Venture capital finance groups evaluate not just the invention, but marketing and financing skills; to succeed, your project will need three essential skills.
How many inventors does it take to make a start-up? The correct answer is one. Just one.
A start-up needs three essential skills: the authority on the purpose and technical aspects of the invention, (the inventor); the marketing director; and the finance director. For an effective start-up, one warm body is not enough, and four are too many.
Generally, these three skills are found in three separate persons. It may be comforting to have your best friend, who is skilled in neither marketing nor finance, join you in creating a start-up. But this would mean that he or she would have to take on the tasks and discipline of marketing or of finance, or both, without the needed experience or expertise. And if your intended partner is also an inventor, on-the-job training tends to be a disaster. The inventor mind is generally not inclined to execute tasks having well-established procedures that must be followed if time-consuming and expensive mistakes are to be avoided.
Consider how venture capital finance groups approve or reject start-up proposals. They evaluate the team first and the product second. If the start-up does not have the three essential positions—marketing, finance and engineering, filled by persons who have performed in these positions before—they won’t bother to spend time evaluating the invention or product. Some VCs will reject proposals if the team hasn’t had a significant prior venture failure. In short, they want the assurance of competence and realism about the odds of failing, as well as the odds of succeeding.
By the way, VCs don’t want the typical inventions of independent inventors, even though we are sure that we will sell millions of our latest creation. They are looking for early-stage Googles, Amazons and Teslas, the next medical scanning machine, etc.
I would love to tell you that the pioneering spirit of American entrepreneurship encourages the loner to strike out and damn the torpedoes, go full speed ahead, defeating all problems without much help from others. But this is not how start-ups succeed today, if they ever did. It’s human nature to want to hold all of the equity in your venture, but 51 percent of a successful venture is infinitely better than 100 percent of a flop.
Marketing strategy – ‘Ready, fire, aim’
Let’s think first about marketing. What is it?
- It is the inspiration and research that identifies an opportunity for a new or revised product or service.
- It is broadly defining the product that will satisfy such opportunity.
- And it is the selecting or creating of the channels through which the eventual product will get into the hands of the consumer.
On that first point: Inventors are inclined to invent whatever product of their subconscious mind. Less often it might be an annoyance, or need for which no common solution appears to exist, etc. The independent inventor’s thought process was once described to me this way by Louis Foreman, Inventors Digest’s publisher and a major player in IP circles as the founder and CEO of Enventys Partners: “Ready, fire, aim.”
In other words, invent, make a prototype, do a patent search, and then find out whether there is a market for the invention. The marketing personality is inclined to reorder that sequence into, “Aim, ready, fire.” Why invest time and money until you have assurance that your eventual product will have a market—and not a market that you will have to create, but an identifiable market that is hungry and waiting to be fulfilled through market channels that already exist!
Marketing also involves selling, or inspiring customers to buy. But selling is the more routine part of the marketing job. The three points above are why a marketing director is paid the big bucks.
Thomas Edison had a staff of technicians who developed the details of his inventions. He defined what the market would want; invented the product in a broad form; and delegated most of the research and development, which allowed him time to assure he would have a market when the product was ready. He was a marketer more than a hands-on inventor, although he loved and pushed his image as the genius inventor who had perfected every detail of his inventions.
Securing funds for your Innovation – What real financing is
And what is finance? Do not think this means getting approved for a line of credit from the bank. That’s a myth that many inventors discover only after maxing out their credit cards.
The Small Business Administration will back the loan a bank will make, but you first must convince the bank that your product is selling, the trend of sales is upward, and your profit margin is sufficient to assure you will repay the loan. The bank stands to lose a significant part of its loan if you can’t repay it. Banks are not in the business of taking a risk on the promise of a product. In fact, banks don’t like risk at all.
What?!! You mean I have to be in production, and successfully marketing my product, before I can borrow from a bank? You betcha. Even then, it’s not going to be a cakewalk. Early finance is very difficult to get because the history of its repayment is largely that of default on loans and investments.
This is why we have “angel” financing. But angels are generally experienced start-up entrepreneurs, and very cautious ones. They think more like venture capital fellows than optimistic product developers. You have to convince the angel that your product has a market, and that you have the three essential skills covered. That isn’t easy. On the bright side, angels accept failure as the price for finding the goose that lays golden eggs. One solid success can pay for two or three failures, and still return an enviable profit.
Finding the Right Partner
How does an inventor find the skilled partners he or she needs? One way is to reach entrepreneurial students in universities. If the school has a newspaper in which you can advertise, that may smoke out an aspiring Bill Gates prototype. You’re taking a big chance on partnering with people who haven’t proved their skills in the real world.
But then, you are in the same untested position. And some of the most successful ventures were pulled off by impatient students who struck out before graduating from college. Eagerness sometimes compensates for experience. This is a desperation approach, only recommended if there is no chance for a more mature arrangement.
Social media could also result in suitable partners; LinkedIn is the most promising. However, your profile as an inventor will often be a turn-off to serious marketing and finance people. Inventors are often thought of as impractical dreamers. Present yourself as a new-product developer, not as an inventor.
The problem with that tagline is that you probably don’t have any history of successful new products. Don’t lie or exaggerate. Your posture could be as a specialist in developing products that fill a gap, but your need is for a creative marketing type to define the gap. Remember, market gap discovery is a marketing responsibility; inventing the detailed solution is yours. Aim, ready, fire.
Of course, you probably want to push the inventions you have worked on, or at least recorded unrefined in your journal. Once you have established connections and gotten to know your partners, then propose your inventions for discussion. You might have a winner.
A caution: Rivalry, jealousy and impatience can ruin partner relationships, and are more the cause of break-ups and failure than disagreements about technical matters. Be clear on who will do what, and put it down in writing. Be slow to criticize and slower to anger. A partnership is often like a marriage from hell without a hug or a kiss goodnight. I’ve been involved in both types.
Modern Homo sapiens (wise and knowing man) has been around for 100,000 years. Homo habilis, Homo erectus and Homo neanderthalis all suffered extinction. Homo sapiens, the only surviving species of humankind, succeeded because of specialized skills and tribal cooperation. It’s in our DNA.