| Even if you can't Patent your knowledge, you can still | | | | the engineering costs you still have 60% of your |
| earn great Residual Income for the rest of your | | | | company in your own name. |
| Lifetime! | | | | A business that will be worth $50 million a year in |
| Sit back and think about what you would do if you | | | | sales in year 4 or 5 of operation will, if there is high |
| found a fantastic idea and realized that you could | | | | profit in the products, then be worth maybe $200 |
| create a truly unique and innovative product that | | | | Million. This is the dream you had at the start, |
| would make a difference to peoples lives and have a | | | | hundreds of millions. As a start up company though, |
| place in the market. | | | | with everything ready to roll but no devices ready to |
| If you could develop that and get it to market, that | | | | ship, that company will probably be valued by the |
| is, have it actually being manufactured and sold then | | | | venture capital groups at between $3 and $8 million. |
| you could get profits from it coming in year after | | | | You still have a way to go though and you will need |
| year. Life would be so easy. | | | | to be doing further patent lodging to keep the |
| How do you do this though? | | | | patent process in play. About this time you will |
| 99% of patents never lead to products in the | | | | probably need a couple of hundred thousand to |
| marketplace. Fairly daunting odds. | | | | make it all happen. It is amazing that, after years of |
| But, if you have the right idea...... | | | | doing everything on the smell of an oily rag and not |
| Imagine it is a medical product, which is something I | | | | paying any money out that you can avoid, suddenly |
| know a bit about. | | | | you are working in an area where a couple of |
| You and you mate have an idea. | | | | hundred grand is just there to "prime to pump", it is |
| You had better be a little careful with your idea | | | | not serious money. |
| because if it is not protected then anyone you talk | | | | It will still cost you another 10% of your company |
| to can go and make the thing themselves and you | | | | though. |
| cannot stop them. Worse, if someone sits down with | | | | At least at this stage it is "Dilution". That means the |
| an offer to help you and you explain everything to | | | | 60% you still own as the inventor and "owner" |
| them and then they go and patent the idea for | | | | doesn't drop to 50%. New shares are issued instead |
| themselves, then they own the idea and you have | | | | which means that everyone takes an equal hit and |
| lost it. | | | | you are down to a little under 55%. |
| Nasty world out there, isn't it? | | | | So you get everything right. (Was that another |
| Knowing this then you had better get the idea | | | | Christmas passing by as this all happened?). You are |
| patented. You will need to able to show what the | | | | ready to go to market. |
| idea is and how it works so you had better create a | | | | Next you find no-one will fund you unless you have |
| prototype. As long as you have non-disclosure | | | | strong and experienced management team so, if you |
| documents signed with everyone who has anything | | | | do not have them associated already, you need to |
| to do with the project before your IP (That's your | | | | spend a few months recruiting the right team of |
| Intellectual Property, ie your idea), is fairly safe. | | | | people for your board and for your senior |
| What will it cost to make a medical device that is | | | | management. The last person that the capital market |
| fairly simple in its complexity even if the use of the | | | | would normally accept as the CEO is the inventor of |
| technology and the device itself is unique? | | | | the product. They demand the CEO someone with |
| If you do most things yourself then a working | | | | existing experience in the international market. |
| prototype will normally be able to be put together | | | | You sit with your advisors and put together the |
| for $50,000 to $100,000. This is a really generalized | | | | business plan and you find that to get through the |
| number but based on my own experiences but it is | | | | manufacture and the first year of two of getting |
| probably not too far from the ball park. | | | | things going you will need a fairly sizable chunk on |
| This is to make a machine. It is not to design it. To | | | | cash. Let's say that is $3 million. They see that you |
| design it and get it right then you will need to do a | | | | have a great product, a great market, you have |
| lot of research. In a practical sense you need the | | | | good design, good manufacture plans, a good |
| owners to be directly involved with coordinating and | | | | management team and you ready to go so your |
| driving that work and will need other skilled | | | | company is valued at $6 million. I guess that on paper |
| professionals involved unless you have all the | | | | you are a millionaire but it doesn't feel like it! |
| network of skills in place and have done it before | | | | You raise the money by issuing new shares and that |
| yourself. | | | | means further dilution. Your 55% is likely to drop to |
| The engineering - scientific activity will take a lot of | | | | 27% ownership of your company. The management |
| hours. I mean a lot. Take the longest time you can | | | | team will now be on salary and need to be paid and |
| imagine, then double that time, and then add another | | | | they need even more inducements to keep them |
| Christmas celebration onto the end of that timeframe | | | | there. Allow another 15% dilution into the employee |
| and, despite what you believe when you start, that | | | | benefit schemes. You are down to 20 or 25%. |
| will probably be what it takes to get something up to | | | | If you set any goals and fail to meet them then you |
| a level where you can patent it and you can think | | | | can expect to be beaten and pummeled and if you |
| about creating a working prototype. | | | | come out of that with 10% of your company then |
| How do you pay for that time? If you are using cash | | | | you will be lucky. |
| then it will take a LOT of money, normally more | | | | If you do meet the targets then you will be able to |
| money than is justified to be spent on an initial idea. | | | | list the company on the exchange. Take another |
| So, you find someone with the skills who believes in | | | | dilution for that. |
| you and you pay for their involvement and time by | | | | Maybe you come out of this with 15% or 20% of |
| giving them equity in your business. | | | | your company. You can be assured that once the |
| Your 100% of the idea and of your business will | | | | professional management team takes control of the |
| probably drop to 80% or so with around 20% going | | | | company they will have their own people, |
| to the engineering. (Of course you need good | | | | experienced in the global markets to run the |
| negotiation skills to avoid the engineering - | | | | company. They will create a nice little "founding |
| development people getting the 50%-50% split they | | | | director" position for you on the board and tell you |
| will ask for.) | | | | get out their road while they run the company. If |
| Next you need to write up a business plan for the | | | | you have spent your time and money into your |
| machine and to write up a patent document. | | | | company you then have to find a way to support |
| Patents have a "Provisional Patent" lodged first that | | | | yourself while the team gets the product into the |
| says that you have the idea; this is what it does, this | | | | market and the money starts to come in. That may |
| is how it works and this is why it is unique and | | | | be a couple of years. |
| innovative. You can do that "on the cheap" as it is | | | | When you read through this is sounds like there is a |
| designed mainly to give a "Priority Date" which is the | | | | ring of personal knowledge in it. |
| date that you lodged the idea. Anyone lodging the | | | | I was not the founding director-inventor here. I came |
| same idea with a later Priority Date cannot have it | | | | in early in the marketing role for a technology and |
| because you were first, unless they can show theirs | | | | handled many, many contacts and much of the |
| is different and unique in some way. | | | | documentation and stood shoulder to shoulder with |
| You can get a Provisional lodged for maybe $2,000 | | | | the inventor over many years. |
| but to have it written properly expect to spend | | | | During that time I was working with a direct sale |
| $10,000. | | | | company in health supplements. That paid me enough |
| That is not a lot of money as to get the idea to | | | | money, and gave me enough flexibility of time, to be |
| market you will need a full patent in all of the | | | | able to put serious effort into this technology as a |
| markets you wish to trade in and you have to allow | | | | working hobby. |
| at least $250,000 for that. If you want a full global | | | | Now things are going to market with the technology |
| patent it will be a lot more and a really effective | | | | I can see that the corporate jobs involve going into |
| technology will be surrounded by a range of patents | | | | an office at 8.30 am, working till 5.00 or 6.00 pm, |
| to protect it. A lot of devices entering the market will | | | | setting aside family time (my youngest 2 children are |
| have a Million Dollars spent on just protecting the IP. | | | | in the middle of secondary school), being away from |
| If you had a medical device then go and look at the | | | | home and missing out on the time with the kids |
| big drug company websites, Glaxo Smith Klein, | | | | when they need it most. It looked good from |
| Johnson and Johnson and others. They tell you that | | | | outside, big money, high recognition. From the inside I |
| you must submit any products or ideas to them by | | | | see that it would be close to my idea of hell on |
| internet so they can review them and they will then | | | | earth. |
| contact you if they have any interest and discuss it. | | | | At the same time my mate, who was making $6,000 |
| They also tell you that it is your responsibility to get | | | | to $8,000 a month when he got me into the nutrition |
| the patent protection organized because they | | | | business has just kept going and he is now making |
| reserve the right to use any ideas they hear about | | | | about $80,000 a month. That's a million dollars a year |
| that are not properly patent protected. Have you | | | | and is more than any of the corporate positions I |
| heard the term "swimming with sharks"? | | | | just talked about will pay. Instead of earning the |
| How does that all sound? | | | | money in a way that totally consumes his time and |
| In reality you are likely to have spent a couple of | | | | energy my friend is the only dad that turns up to |
| hundred thousand dollars at this stage and that | | | | every sport day at school, every presentation at |
| should give you a technology that you have | | | | assembly, every weekend event. He looks around |
| developed that now has some "proof of concept" | | | | nodding at all the mothers he meets so often and |
| and is protected by the first round of basic patents. | | | | marvels that very often he is the only dad there. |
| Now what you going to do with it? | | | | Putting these things together and thinking about the |
| Do you have the marketing skills to take it to the | | | | differences is interesting. One takes absolute energy, |
| market? | | | | commitment and skill to get a technology "over the |
| If you are going to employ someone to market then | | | | line" and then you often lose control over it. It takes |
| who do you use? The big accounting companies do | | | | work and dedication to get a direct sales, MLM, |
| that sort of thing, Price Waterhouse Cooper, Ernst | | | | business up and solid but there is little downside risk |
| & Young, De Loites etc. They will charge you | | | | and when it is running you are in a situation where no |
| sums of money that will take your breath away just | | | | one can tell you how to use your time is very |
| to write up an IM (Information Memorandum) so you | | | | interesting. |
| have the documentation in hand that you need to | | | | Both paths have their rewards and risks. Both need |
| talk with people about your product. Begin by thinking | | | | work and dedication. Both lead to solid residual |
| that this first step will cost $20,000 and expect the | | | | income. One though, has such high risk and if you get |
| number to grow as you move forward. | | | | anything wrong you lose everything. The other costs |
| If you have people willing to buy the product you | | | | next to nothing to start and if you stuff something |
| then need to be able to manufacture it. If it is plastic | | | | up you can just find some more customers, recruit |
| and electronics then you will probably have production | | | | some more distributors, and do it right, drawing upon |
| done out of China. For a production line to be | | | | the experience you have built up. |
| established that can mold the plastics for you and run | | | | I have no regret for the time put into the |
| off the products for you then a basic set up will cost | | | | technology, it will make me a lot of money. I will not |
| you $250,000 in tooling costs to get the first machine | | | | sell my soul into the corporate side of it though. It is |
| off the line. | | | | a lot more fun and you have to deal with a lot less |
| Remember also that the working prototype is not | | | | politics in the direct sales business. It gives cash for |
| the pre-production prototype. To get from one to | | | | the work in direct proportion to the outcomes |
| the other then you will need to show the product in | | | | achieved and no one can do the wrong thing and |
| the market and prove that there is buyer interest, a | | | | take my money from me. If I achieve I am |
| market for the product. You will then need to do | | | | rewarded and recognized without having to "watch |
| focus groups with potential end users to prove that | | | | my back" the whole time. |
| your product is actually designed property for the | | | | Is direct sales easy to get to the top and earn |
| people who will be using it and to see what changes, | | | | international corporate level incomes? |
| if any, it needs to get it right. | | | | No. If it was everyone would do it. |
| Around this time you will need some more money. | | | | I can tell you from experience though, it is a whole |
| People are starting to work with you and they want | | | | cheaper to work with, and a lot easier way to make |
| to be paid. | | | | that kind of money than in any of the traditional |
| Assume that you have brought in some marketing | | | | forms of business. It is a whole lot safer way of |
| and engineering people to work beside you and with | | | | spending your time and investing your efforts. |