How do you commercialise an idea?

Many people have great ideas and many have asked themselves how to turn their idea into a product, service or business.  For many policy makers commercialising new ideas, especially within the third-and fourth-level academic institutions, is the holy grail of entrepreneurship.  However, whether it is a new idea for a widget to fix a common problem conceived by someone who left school early or is a genius geneticist in a top university with a new idea to cure cancer, if they are going to be turned into a product or service that someone can buy, they must follow through the same processes.  Over the next few posts I want to explain and explore the processes that someone with an idea should go through to convert their idea into reality.

At this point I should make a very important point.  Just because you can develop a new product, service, widget, programme etc., does not mean that there is a market for this product, service etc.  A market exists when someone has a need where someone else has a product or service that can meet that need and both parties agree to an exchange for an agreed sum of money.  Thus, for your product or service to be commercialised there must be enough customers willing to pay your asking price and that your asking price multiplied by the number of transactions by customers covers your costs and makes a surplus or profit for you.  This is the difference between being able to make something and being able to commercialise something.  Many people have spent a lot of their own time, money and energy developing new products, service and businesses only to find out later that nobody wanted to buy their offering.  Therefore, before you spend a lot of money and effort on converting your great idea into reality, make sure there is a potential market with adequate paying customers first.

There are effectively 7 basic steps to commercialising an idea which are as follows:

1. Develop the idea to a prototype or worked out process
2. Assess the idea thoroughly, both technically and commercially, before you progress with the commercialisation process
3. Protect the idea and its intellectual property
4. Set up a strong team of people around you
5. Commercialise the idea/bring it to market
6. Get funding to develop the commercialised idea
7. use the ‘System’ at all stages to help you

One thing to remember is that even though this may all seem a lot of effort (and it is) you will go through this process one step at a time and the whole process may take years to get through.  You should focus on managing one step at a time but always keeping an eye on planning for the next stages.  Remember, if it was easy everybody would do it but the rewards, both personal and financial, can be great if your idea can find a suitable and sizable market.

How do you commercialise an idea? (Part 2)

Develop the idea

Contrary to the belief of inventors, people cannot read their minds.  Before you can talk to anybody about commercialising your idea you do need to bring it to a level where you can present an understandable message.  So before you talk to others please develop the idea somewhat first.  It could be a prototype or beta copy or rough make-up but even simply putting down the idea on paper, with a coherent structure, will allow others ‘get it’ quickly.  There are a number of basic questions that people will have regarding a new idea which can be summarised as:

What is it?  What does it actually do in 30 words?

What does it do for a customer?  This is an important difference from ‘what does it do?’  Customers will buy a ‘benefit’, so develop a concise answer to explain what a customer gets from this new concept.

How much will it cost to make/provide?  You should have some rough calculations on what it would cost to make or deliver at cost.

What is involved in making/delivering it?  Can you do it yourself, does it require mass production, can it be web based?  How many other people need to be in the chain of distribution from manufacture to customer?

How much will customers be willing to pay?  If you do not have a clue of this, then ask people who have a good handle on the market.

Is this viable?  This is your assessment from the initial answers to the questions above.

These are basic questions you will be asked at concept stage.  Now, many innovators are afraid to ask for help as they are afraid that the idea will be ‘ripped off’.  You can of course protect yourself in a number of ways such as:

• Ask people to sign a non-disclosure agreement (NDA).  This is a legal document which outlines a number of clauses which means that the other person agrees not to disclose any knowledge of the idea to any other party, or use it themselves, without prior agreement.  Boilerplate NDA can be downloaded from the net and tweaked or you can get a solicitor to write up a template NDA for your specific purposes for minimal cost
• Ensure that business advisors and consultants have professional indemnity insurance (PII) and are members of reputable institutes.  The importance of the reputable institutes, having certified management consultant (CMC) qualifications or similar, is that they have signed up to the Code of Conduct and ethical guidelines of those institutes.
• Get personal referrals; people do not refer on people they do not trust
• Check people out before you talk to them

The final point to remember here is that few people have the time and interest to develop ‘your’ idea.  Following this road to commercialisation tends to be a labour of love and the uncommitted tend to have other ways to allocate their time.

That being said you should protect yourself and your idea.  The NDA is a commonly used commercial tool that professionals will not be offended to be asked to sign and would use themselves in your place; so use them.

How do you commercialise an idea? (Part 3)

Assess the idea

This is where you definitely need external assistance.  Assessing a new idea requires a technical and business assessment; is it feasible and viable.  There are ways for you to get support in these tasks.

Technical assessments usually involve a third-level institution.  Depending on the country, there may be vouchers, feasibility grants, technology transfer programmes to assist with this.  Again, this is done within the protection of a public body and there would be a formal contract entered into and a safe disclosure process.  Academics or technicians would work with you to develop the technical features of the idea and develop a prototype and test it.  If the technical side can be verified then you need to do a market analysis.

Market assessment is usually done through a business plan.  In most countries, pre-enterprise or ‘start your own business’ courses are offered by a range of enterprise support organisations; business incubators, innovation centres, local, regional or national enterprise support agencies, regional development bodies etc.  If they are not free then they are usually heavily subsidised.  In this case, you can do the course and develop a business plan to assess the idea.  You may also contract a consultant to do the work but this is more expensive unless there is a formal subsidised ‘mentor’ programme available locally.

Having done a technical assessment to verify that the idea is feasible and a business assessment to determine if a market exists and it is a viable market, you can then make an informed decision as to whether you bring the idea to the next stage, commercialisation.  If you are going to go ahead and bring the now new product or service to the market, the next thing to do is protect your intellectual property.

How do you commercialise an idea? (Part 4)

Protecting intellectual property (IP)

Intellectual property (IP) has been defined as ‘the product of someone’s mental efforts. Its value lies in its appeal to others who might wish to use it or the goods it describes’ (Irish Patents Office, http://www.patentsoffice.ie/en/about_intellectual.aspx).

IP then relates to protecting someone’s idea from being commercialised by others.  IP can be protected through 4 main methods:

• Patents
• Trade Marks
• Designs
• Copyrights

A word of warning at this point; applying for IP protection is a legal, technical, bureaucratic and potentially expensive process.  This information is given to outline the possible options but cannot cover this subject in depth.  Take time to get informed about this process yourself and take appropriate legal and technical advice before making any decision relating to this subject.  This is not a subject for amateurs.

Patents

A patent is a legal protection that prevents anyone else using the specific innovation protected without the consent of the patent holder.  It is valid only in countries where patent granted so you will probably need to get protection in several countries.  Patents are time specific with a full-term patent valid for 20 years and a short-term patent is valid for 10 years.  Whether you need a short- or long-term patent may depend on the life cycle of the invention; remembering that software, gadgets, computers etc may only have a 5 year life cycle before becoming obsolete and the expense of a 20 years patent may be questionable.  Technically, there is no worldwide patent but there are agreements between several national patent offices which allow for multi-national protection (usually a European or international patent).  To get a patent the invention must meet the following criteria:

• Novelty (it must be new and not done before)
• Inventive Step (it must bring an existing product or patentable item to a new stage of development
• Industrial Applicability (it must have a commercial application).

To apply for a patent you must apply through your national Patents Office.  There are fees involved and you should check these out through your local patent office.  If you need assistance with attaining a patent your can employ the assistance of a Patent Agent, who is a specialist consultant/lawyer who works exclusively in this field.  Patent agents charge fees but it may speed up what can be a technical process to hire in an expert.

Trade marks

A trade mark can be defined as ‘any sign capable of being represented graphically which is capable of distinguishing the goods or services of one undertaking from those of other undertakings’ (Trade Marks Act, 1996).

A trade mark (TM) protects your ‘brand’ or ‘name’ from being used by anyone else.  You would normally apply through your national Patent’s Office.  There are also Trade Mark Agents who can help you to apply for the TM but these charge additional fees to the Patent Office.  Applying for a TM requires a considerable amount of research and database searching to ensure that your trade mark does not breach an already granted TM.  There are initial application fees, registration fees and renewal fees applicable to trade marks.

Designs

A design ‘means the appearance of the whole or a part of a product resulting from the features of, in particular, the lines, contours, colour, shape, texture or materials of the product itself or its ornamentation’ (Irish Patents Office, http://www.patentsoffice.ie/en/design_whatis.aspx).

Applying for a design protection is similar in process to applying for a trade mark.  You apply through your national Patent’s Office and there are fees applicable.  Attaining a design protection also requires a lot of research and database searches and it may require hiring a professional to assist in this.

Copyright

‘Copyright is the legal term, which describes the rights given to authors/creators of certain categories of work. Copyright protection extends to the following works:

• original literary, dramatic, musical or artistic works,
• sound recordings, films,
• broadcasts, cable programmes,
• the typographical arrangement of published editions,
• computer programmes,
• original databases.

The owner of copyright is the author, meaning the person who creates the work.’

(Irish Patents Office, http://www.patentsoffice.ie/en/copyright_whatis.aspx).

Unlike the other forms of IP protection there is no formal registration process for a copyright, there is only legal protection from breach of copyright which requires the owner of the copyright suing the party that breached the right.  To apply copyright on a piece of work you should write the following formula; © Copyright [your name], [date].

Copyrights have legally defined durations between 50 and 70 years depending on the category.  There are a series of legislative bills and orders relating to copyrights in several countries so to gain full protection you should take specialist legal advice

So to summarise, attaining IP protection is a technical area – not for amateurs.  You should always conduct a cost-benefit analysis before going ahead as the financial benefit from protecting the Ip must outweigh the time and cost involved.  I cannot emphasise the importance of taking appropriate technical and legal advice and make sure you know what you are doing before you take action.  IP covers a wide range of concepts and ideas and IP Protection = Commercial protection.  The development of new ideas and innovation is very important for the advancement of society but it is a process for which caution is always recommended.

How do you commercialise an idea? (Part 5)

Commercialising the idea

If the idea is commercially and technically viable and you have protected the IP, the next step is to commercialise the new product or service.  Gaining IP protection takes time, money and resources and should only be done if you intend to commercialise the protected knowledge.  There are a number of ways to commercialise IP, such as

• Starting up your own venture to exploit IP
• Licence the protected IP to larger players and get a fee per year/sale
• Establish a joint ventures between yourself and other business maybe to exploit IP in other countries or regions that you cannot access
• Sell the protected IP for a profit

Starting your own business: this is the DIY option.  There are a few things you need to consider before going down this route:

• Build a team: Nobody can build a fast-growing business on their own; no one person has all the skills.  The lessons from successful tech companies of all varieties are that people need to build a strong management team first and then utilise their skills and experience to commercialise the product.  Usually, this team requires a Chief Executive Officer (strategic boss who oversees the development of the business and strategic deals etc), Chief Financial Officer (the accountant and guardian of the finances: very important if you want angel or VC funding), Chief Operations Officer (the person who runs the floor on a day-to-day basis, usually a tech person), there is also going to be a senior sales and marketing person if not covered by the other positions.  A key point; you can be any of the above positions or once the company is up and running you can be the Chairperson of the Board or President.  Not all inventors are cut out to be the CEO, many might be COO or just hire in the staff and steer the company from the Board
• Build a market and customer base: Sustainable businesses are built on developing long-term business relationships.  Repeat business is the key to building a strong company.  Reputation is the most important asset you can have
• Get a good Administrator: You need to have someone who keeps control of the books, invoices, credit control and cash flow issues.  Good administration means good cash flow
• Get investors who are committed for the long run:  Get investors who will partner you in your business and gain maximum returns through building a strong enterprise, not a quick hit
• Plan, plan plan…: Planning is a process not a document.  Constantly update your plans, measure and assess the current plans, tweak for improvements
• Keep an eye out for possible innovations and alternative uses/markets:  Look for the outliers, look for different ways to utilise and apply the current products and services, maintain your curiosity and innovation

There are of course other options:

• License the invention to a larger company and take a fee on ever unit sold.  Larger companies will have much stronger market power and ability to bring new products to market.  You will need professional advice when negotiating with potential companies to ensure you protect your IP and maximise value
• You could sell the rights to the patent, license etc.  Valuing IP is as much art than science and again a subject for which you will need to take professional advice.

How do you commercialise an idea? (Part 6)

Getting funding

As noted in earlier posts on this blog, the 2 main sources of investment are business angels and venture capital (VC).  Angel investors are the single largest source of funds available to start up enterprises (Sudek, 2007; Szerb, Rappai, Makra, Terjesen, 2007).  Further many ‘venture capital-funded companies were at least three years old when they received their first round of funding’ (Schramm, 2004, 112).  Thus, first get ‘seed’ or ‘angel’ funding and then build on to VC funding.  Now it should be remembered that many ‘service’ type businesses can be built up through personal funds, natural growth and financial instruments like term loans, overdrafts and short-term funding but innovation companies tend to be faster growing and in need of higher levels of capital.

Sudek (2007) in his empirical findings noted that there were 4 themes that angel investors focused on:

• the passion of the lead entrepreneur
• the trustworthiness of the lead entrepreneur
• the quality of the management team; and
• the existence of an exit strategy or liquidity potential for the investor’ (p95).

He further noted that investors ‘liked teams that struggled through hard times and kept pursuing the venture’ (p96).  Regarding exit, as IPOs are rare, ‘angels are very interested in learning who are the potential acquirers may be for a particular venture’ (p96).  This brings us back to a point made in the previous post regarding the importance of building a management team.  Investors tend to want to back a team of people rather than an individual.  This makes sense as no one person can have all the necessary skills to build a fast-growing business and a team of people allows for the organisation to expand more quickly than a single individual which inevitably becomes a constraint on growth.

The other point that entrepreneurs need to understand is having an ‘exit’ strategy for the investors, especially angels and VC.  Too often, entrepreneurs make great pitches on the idea and possibly the market.  Usually, they are light on the financial figures (which is inexcusable of making a pitch to investors) but they rarely, if ever, demonstrate a path for the investors to get their money back and make a profit on exit.  If investors cannot see a way to get their money back and make a profit then they will never invest.  So now you know to focus on building a team, showing how you built the idea, show how you built the team and the organisation and how they can ‘exit’ with profit.   

How do you commercialise an idea? (Part 7)

Use the system

Taking into account my previous comments regarding protecting yourself and your idea, there is a range of services and supports available to help entrepreneurs/inventors to develop and commercialise your ideas.  You always need to remember who you are talking to and what they specialise in.  So talk to:

• Local enterprise/development agencies (including enterprise boards, partnership companies, local development bodies etc) about pre-enterprise programmes to help you develop your business plan and structure your thoughts on your idea
• University Technology Transfer Offices regarding the development of the idea (technical and commercial), IP protection and possible business incubation.  This is for the any idea relating to technology, pharma, telecoms etc.  The TTO office has staff who specialise in bringing entrepreneurs through the process and make the connections with the researchers in the university to help develop the idea technically.  There may also be funding options available through feasibility grants, innovation vouchers etc depending on the country, region and time.
• Business incubators to help get a business started.  There are a range of incubators: for profit, nonprofit, third-level and investment driven.  They all provide affordable enterprise/office space for start-up ventures but they all provide other soft supports, networking opportunities and some give access to finance.  If your idea is already developed and ready to go, go talk to your local incubator management about practical start-up support.  Many incubators also offer business address services, where people can use their business address rather than using their home address if they do not have commercial premises
• Enterprise agencies regarding grants and funding, assistance with internationalisation (exporting), access to trade missions and support from sector-specific experts

Other agencies and enterprise-support organisations offer mentors, advice, connections to key business and public contacts and moral support when things are slow.  There is a lot of funding made available by local, regional and national governments to promote innovation and new product development.  Officials see this as a key economic growth factor and there is significant lip service made in this direction, even if the technical and economic understanding behind the rhetoric is a little thin at times.  Find out what is available to your in your area and leverage the available resources to help you.

A final but important point is that agencies and organisations are made up of individuals and the strength of the agency is only as good as the strength of the people working there at the time.  The reality is that many bureaucrats simply ‘do not get it’ and potential entrepreneurs may get frustrated by being ‘bounced around the system’.  If you have a negative experience with an agency you must not be put off, it just could be the individual bureaucrat.  In every system there are key, competent, people who do ‘get it’ and part of the process is finding the right people.  Talk to people who have been through the system and had positive experiences and ask them who they dealt with and how they went about building relationships.  Get referrals to the people in the system that do facilitate innovation and work with them.  Use the system!