A Business Plan for the Inventor
Inventors invent. But, what to do after inventing? A common question asked by inventors is "what is the next step?"
The next step after inventing is to determine the commercial feasibility of the invention. It is a rare inventor who is capable of objectively evaluating an invention to determine if it is commercially feasible. Inventors are optimistic and believe that everyone will want their invention. Unfortunately, this is rarely the case.
A good next step is to develop a business plan. A business plan is a document that identifies with broad brushstrokes how a business is run. The business plan focuses on the viability of a business idea by analyzing the marketplace and establishing realistic projections, including financial projections.
Inventors are typically at a crossroads when it comes to profiting from their invention. Should they license their invention to a company? Or, should they be in control of manufacturing, marketing, and distribution and sell their own products? In order to license their invention, inventors should know enough about the business to be able to manufacture, market, and distribute the product themselves. Without the level of knowlege required to know these things, it is difficult to market a patent to another company for a license. So, the first step should be to work on a business plan as if the inventor was going to have a business selling their invention themselves.
A business plan typically has the following sections:
- Description of the business
- Marketing plan
- Project management plan
- Management plan
1. Description of the business
This section includes a description of the business, that is, what you plan to do and how you plan on doing it. The invention should be described, along with the products that can be offered based on the invention. The section should also include a brief description of who the customer is and why they would buy the product.
2. Marketing plan
The marketing plan requires research. First, describe the product and how it will be packaged. Then describe competing products. These can be products that directly compete with your product or they can be products that would compete for the customer's dollars.
The marketing plan needs to identify the potential customers. Be specific. Try to paint a picture of the customer, for example, income level, education level, where they live and work, what they do for a living or for pleasure, etc. Any supporting information should be in an appendix, not in the main body of the business plan.
The marketing plan needs to identify the top competitors and their competing products. Who is your competition?
Your strengths and weaknesses need to be identified. Why would you succeed over your competition? Why would your competition beat you out?
Then you need to describe how you plan on reaching your customers. Describe how your customers will learn of your product and what you will do to get the word out.
3. Project management plan
The project plan describes the steps and tasks that need to be done during the initial, startup phase and afterwards. What tasks need to be done, what is the estimated cost of those tasks, what is the source of funds to pay those costs, and when does the task need to be done. For example, an inventor may identify the following development and startup tasks:
- Build proof-of-concept prototype
- Test prototype
- Build production prototype
- Test prototype
- Identify the customers, including who the inventor will be directly selling and all downstream customers
- Investigate the market
- Identify competition and competing products
- Seek patent and trademark advice
- Seek business advice
- File provisional patent application, if necessary
- File non-provisional patent application, if necessary
- File design patent application, if necessary
- Obtain funding
- Promote invention/product (press releases, articles)
Someone who wishes to license or sell an invention may have the additional tasks:
- Contact potential licensees
Someone who wishes to make and sell a product may have the following tasks:
- Research manufacturers
- Research distribution channel
After the tasks are identified, then the cost of each task needs to be estimated. The order or schedule of the tasks also needs to be determined. With this information, the inventor can determine how much money is needed and when it is needed. The inventor can then consider where the money will come from.
4. Management plan
The last section of the business plan is to describe how the business will be managed. It is a rare business that can be run by only one person. Perhaps a small, local operation may need only the inventor. But, for projects that have a wide scope, such as a nationwide outfit, the inventor would be wise to seek assistance.
The management plan is directly related to the size and scope of the business. By this point in the business plan development, the inventor should have a feel for the size and scope of the venture.
Will there be a partner or other person or group who will help manage the business? How about a board of directors?
The management plan should include legal and business advisors. Lawyers are needed for any intellectual property work, for setting up the business entity, and for helping with any regulatory matters and contracts. Business advisors typically include accountants for setting up and maintaining the business books and for tax planning. Thay are also invaluable for developing business strategies.
The business plan is not a long document. For most business ventures, the business plan should be less than 15 or 20 pages. Supporting information should be placed in appendices, not contained in the business plan.
Why do this?
By this point, the inventor may be asking himself why he should be making a business plan. There are several reasons. First, by making a business plan the inventor is forced to consider his invention from a business point of view. After inventing a widget, it is easy to think everyone will want one. And, then you wonder why no one is beating a path to your door. By going through the exercise of preparing a business plan, the inventor must consider the business aspects. The marketing information must be quantified and calculated.
Another reason to prepare a business plan is for funding. Many investors wish to know details of a business before they will invest in a venture. They want some assurance that the inventor knows what he is doing. The business plan shows that the inventor has considered what is required and has some basis for requesting the funds.
Preparing a business plan is a logical next step. The business plan is a living document. That is, it is not prepared and then placed on the shelf. During the initial stages, the business plan should be revisited frequently. As work on the tasks is completed, the inventor will learn more about the market and his invention. Some of the assumptions used for the business plan may change based on what is learned. Costs may change. New tasks may be identified. The schedule may slip. Stuff happens. The business plan should be revised to incorporate these changes so that the inventor has a good idea of what he needs to be doing.