “hot” products or services that have strong customer demand since it boosts all of their products sales.
They already buy lots of private label products, which are typically non-exclusive agreements for a product with the retailers name on it. A private label agreement is one option to an inventor when the retailer makes a three or four year commitment.
Companies that Market Others’ Products
Many markets have one or two companies that market products from overseas manufacturers or small US companies. They also make strong marketing partners.
Finding Potential Partners
Finding partners starts with the target customer. Anyone who is active with your target customer is a potential partner. Make a list of all the companies and organizations that interact with your targeted customers. The best way to find these companies is by using directories that are posted on web sites for trade magazines and associations and from an exhibitors list from industry trade shows.
Trade magazines typically have directories where you can often get a list of manufacturers, manufactures’ representatives, and distributors. As an example I learned rock salt lamps are popular in Pakistan, both for their soft ambient mood lighting and because the rock salt lamp releases ions when the light is lit that have some medicinal value. To look into potential partners I typed into the Google search box, “lighting retailer trade magazine” and at the top of the list was the site for Home Lighting and Accessories, the trade magazine for lighting retailers. The site contained a directory for manufacturers, manufacturing representatives, and some distributors. I also subscribed to the magazine (most trade magazines are available at no charge) so I could keep up with the industry. You can also find trade magazines in Gale’s Source of Publications and Broadcast Media, which is available in larger libraries.
Associations can also be located using Google in exactly the same way as trade magazine. For the associations related to lighting I found several sources but the best one was the National Home Furnishings Association. The association’s directory for products contained a list of many manufacturers and distributors and a list of auxiliary members had the names of manufacturers’ representatives. Gale’s Book of Associations, also available at libraries, contains the most comprehensive list of associations that I’ve run across.
Trade shows are another good source for finding potential partners because most key market suppliers will exhibit at a trade show. Most shows have directories that list all the exhibitors, what their products are and contact information for each company. Your best bet is to just call the trade show sales office and ask for a copy of last year’s show directory. You can find the right trade shows contacts in trade magazines and at www.tsnn.com, which is a comprehensive web site directory of both big and small trade shows.
When Marketers are Receptive to a Deal
Marketing partners take on product from an inventor when it helps enhance their overall market presence. Inventors should research the target marketer to understand what sales approach will work best. I’ve listed a variety of reasons people that might exist which will help the marketing partner be receptive to your offer.
New Market Trends
Downloading music for fees, cell phone conference calls among teenagers, backyard water ponds, and hybrid golf clubs are all new trends where some companies are winners and others losers. For inventors, especially ones that are users of the product, these trends open up opportunities because companies participating in the market don’t know for sure what the fast changing market wants, and may use an inventors product to better explore the market. . Scrapbooking is a good example; that market went from low to no sales to five billion dollars in sales in a just a few years. Many of the new products in that market came from inventors or others who were diehard scrapbookers; they knew what the market wanted because they were one of those target customers.
Product Line Gaps
Companies can’t afford a hole in their product line because having multiple sources of supply costs companies money. Most customers will prefer to have just one or two suppliers. This urge to consolidate exists for most buy either retail or industrial, and even to consumers. It applies even more to service providers, as both companies and consumers both tend to prefer just one supplier. A potential marketer will be receptive from a proposal from an inventor who fills in a product line.
Distributors and retailers might sell a product at a thirty to forty percent margin. If the distributor commits to a three year deal for an exclusive selling arrangement he might receive an additional five to seven percent margin, either as a discount or as a share of the profits. That’s a good deal for distributor.
Certain functions are critical for a marketer to continue, such as newsletters, service support, or sponsorships of events, to keep connected to their customers. But often those activities barely break even in profitability for their companies, and the marketer is looking for ways to create new revenue streams to help offset all of their fixed marketing costs. Small companies, who have trouble creating enough revenue to afford an effective marketing program might add an inventors product to build up their revenue stream. Change in Top Personnel
New management is always looking to make an impact on their employees and the market. They will go out of their way to look at new ideas and concepts from inventor / entrepreneurs in the hope that they might have an idea that will sell. This situation is especially advantageous for inventors because they can often get right to the top management people in the company
Unable to Fund Their Own Introduction
The company doesn’t have resources to introduce its own ideas. Sometimes the best marketers to approach are mid to small size companies that lack the resources for a major introduction. Look for companies in the market that feature mostly accessories or peripheral equipment or services for companies and can’t afford a major introduction.
Choosing the Best Marketing Partner
.Determine your investment required to manufacturer the product.
Determine marketer capable of delivering annual sales levels fifteen to twenty times your investment, otherwise you won’t be able to recoup your money.
The project should represent a ten to twenty five percent increase in sales to the marketer. If the project is less than ten percent it will be hard to generate excitement in the marketer as the project just won’t have enough impact. A ten to twenty five percent increase will make a significant difference to both the company sales totals and bottom line.
Potential targets have several of the characteristics that entice companies to want to make a deal.
Types of Deals for Marketers
Inventor deals with manufacturers can be set up in a number of ways. I’ve listed an array of deal structures you can suggest to marketers to find the one that suits them best.
Firm Purchase Commitment
The simplest inventor deal is a two to three year purchase commitment that’s large enough to help the inventor sell all the products it can afford to make. Retailers are a good example of a company that will do this as well as distributors or integrators that buy your product and then include it in as a component of their own product. An exhaust system manufacturer for example is an integrator who might buy large volumes of an innovative component from an inventor that it will incorporate into its final product.
Firm Purchase Agreements in Return for Considerations
The agreement might call for exclusive rights nationally or in a territory for either a short time or it could be for the duration of the agreement. Rather than a total exclusive agreement, the consideration might be that certain features or applications are exclusive to the marketing partner. For example a chain of skateboard shops might have exclusive rights to a new style of polyurethane wheels on a skateboard, but not exclusive rights to the entire skateboard line. Agreements also be entered with price concessions in additional other considerations. In return for a firm long term agreement you might have to give up both, and might also need to offer protected pricing, which you can only raise under certain restricted circumstances.
Private Label Agreements
A private label agreement is really no different than the first two options, except that rather than branding your product or service with your name, or the service provider’s name, it is instead branded with the marketer’s company name. For example you might sell your skateboard wheels with the name of the distributor or retailer on the box. This I the deal that most often works if you are selling to a marketing company that sells products from overseas and other small manufacturers.
The deals you might suggest here can typically be handled by a purchase order or straight buy and sell agreement. Web sites with simple sample forms you can utilize for a buy sell or private label agreement are: www.albusiness.com (my top choice); www.legalforms.com; www.findlegalforms.com; www.lawdepot.com; www.americalawyer.com and www.findlaw.com.
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Everything You Need to Know about Joint Ventures for Inventors
Joint Ventures—The Inside Scoop
Technically, a joint venture for inventors is an agreement by two parties to work together in order to design, promote, or manufacture a new product. The parties split the work and split the profits. The split can be 50/50, or it can be a different split depending on the work and resources each party contributes. The partnership could be a formal joint venture, or it could be a more informal alliance or agreement. What distinguishes a joint venture is that both parties contribute financial resources, and both share in the profits. Inventors can form a wide variety of partnerships including:
* A partnership with a manufacturer who will help design the new product, build prototypes, and eventually produce the product. The inventor would be responsible for all sales and marketing activities and might also pay for the patent and some tooling expenses.
* A contract with a sales and marketing group that agrees to market the product for an inventor.
* An agreement with an expert in the field—such as a pro golfer or a well-known doctor—to present the product to consumers.
* An alliance with an engineer or industrial designer who will be responsible for finalizing the design of the product.
* A joint venture with another marketing company to exploit a different market than the one you originally targeted.
* An agreement with an overseas manufacturer in which it makes your product for a reduced price and extended terms in exchange for overseas marketing rights.
Inventors make one consistent mistake when trying to strike an alliance—they try for too high a percentage of the profits. Companies are not going to work hard to make you rich. You won’t get any deal if you ask for more than 50 percent of the profits. Remember that without you the company will continue in business, while you might not get into business at all without the help of an alliance partner.
End of tip
Inventors form alliances for two reasons. One is that they don’t have enough money and need to get a partner to help foot the bill. The second is that they need to offer an extra enticement to get help from people they need help from in other ways. An inventor, for example, who wants to penetrate the hardware store market, may want to team up with a top manufacturers’ sales representatives agency. Agencies might not be all that interested in taking on a product for a standard commission from a small company that can’t afford advertising or promotion. But they might be willing to take the product on and pay for promotion if they were receiving 50 percent of the profits instead of a 10 percent commission. The agency would also help set up a complete distribution network across the country.
Can You Play that Song Again?
When Nathaniel Weiss was a musician in his early 20s growing up in Philadelphia, Pennsylvania, he noticed an interesting phenomenon: when guitar players practiced, they constantly came up with great-sounding riffs, but if they stopped to write the notes down, they seemed to lose the groove and the riff died. Weiss created a pickup device that attached to a guitar and connected to a computer. Weiss’ software program then transcribed the notes played into sheet music. The result: Guitar players could play away knowing that their creativity was being preserved.
Weiss named his hardware/software product the G-Vox, but he knew he wasn’t ready to go to market because he didn’t have a distribution network set up, and he didn’t have much credibility in the guitar community. Weiss’ first step was to form a partnership with Fender Guitar Company, a leading guitar manufacturer. Fender offered the G-Vox as an option on its guitars, and Weiss also sold the product to guitar stores.
The market for writing aids for guitar players was steady, but it didn’t have much growth potential. While Weiss wasn’t able to locate a large songwriting market, he did notice that there was a huge market for helping students learn to play an instrument. Weiss reconfigured his product for members of student bands and orchestras. The benefit now was that the G-Vox pickup allowed students to see exactly what they were playing while practicing at home or at school. The school market is big, has established sales channels, and typically only buys from a few well-known suppliers—it’s a difficult market for any inventor to crack. So what did Weiss do? He formed another partnership, signing an alliance agreement with one of those major suppliers, McGraw-Hill. Together, the two companies proceeded to introduce new products created by Weiss’ company, G-Vox Interactive Music.
End of Story
Alliance or joint-venture partners look for a significant business benefit when they decide to team up with an inventor. Typically, they are only interested if your product can increase their sales 15 to 25 percent, or if the product provides them with a significant market advantage over their competitors. The perfect product from their perspective is one that has significant market impact.
From the inventor’s point of view, perfect products for an alliance partnership or joint venture are ones that the inventor doesn’t have the financial, engineering, or manufacturing resources to produce, or that the inventor doesn’t have the marketing network or credibility required to launch. The one feature of a perfect joint venture product is that the product provides customers a significant, important benefit.
Why should a manufacturer or distributor be interested in an alliance or joint venture? Sure, one reason is that they end up with an exciting product to sell, but that’s not the real reason. It costs companies lots of money to introduce a new product. That financial risk is minimized in an alliance because the inventor is the one who does most of the legwork to get the product market ready.
End of Tip
I personally believe a joint-venture strategy should be used far more often than it is by inventors. It allows them to move their product to the market in a big hurry with much less financial risk. The trick to success is to find the right size companies to present your idea to. If your product can sell $1 to $2 million per year, there is no point in presenting it to a $100-million corporation. They won’t be interested, since the product doesn’t have enough potential for them. But a $5-million corporation might find that $1-million product perfect for their sales and manufacturing goals.
When forming joint ventures and alliances, you might be hoping to
* Introduce and penetrate the market as quickly as possible.
* Receive sufficient funding and support for a project that is beyond your resources and experience.
* Have more involvement in the ongoing success of the product than you would get in a licensing arrangement.
* Develop the product further before it can be licensed. An alliance can be a precursor of an eventual licensing agreement.
* Generate additional market information and distribution channel contacts that can be used for subsequent inventions.
* Obtain the management, administrative, and manufacturing support for a new product. A company with experienced personnel can do these tasks far better than most inventors.
Inventors have other choices depending on the skills they have. Inventors who are experienced in engineering and manufacturing might choose a private label strategy (chapters 14 and 15), or they may choose to try and license their idea (chapters 16 and 17). Inventors who skill is in marketing, recognizing market opportunities, or in sales may choose to sell on a commission basis (chapters 10 and 11), or they may also pursue a private label strategy. Inventors might also decide to build their own company, raising funds from investors and/or banks and introducing their product on their own (chapters 18 and 19).
You need to bring something to the table to strike a joint-venture deal. You need to offer either (1) engineering know-how to create the final product, (2) key contacts with end users to create a product that best meets the needs of the market, or (3) numerous contacts in the distribution network to expedite sales.
End of Tip
Typically, the main advantage of a joint-venture or alliance strategy is that you get funding from the potential partner. For example, an inventor may have identified a big market opportunity, but doesn’t have the money to create the prototypes. He or she then approaches a potential partner company and discusses a possible alliance if the product is successfully developed. The inventor can then ask for a sum of money to create the prototype or ask for engineering support to finish the prototype. One strategy is to ask for support only for accomplishing this first step, and then once it is finished, the two parties can decided together if they want to proceed further. This step-by-step process is frequently much easier to sell to a company than a license, where the company has to take on the entire burden of introducing the product.
Inventors don’t really need a patent to strike a joint-venture or alliance agreement, but it does improve their negotiating position. It also helps ensure that the product’s intellectual property rights belong to the inventor. In some cases, the inventor might apply for a provisional or design patent so he or she can say that a patent is applied for. This can create a dangerous situation, however. The provisional patent gives only one year for the inventor to apply for a utility patent. Your one year could easily run out before you have finalized your agreement and finished the product design. You are better off applying for a very broad patent, knowing that your initial application will be contested by the patent office. Then you can keep going back and forth with the patent office for to establish your claims. This tactic can keep your patent rights open for three to five years
One reason that inventors choose the alliance strategy is that they don’t have the experience or money to finalize a “works like, looks like” prototype. But often a drawing just isn’t enough to generate a positive response from a potential partner. If you want to strike up a joint-venture agreement, you’ll find that having a prototype is an important tool. However, you don’t want to spend too much money creating a prototype. Just take the prototype far enough so the partner can see your product’s sales potential. More than likely your potential partner will want to make changes to better meet customer needs, to improve product quality, or to lower product costs.
Always approach a potential partner with several pieces of market research from target customers. You position becomes much more favorable if you have survey results from at least 15 to 20 potential users. Your position is even stronger if you have survey results from 15 to 20 people in your potential distribution channel. You’ll find that potential partners will feel you’re a professional if you have survey results.
End of top
This tactic requires you to know exactly what your target customer wants and the sales potential of your target market. You won’t have any trouble finding a partner if you uncover a product that satisfies the needs of a large market. But it is up to you to prove the market is there. Your research should show that customers need and want your product and that they are willing to pay a reasonable price for it.
Research Report Basics: Replacing the Rolodex
* Start by clearly defining your target customer group. For example, the initial target group for the Palm Pilot, one of the hottest new products of the last 10 years, was businesspeople who spend a considerable amount of time out of the office. This included salespeople, executives, insurance people, and marketing managers.[AUTHOR: Okay to put this in past tense, or is that still the main target customer? It seems to me they’ve expanded to include just about any businessperson, yes?–ce]
* Define the size of the market. I like to do this in two ways, first by stating how many people are in the market, and second by listing the size of other products sold to that market. In the case of the Palm Pilot, the number of initial sales could be estimated by the early number of cellular phone sales.
* Explain why you feel the market needs the product. For the Palm Pilot, the reason would be that people are away from their computers for long stretches, and they want a truly mobile computer to take with them.
* Verify your premise. Have actual interviews with both end users and dealers that show that they would indeed like the product you are proposing. For the Palm Pilot, you could interview 20 to 25 potential end users to clarify their need for a smaller mobile computer.
* List the customers’ product requirements. You want to have survey information about what features potential users require. Inventors accomplish this task with six to eight in-depth interviews with potential users discussing what users would like to see and what they’d like to accomplish with the product.
* Establish how important this product would be to users. People typically buy functional products that solve their major priorities first. If you were pitching the Palm Pilot, you’d want to show that users would buy your product first before other time-saving, out-of-the-office products.
End of Insight
Most of the time, inventors create an alliance or joint venture with a manufacturer that is capable of making the product. Then they don’t have to worry about manufacturing the product. Most sales and marketing partners won’t be willing to make an alliance with an inventor unless he or she has a manufacturing source. They won’t trust the inventor to make a quality product or deliver in quantities once orders develop. Remember that your partners are putting in a lot of effort on the product, and they don’t want to see those efforts wasted because of lack of effort on your part.
You must have a professional in charge of every phase of your operation if you want to get a joint-venture agreement. If you are going to handle sales and marketing and don’t have marketing experience, be sure to have some advisors and helpers who do have experience. The same holds true for manufacturing. The partner won’t count on you unless you’re an expert yourself or have experts to call upon.
End of tip
You have the best chance of striking an agreement when you can show you have unique insights into what your target customers really want—insights that allow you to develop the perfect product to meet those desires. Your key contacts then are people who have a very strong understanding of what your customers want. If you are introducing a home-decorating product, your key contacts are interior designers or architects who are recognized as having an uncanny ability to understand what customers want. If you were introducing the Palm Pilot, you would want contacts who have introduced other products to the same target customer group, or you would want people from that target group who have always been early adapters of new technology. For a medical product, your key contacts would be doctors or hospitals that are influential in your product’s field.
PRO AND CONS
* Allows the inventor to introduce new products that are beyond his or her reach in terms of either resources or experience.
* Helps the inventor gain tremendous production experience that he or she can use later.
* Speeds up the introduction and market penetration of a new product.
* Typically fills in the experience gaps that the inventor has for introducing a new product.
* Offers the inventor much more control of the product and its subsequent development.[ * Is a much easier sell than a licensing agreement.
* Allows the inventor to introduce new products when he or she can’t afford to produce a “looks like, works like” prototype.
* Doesn’t provide the inventor with total control of the product.
* Depends on another party to do their job effectively for the product to succeed.
* Doesn’t allow the inventor to withdraw the product to start a company on his or her own.
* May not establish the inventor as a force in the market in order to launch his or her own company.
* May create stress for an inventor who’s input is overridden by the joint-venture partner.
UP, UP, AND AWAY
A successful first invention is often the launching point for a successful company. But a joint venture or alliance may actually leave the inventor joint venture partner in a stronger position than the inventor, especially if the alliance uses the partner’s name to build credibility. On the other hand, the inventor learns about the product introduction process and develops contacts that should be helpful in his or her next product. The best part about a joint venture is that often it places the inventor in big powerful markets where there is a lot of interest from investors. A success in a joint venture or alliance should help the inventor launch a full-fledge company on his or her own if the next idea is in the same market. Realistically, most inventors who use a joint-venture strategy would not have been able to launch their products otherwise. Also, if your eventual goal is to start your own company, the joint venture is a much better first step than selling on commission or selling through a private label because you maintain some ownership of the product (which doesn’t happen when an inventor sells on commission), and you are also making contacts with distributors, end users, and key industry people (which doesn’t happen when the inventor sells on a private label basis).
Inventors succeed because of their ability to produce and market a product, skills that count more than the particular merits of any one invention. I believe inventors in joint ventures have a 10 to 20 times better chance of success than an inventor going alone. Inventors need the joint-venture partner’s money and expertise. Inventors will be in a better position to succeed on their own once they’ve survived a partnership.
End of Tip Box
The key to success is knowing what your target customer wants, so your key resources are knowledgeable people in the market you are targeting. Here are some tips for finding those key resources:
* Meet people in the target market, as many as you can, and start identifying “early adapters,” people who buy products before anyone else.
* Meet as many people as you can in the distribution channel and get their input.
* Read trade magazines and find out who are the key players in the market. Become familiar with your market’s most influential people.
* Go to any local association meetings of your target customer to find new contacts and to get a better understanding of what people want.
* Learn from your contacts which manufacturers in the industry are strong in marketing and are strong in manufacturing. Your best bet for a good joint-venture partner is a company that has strong manufacturing but weak marketing capabilities.
* Develop a relationship with a regional manager or marketing person at a company you have targeted as a potential partner. You need someone on the inside of the potential partner pushing for an agreement in order to succeed.
WHAT TO EXPECT
* Potential partners will not be easily convinced that you have a unique, profitable opportunity.
* You will have trouble getting an appointment if you don’t find a company contact who will recommend that the company look at your offer.
* You will have to push for a formal agreement to establish your rights in the relationship. * The partner will try to keep the agreement on a more informal basis.
* You will have to convince the partner that you can do your part in the promotion.
* The company will want to proceed slowly to ensure your idea has potential and to be sure they can count on you as a partner.
* You will be responsible for keeping the momentum going on the agreement.
* You will have to take charge of finalizing the product design, even if the partner does most of the work.
* Sales for most partners take three to four months to ramp up throughout the distribution network. Don’t be alarmed if it takes six months for the product to show true sales potential.
I’ve found that companies won’t proceed with a joint venture, no matter how great the opportunity, if the inventor or entrepreneur appears difficult to work with. Don’t call the potential partner constantly with questions, revisions, or suggestions. Limit your contacts to just one or two per week where you mention major concerns or suggested actions.
End of tip
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Shark Tank Success- Still Hard Work Ahead
In October 2012 Taya Geiger was fed up after 12 years as a financial consultant at just the time her neighbor, Leah Tutin, came up with an idea for an baking kit. Putting their heads together they launched their product and today Scratch and Grain Baking Company has its products in over 5,000 stores, and sales are growing 500% per year. On the way the inventors landed on Shark Tank, landed Barbara Corcoran as a mentor, put together an automated production process and survived the loss of a partner, Leah Tutin, who bowed out after four years.
Tutin wanted to make cookies with her daughters from scratch, but found it was not much fun and a lot of work. Her solution was a baking kit, with all the ingredients, with just the right amount, packaged in individual color coded bags. At first Geiger was apprehensive “I thought this concept had to be on the market. But I did research and couldn’t find any. But I wasn’t sure about the product.” Geiger was all in though once she tried the kit. “I totally got the concept. It was about making delicious bake goods, but also making it fun and easy. No more baking soda, brown sugar, flour and other ingredients sitting in my cabinets until I was ready to bake, no more measuring cups, measuring spoons and most importantly no more major messes in the kitchen. Quick, fast fun and easy was what the product was all about.”
Goal one was to finalize ingredients for four cookie kits, Chocolate Chip, Oatmeal Raisin, Gluten-Free Chocolate Truffle, and Gluten-Free Chewy Peanut Butter. On March 1 2017 the founders started putting kits together in 100 sf of a shared commercial kitchen. They packed and sealed the bags themselves, and on March 17th they had 40 cases ready. “Our original intent was to sell online and develop consumer demand” Geiger explains, “but then on a whim we decided to ask a store cashier what she thought of the product. She loved it, brought in the store manager, and he bought it.” The store manager said he needed a 35% margin and he felt it would sell at $7.99. The resulting wholesale price of $4.50 was exactly the cost of the product. But the founders went with the price, knowing they could get the cost down when they automated their equipment.
Sales Growth – Number of Stores
March 13, 2013 1
September 2014 400
January 2015 600
July 2015 1,300
November 2015 2,400
September 2017 5,000
Geiger and Tutin called on the stores in their hometown area, Portland Oregon, and all they called on took the product. This included chains like Albertsons and Whole Foods. Most grocery stores, and mass merchants, allow local managers to buy and stock local products to see how they do. As organic products were starting to take off, local managers were happy to stock a local organic product to help fill up their organic sections.
With the Portland market saturated, Geiger and Tutin focused on the next big market, Seattle. Geiger explains their big break, “we had success in Seattle with the grocers but our big sale was to Sur La Table, a high end kitchen housewares retailer who also carried a large number of cooking kits. This gave us our first national account.” But Geiger and Tutin were not making any money packaging the kits by hand – they needed to bring in more automated equipment.
The Shark Tank Experience
In August of 2013 Geiger and Tutin decided to email Shark Tank. (see http://abc.go.com/shows/shark-tank/apply for more information about applying). Shark Tank only allows a photo and a few lines to describe the product. Geiger relates that “we sent in a really crazy photo of us breaking up our spatulas with a straight forward sentence explain that we were a kit for people wanting to cook from scratch while having fun, no mess, and no measuring.” They received a call from Shark Tank that the show wanted the product. Shark Tank actually only films in June and September for the next year’s shows and time was tight. Geiger and Tutin filled out all the forms, answered the phone questions and prepared a video audition pitch. Then they received a bombshell, the show was going in a different direction that year.
They put the show aside and kept selling. Then they were contacted again about possibly taping for 2015 shows in 2014 and the producer was very excited. Geiger learned what happened the previous year. “You need to go through many layers to get on Shark Tank, first a lower level scout, then an Associate Producer, a higher level producer and finally the Executive Producer. One Executive Producer didn’t understand our product. She didn’t understand our kit concept, and thought the product was a mix, and not a kit. One of Scratch and Grain Baking Company’s supporters, another Executive Producer at Shark Tank, purchased a sample of the product for their colleague, who loved it and gave the product the green light.
The show was filmed in June of 2014 for airing in January 2015. (See the video at https://youtu.be/mT6rbPsZp98) Barbara Corcoran agreed to be their mentor and offered a $120,000 line of credit in return for 20 % of the equity. A line of credit is a source you can borrow money from when needed, though you typically need to provide details about how you will spend the money. This was straight forward for Geiger and Tutin as they used the money to buy equipment and could document their cash needs. Not all the money was required, and Corcoran’s share of equity was adjusted downward to match the line of credit. In February 2015 Good Morning featured their products on the show. And they were featured again on ABC’s Beyond the Tank in March of 2016 (you can watch it! https://vimeo.com/164346058).
With equipment in place to increase production, as well as make some money, Geiger and Tutin were ready to expand sales. The founders started to court Target, and in July 2015 they started a three SKU test in 500 stores. (Today Scratch and Grain Baking Products are in 1500 Target stores). They had continued to expand grocery stores sales, which now included Hy-Vee, Safeway/Albertsons, Publix, Ralph’s, Fry’s, and select regions of Whole Foods. Geiger and Tutin kept adding to the company’s momentum. A big move in December 2015 came from direct input from their Target buyer. According to Geiger “we stepped outside of the cookie world as we knew it and expanded into other areas of the baking category. We launched three new products: Gluten-Free Honey Cornbread Kit (exclusively for Target), Gluten-Free Cheesecake Brownie Kit and Coffee Cake & Muffin Kit.” Today two out of those three products are the company’s biggest sellers. . In July 2016 the Scratch and Grain Baking Company’s facility and all non-gluten free products received their USDA Organic Certification. The company kept expanding its product line in September 2016 –with the launch of our first CupCake Kit – The Confetti CupCake Kit as well as another exclusive product for Target – an Organic Pumpkin Bar Kit, which launched in their stores nationwide.
In December founder Leah Tutin decided to back away from the company. Geiger responded by spending two weeks of every month flying around the country meeting with her customers to kick sales into high gear. Geiger and Tutin had decided early on to do all their sales themselves, bypassing brokers and distributors. As Geiger explains: “we just didn’t feel the brokers could give the same enthusiastic presentation that we give. They carried 20 or more products while we carried just one.” Geiger’s first move was to launch three out of their four current gluten-free SKUs as Certified Organic! Geiger followed that up in June of 2017 – based on the success of the Confetti CupCake Kit, which was the company’s No. 1 seller in a mere three weeks, with a launch of a full line of CupCake Kits: Salted Caramel CupCake, Chocolate CupCake, and a several seasonal varieties including Valentines, Fourth of July, Autumn, and Holiday. For the holiday products Geiger just signed an agreement with Elf on the Shelf to co-brand on select Christmas products. All of these moves are positioning the product line to stand on its, without the intense sales efforts from Geiger. The moves are paying off. The company currently has 12 production and three office workers and sales are growing every day.
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Industry Insiders Can Give Your Product a Quick Start
Inventors will have a far easier time striking a deal with a marketer or distributor when they have a strong supporter inside the potential partner company. You want to find the supporter early before you make any formal sales calls. The contact can then help you fine tune your presentations to the company’s needs. They will also advocate for your project inside the company, urging management to move ahead with your offer. Typically you want to find either a regional manager or a marketing manager to help you.
You don’t need to go with your hat in your hand when working on an inside contact, they actually gain as much as you do when they present the project, in fact it is a win-win situation for them. If they bring the project to the company and the company successfully introduces the concept, the inside contact looks like a real go-getter that is helping the company advance. If the project doesn’t go through, they still look like a go-getter, an image that will help them at some point in their career. The following steps will usually get you an inside contact with a potential partner company.
Show consumers want your product . You won’t strike your best deal by just showing your invention. Instead, you want to show positive first market research with intriguing possibilities, and then tell partners that your concept seems so strong that you feel it will do best if you partner up with a marketer immediately to exploit the opportunity. That approach allows you to enlist partners in the beginning phases of an exciting opportunity, rather than, from their perception, after you failed to raise money to market your own company.
Start with a salesperson. You can meet salespeople by requesting literature and attending association meetings. You can also attend trade shows and meet sales people just by walking up and talking to them in their booth. Try to walk the shows early in the morning or late in the afternoon when the number of real customers is low. Once you meet salespeople ask to take them to lunch as you need some input from them on a concept you think might work in the market.
Use a product introduction to explain your concept and the research you’ve put into the project. Don’t try to sell the salesperson, just show him or her the presentation with the observation that you’re trying to decide what would be a good next step.
Ask for his or her input on your idea and what could be done to make the concept go. They might ask for more detailed information on the concept in which case you can ask them to sign a Statement of Confidentiality . Take the salesperson’s comments in and be receptive to what he or she has to say. Then ask if this is a concept that his or her company might be interested in. More than likely the person will have quite a few comments on how it could be done with his or her company, with suggestions on making the concept “just right” for the target company.
Arrange to meet regional or marketing managers. If the salesperson is on board, make at least some of the changes he or she suggested and then ask the salesperson if he or she could set up a meeting with the regional manager or marketing manager. Usually they can meet with you, either when the manager comes to town, at a trade show, or you might be able to visit the company’s location.
Use contact to help set up the presentation with the company . Once you convey your concept to the regional or marketing manager, they will be able to set up a key meeting with the right people at their company. Often they will introduce you and give a little sales pitch about how your concept could have a significant impact on the company before you even get started.
Show Consumers Want Your Product
You should always start by showing that you have researched your product and that it has broad consumer appeal. You should start ideally by showing how you are a user of the product. You show other people want your product with observational research which shows why they want the product, and comparative product research which shows they prefer your product to others on the market.
One type of observational research consists of just watching end users use the product, noting each step the user takes and then asking the user why they do every step. This is the type of research that many consumer giants such as Procter and Gamble use regularly. If you observe four or five users in action you will notice that they experience, and compensate for, different drawbacks to products or services, drawbacks they may not even realize exists. If you ask people about how they are compensating, they will either affirm that is a problem, or explain it is not a problem. You want to be able to say that a high percentage of the people you observe have experienced the problem your product solves.
This process simply asks buyers or end users to evaluate your product against three to seven other products and then asks them to rank the products or concepts both by value and by likelihood of buying. It is useful to do comparative research for both directly competing products or services that achieve the same purpose as yours and for other products or services of a similar type that a company or consumer might buy.
For example, with t he Garlic Twist, a new more effective way to prepare garlic for cooking, you would buy every other product that also prepares garlic for cooking. Then, if the Garlic Twist cost $8.00, you would also obtain four or five other kitchen items, with a cost of $4.00 to $12.00. Make sure that some of the products are strong sellers, or your research won’t matter much since no one wants any of the products you are comparing yours to. For effective comparative research, don’t tell the participants what product is yours.
To start research, just find 10 to 20 people to review all the products. Ask them to rank the products on how likely they are to buy it, with “one” being the most likely to purchase. Also ask them to rank the products by value, with “one” being the most valuable product. You should be able to determine if people are likely to buy your product, and what is the price point they would buy it at. If people place your product’s value by products that are $4.00, then that means its value is about $4.00. Prepare a graph report on your findings to show potential contacts.
Finding Industry Salespeople
Every market and industry has sales people who are usually knowledgeable and very helpful. The best way to contact sales people is either to meet them at trade shows or trade associations or to simply request product information. When you read trade magazines, you’ll notice that they have extensive new product sections, or in the case of service businesses, new services that companies want to promote or sell. Request information for any product or service that is listed in the new product/service section. You are not necessarily interested in the information about the product or service but in the name of the company contact that will typically come on a letter that will arrive with the literature. You can then call up that contact and ask questions such as how their product or service is sold, who are the most important companies in the market, what are the new market trends, and which companies have had the most successful new introductions. You might also ask a contact that is especially helpful if you can contact him or her again in the future.
Other Potential Helpers – Trade Associations and Chambers of Commerce
Many industries or markets have trade associations which are groups of people, including retailers, distributors, marketers, and purchasing agents. Trade associations work for the betterment of companies in the industry. They have volunteer committees of members who do most of the work of the association. You can learn about an industry by joining an association and volunteering to be on committees. Marketing committees can be especially helpful for a new entrepreneur since they typically have volunteers that are in marketing for their own companies. You can find trade associations in Gale’s Book of Associations, which can be found at most large libraries.
Local Chambers of Commerce have monthly meetings and you should try attending at least one meeting in your town as there may be contacts that can help you. Chambers of Commerce frequently have people who like to help new businesses and some Chambers have active mentoring programs that can give you a sounding board for your project.
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Invention Pricing to Make Money
Can You Make the Product for 20 to 25% of the Expected Retail Price?
Last newsletter we mentioned the importance of having your manufacturing cost be 20 to 25% of your projected price. This newsletter covers how to determine what your projected manufacturing cost will be. In reality most inventors have no idea how to estimate what their product will cost in large production. Often they only have quotes for prototypes and small production runs which can be very high. Inventors often don’t know the impact of tooling cost either and how those costs should be incorporated into their final product cost. To get a better understanding of their manufacturing, I recommend inventors can follow these six steps .
Contact your local branch of SCORE, Service Corps of Retired Executives , which you can find at score.org/. I have found that most branches have several people with manufacturing experience, or at least know people with manufacturing experience that can help guide you while you figure out the costs of you product.
Find two to three products that are, in your eyes, very similar to your product. If you look at the price of that product, and divide it by five, you will probably be somewhat close to its manufacturing costs. That is a starting point then for the cost of your product.
Take the products next to the SCORE advisor you have hopefully been able to locate. Have him or her explain if there are any major differences between your product and the ones you have chosen that could result in a higher or lower price for your product.
If you can’t find a SCORE advisor, you should take the products, along with your idea, to two to three manufacturers and ask them if they feel the cost of your product will be similar to the ones than your product. Again ask for differences that would make the product more of less expensive than yours.
Estimated the impact of tooling cost. One component of the product costs that can throw you off is that tooling costs are amortized over time and put in the product costs. So if tooling costs for a product is $50,000 and it will make 1 million units, the manufacturer will add about 20 cents to the product. The larger the tooling costs, typically the lower the price of the product. That’s because tooling cost is related to the number of cavities in the mold. A large manufacturer might make a six cavity mold for $100,000, while you can only afford a two cavity mold for $35,000. The production piece price of a six cavity mold will be 20 to 30 percent less than the per piece price of a two cavity mold. So you need input from manufacturers and your SCORE contact about what the most cost-effective mold size will be. If it is possible to make additional parts in one mold with an expensive tool you need to raise your production cost 25%.
Similar product’s retail price $20.00
Estimated production costs $ 4.00
Adjusting for impact of a six cavity $ 1.00
versus a two cavity mold
Your expected price $ 5.00
Multiply your predicted production cost by five and then compare it to the perceived value of your product you determined in our last newsletter. If your perceived value is about the same as production costs by five, or if it is higher, you are in great shape to make money on your invention.
I know this seems like a torturous step to go through. But far too often inventors, with strong salable products, continue on the invention path, spending money at every step, only to end up with a product they can never make money on because product production costs are too high for the product’s perceived value. Early on is the time to discover this. Then you have time to correct, either by adding features or redesigning your product to cut costs.
Note: This article highlights why I feel it is important for inventors to have two helpers, one a manufacturing advisor, which you might find at SCORE, your local inventors club, www.inventorsdigest.com/resources/inventor-organizations or a Small Business Development Center www.sba.gov › Counseling & Training › Local Counseling & Training. For marketing advisors you can also use the Small Business Development Centers, but I find the best contacts are manufactures sales representatives. One Stop Invention Shop has lists of reps available for many industries at a cost of $24.95 per list at onestopinventionshop.net/books/sales–reps/.
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Read the Complete Article at: http://youtu.be/NphCMMSOhiY
Read the Complete Article at: http://youtu.be/3DZH4hRJfkw