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November 01, 2010

Hard Times for Inventors

According to the Wall Street Journal, inventors are having a difficult time getting their inventions to market ["Slim Odds for Inventors," by Sarah E. Needleman, 6 October 2010]. Needleman begins her article with the story of an inventor named Stu Berger:

"Stu Berger has created more than 50 consumer products from inventors' ideas—including some of his own—in hopes of turning them into commercial hits. He expects his first big break later this month when one of those products, a posture-correcting pillow called the Side Sleeper Pro, goes on sale at some Bed Bath & Beyond Inc. stores as well as the retailer's website. ... The path to prosperity can be long and arduous for inventors. Even if they manage to secure a patent, which can take years, they usually need to find a business willing to manufacture, package and market the item."

If you've ever watched any of the reality television shows involving inventors (like Discovery Channel's PitchMen, BBC's Dragon's Den, or ABC's American Inventor), you understand how difficult it is to get a product from the drawing board to a retailer's shelves. Often the problem is with the idea itself. On the reality shows just mentioned, there has been a parade of inventors presenting ideas with no chance of their ever being successfully marketed. That doesn't mean that companies aren't looking for new product ideas from outside sources. Needleman reports that a number of large manufacturers have established web sites soliciting ideas. She continues:

"In an effort to better connect with inventors, some large manufacturers including Clorox Co., Kraft Foods Inc., General Mills Inc., Staples Inc., Procter & Gamble Co. and GlaxoSmithKline PLC, have launched websites in recent years for soliciting product ideas. Some of the sites occasionally feature specific requests from the companies' research-and-development teams. Before they launched, 'inventors would typically have to find someone to pitch their idea to and it would maybe make it to someone else and then someone else,' says Greg Piche, who works in Clorox's innovation group. 'It wasn't a very streamlined process.' Clorox in May also launched a two-month campaign to solicit proposals for new antibacterial cleaning products; the yet-to-be-determined winner will receive a $2,500 advance and other compensation based on sales. Similarly, General Electric Co. and several venture-capital partners in July solicited proposals for a next-generation power grid. GE says the program—the first of its kind for the company—attracted nearly 3,000 submissions. Five winners will each receive $100,000 to develop their ideas, though there's no guarantee GE will invest further in the products."

Most inventors, I daresay, dream of the day when they can sell their invention to a few million people and retire comfortably on the profits of their brainchild or invest the proceeds in a new endeavor. Needleman, however, disabuses people of the notion that inventing things is the path to Easy Street. She explains:

"Even if an inventor's idea gets noticed, the odds of reaping big bucks are slim. Companies typically offer compensation in the form of royalty fees, small percentages of wholesale earnings. Some companies also provide one-time upfront payments, depending on the stage of development an invention is at, what type it is and whether it has legal protection. Competition is fierce. AllStar Products Group LLC, a private Hawthorne, N.Y., company perhaps best known for its marketing of the sleeved-blanket Snuggie, receives more than 10,000 submissions a year from inventors, says Scott Boilen, founder and chief executive. The company enters into licensing deals for between 75 and 100 inventions a year, with Mr. Berger's Side Sleeper Pro being a recent example, he says."

Those are pretty long odds. Suppose, however, you beat the odds? Some people do find their pot of gold at the end of the rainbow. The pot just isn't as big as most people hope it will be. Needleman explains:

"Once a deal is signed, AllStar usually promotes the invention through infomercials and then attempts to sell the most popular items to Wal-Mart, Target, Walgreens and other retailers. AllStar promises to pay royalty fees ranging from 1% to 4% of wholesale earnings for inventions it helps land on store shelves. Some deals include upfront payments of $5,000 to $50,000, with higher earnings going to inventors of patented goods, Mr. Boilen says. Top-selling items can result in 'millions of dollars over the lifetime of a product,' he adds."

Needleman identifies a couple of the products that have made it big, like Bill Felknor's "Topsy Turvy, a device for growing tomatoes, cucumbers and other vine crops upside-down." Felknor reports that "more than 11 million units have been sold." Yet even Felknor admits that being an inventor "is a difficult way to make your living." He declined to say how much he has made from Topsy Turvy. One of the reasons that so few products make it to store shelves, according to Needleman, is that shelf space is limited. As Michael C. Miller, director of product partnerships at Danco Inc., says . "To put something on a shelf, another product would have to come off." To help inventors beat the odds, some "businesses specialize in helping inventors identify companies to pitch, enter submissions and negotiate contracts." Needleman discusses one such business:

"InventHelp of Pittsburgh charges inventors between $200 and $15,000, depending on the number of services an inventor selects. InventHelp strikes about 50 licensing deals a year on behalf of inventors; in general, large companies offer the biggest payouts, says Robert Susa, president. Deals include royalty payments averaging between 2% and 5% of wholesale earnings, plus sometimes initial payments of $10,000 or more, he says. 'You got to sell a whole lot of units to make a significant amount of money,' says Mr. Susa. 'You don't want to quit your day job.'"

In New York City, inventors are banding together for support ["Group Is Mother of Inventions," by Jo Piazza, Wall Street Journal, 11 October 2010]. Piazza explains why:

"The life of an aspiring inventor can be a lonely one, but in this city, where every subculture seems to have its own support group, creators have a refuge. The Inventors Association of Manhattan caters to the particular needs of struggling inventors, a group known to be secretive, paranoid and obsessive. The association was founded by Patrick Raymond in 2007 as a way to heal his wounds after his million-dollar idea—a shower-curtain extender that initially enjoyed strong sales and appeared on QVC—failed to make it big. Faced with sudden bankruptcy, the inventor slipped into depression."

One would have expected that any invention that beat the odds and appeared on television shopping network would to do well. Raymond's story adds to the cautionary tale for inventors. Because his product made it all the way to a spot on QVC, Raymond was celebrated as a success by his peers. From the numbers, however, Raymond knew otherwise. He called it his, "deep, dark secret." Piazza continues:

"Ashamed, he kept the story to himself for several months before deciding to come clean. When he did, the Inventors Association was born. The group meets monthly at a Midtown hotel, and it welcomes both aspiring and down-on-their-luck inventors. Failure, along with the need to temper expectations, dominates most conversations."

Piazza reports that the meetings attract inventors from a number of fields. "Among them: James Corr, a Lehman Brothers casualty turned stay-at-home dad who has invented a mountable wall ledge to hang marathon medals; massage therapist Natalia Rodriguez, creator of a multiform pillow; ... [and] military veteran turned film extra Bruce Taylor, the man behind the Mighty Mouth Suck It Up, a dust-free sander." Piazza continues:

"A total of 485,500 patent applications were filed with the U.S. Patent and Trademark Office in 2009. The office doesn't keep records of how many of those patents attain commercial success, but accepted wisdom holds that fewer than 5% of inventions achieve return on investment. Those long odds are part of what makes inventing so addicting."

Based on personal experience with his shower curtain extender, Raymond knows that "dream peddlers" are more than willing to take inventors on a long and costly ride to nowhere. To help bring a dose of reality to would-be inventors, Raymond has created a web site (MyInventionScore.com) that helps them evaluate the viability of their invention. When "he ran his shower-curtain extender invention, the Shower Bow, through it ... the score told him it was always doomed to fail." All of this sounds very discouraging. The fact of the matter is, however, that people are going to continue to have ideas and some of those ideas are going to become blockbuster hits. It would be tragic if people stopped inventing just because the odds are against them achieving significant financial success. It's just as tragic, however, to see inventors so caught up in their dreams that they suspend reality. When they fail, they seldom fail alone. Family and friends are often caught up in the dream and suffer the consequences when the dream turns to a nightmare. That is why sites like one created by Patrick Raymond and advice provided by trusted advisors or hard-nosed business people are so valuable.

Incubator organizations can also be a valuable source of sound advice and support ["Betting on Incubators to Create Jobs," by Lauren Hatch, Bloomberg BusinessWeek, 12 August 2010]. Hatch reports:

"Business incubators, the bulk of which are independently operated nonprofits that provide startups with cheap office space and professional advice, took off in the 1980s only to stall after the dot-com bubble burst. They're now back to a record high, according to the National Business Incubation Assn. (NBIA), with some 41,000 startups using 1,200 incubators across the country. Participants' survival rate after five years is 87 percent, compared with 44 percent for companies that didn't use incubators, according to the group."

For more on the topic of incubation organizations, read my post entitled Innovation and Incubation. Hatch notes that not all analysts are supportive of the work done by incubation organizations. She explains:

"Some doubt incubators' effectiveness. Alejandro Amezcua, a PhD candidate in the Public Administration Dept. at Syracuse University, is completing a study to see how successful business incubators are at creating lasting businesses and jobs. Amezcua examined 19,000 incubated companies and found that they failed at almost the same rate as companies that hadn't used incubators. 'Based on the preliminary findings,' Amezcua says, 'the claim that business incubators are successful at generating employment growth is overstated.'"

Hatch and others speculate that Amezcua's findings could reflect the fact that in the past many incubation organizations have taken on all comers. Becoming more selective and focusing on specific economic sectors, they believe that success rates could increase. She concludes:

"Many new incubators are specializing to increase their potential. Historically, most programs accepted as a tenant any startup with the potential for growth and profitability. About 80 percent of the incubators created in the past few years are focused on one or two industries, says Carol Lauffer, a partner at Business Cluster Development, a Portola Valley (Calif.) consulting firm that plans and develops sector-focused incubators for local governments, universities, and large businesses. By limiting their focus, proponents say, facilities can invest in specialized equipment and tenants are more likely to share ideas. Some single-sector incubators such as the Intervale Farms Program in Burlington, Vt., are designed to bolster fading industries. Intervale helps farmhands start their own farms by providing access to equipment, land, and infrastructure. ... 'The advantage with these types of incubators is that they are building upon their strengths and resources,' said U.S. Commerce Secretary Gary Locke in an interview, referring to the companies and owners that collaborate while at single-sector incubators. 'We really think they'll have tremendous payoffs for job creation and business across the country.'"

Universities also continue to provide incubation services for their faculty and students. One such incubator organization is called the Foundry and is associated with the University of Utah ["A Utah Incubator Hatches Student Startups," by Sommer Saadi and John Tozzi, Bloomberg BusinessWeek, 23 September 2010]. Saadi and Tozzi report:

"The college hopes the Foundry's blend of management training and peer mentoring will help hundreds of students turn their ideas into viable companies. The Foundry, launched in May, has already seen 29 teams create 18 registered businesses that together have generated $220,000 in revenue. ... Foundry businesses have already created 22 full-time, paying jobs, including those of 10 company founders."

One of the reasons that universities and colleges are interested in providing incubation services is that graduating students are finding it more difficult than in the past to land jobs. Saadi and Tozzi continue:

"[University of Utah's David Eccles School of Business] Dean Taylor Randall says students' interest in starting businesses has spiked because grads have a harder time finding work with the national unemployment rate at 9.6 percent. 'If companies aren't going to hire students, we'll help [students] create the jobs,' Randall says. ... In May [Professor Rob Wuebker] and Randall decided to turn a downtown space the university used for lectures and offices into a free small business boot camp to support the startups coming out of the class. 'We focus almost all of our energy on resolving the one thing that makes most startups…fail: They can't manage their way out of a paper bag,' Wuebker says. ... Beginning this fall, the university turned the incubator into a year-round program open to students and grads from any university. As the Foundry develops, Randall expects to offer more sophisticated resources such as workshops to build prototypes or kitchens for aspiring restaurateurs. The hands-on approach will remain the same, though. 'We've tried to provide experiences that bridge theory and the real world,' Randall says. 'It's a good testing ground for entrepreneurs, and we're here to help them pass.'"

Inventors don't necessarily want to become entrepreneurs and all entrepreneurs aren't necessarily inventors. They do share a common ambition of getting their ideas from the drawing board to the marketplace. The more realistic their plans and the more help they are given, the better the chances of their success.

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