By Steve Ring, Esq.
Reality shows on TV are entertainment, not reality. While we might glean business tips from some of the shows on entrepreneurs, beware. There is much not said. Nevertheless, developing a product from initial concept through actual sales and revenue can be an adventure. This article will follow a hypothetical entrepreneur on that path. First, the caveats: Each inventor’s situation is different and requires focused attention. Most of the general statements below have exceptions and qualifications that merit lengthy discussion beyond the scope of this article. Much of the information below will change over time.
WHAT REALITY SHOWS DON’T TELL US
While some reality shows spark interest in entrepreneurship, they omit a tremendous amount of background information in order to maintain excitement—they must attract viewers to stay viable. Research on Shark Tank (™ Sony Pictures Television Inc.; broadcast via ABC) reveals the following:
- Over 30,000 contestants apply each year; of those, only 180 are “cast” or filmed;
- Of those cast, only 120 will be aired; • Of those aired, only about 30 will reach a handshake deal on air; • Sharks can strike deals with contestants in the hallway, off air;
- About 20% of the handshake deals on air are never finalized;
- Of the finalized deals, some are canceled for various reasons and few remain paired with a Shark after one year;
- Of those still paired after a year, few are profitable;
- The application and vetting process for applicants is arduous;
- Initial screenings are held in several cities in the United States each year; • Scouts visit trade shows to find potential contestants who may be invited to apply;
- Disputes have arisen over division of profits.
TWO FLIGHT PLANS; CAVEATS
Below we look at two “flight plans” for an entrepreneur: First Class and Economy. First Class means hiring lawyers and other professionals for advice and consultation. Economy, a riskier approach, means do-it-yourself. It is possible to blend the two approaches. Caveats apply to both plans, and regardless of the route chosen for product development, readers should consult with qualified professionals in the areas of intellectual property, taxes, accounting, marketing, business planning, financing and all others touched on below.
THE IDEA—WANDA’S WAFFLE IRON
At breakfast on a family vacation, Wanda noted how the waffle bar was a center of attention for kids and adults alike. People stood in line for their waffles, admired their prizes, and then adorned them with elaborate combinations of toppings. Since waffles were such magnets for attention, Wanda thought they would be a perfect medium for branding: “print” a customized logo, letter, or image on each waffle. Great for a restaurant, hotel, or resort. Also, fun for kids at home. She wanted to develop the idea into a marketable product.
Back home after vacation, Wanda was eager to get started. She had a limited budget but wanted to dive in and see how much of the work she could do herself. Let’s follow her path.
PROFESSIONAL HELP VERSUS SELF-HELP
To go First Class, Wanda assumed that she would need to engage an experienced patent attorney, a cooking products expert, a marketing expert, and possibly more experts. She was told that having the right advisors on board would help avoid pitfalls and ultimately save time and money.
Being adventurous and curious, Wanda nevertheless decided to start her project on the DIY route. She searched online for “waffle iron,” “waffle press,” “makers of waffle irons,” and similar key words to explore the range of existing products, or prior art. She found products similar to what she had in mind and gathered ideas on modifications she would need in order for her project to stand out.
She went to the website of the U.S. Patent and Trademark Office, https//www.uspto.gov/patents/search, and searched the plethora of existing relevant patents. There, she also found a wealth of educational materials on all aspects of patents and trademarks including how-to at the beginner level. There were articles, videos, and links to forums and other resources. She read the advice offered by the Small Business Administration, including sample business plans, at www.sba.gov. She read voraciously, visited inventors’ forums, and absorbed as much information as possible.
In her searches online, Wanda found links to vendors of various services that included engineering, design, marketing and promotion, licensing, graphics, web and social media, packaging and shipping, in addition to legal and accounting. She attended some of the inventors’ meetings in person. She found the discussions helpful but often beyond her immediate needs. She noted that many of the contributors and participants were vendors offering a huge array of services to would-be inventors, reminding her of stories that in the American gold rushes some of the most successful participants were the vendors of picks and shovels, rather than the actual prospectors.
Wanda read about the patent application process and learned about provisional versus full patents, design versus utility patents, and more. She read examples of claims and descriptions of products in patent applications. She considered whether she should file for a trademark in addition to a patent, or as a cheaper alternative. She decided to wait and consider these options later; she was impatient and wanted to know if her idea would sell before investing more time and money in protection of it as intellectual property. She also considered finding a financial backer, but concluded it was too early, as the idea was still rough. She had not yet arrived at a final design or name and expected that her concept might change during the development process. She would pursue IP protection and financing later on.
From her research Wanda learned that she needed to keep good records of her work. She bought an old-school inventor’s notebook—a hard-covered paper journal, each page pre-numbered and stamped with lines for witnessed signings. She made regular entries in the journal describing her thoughts, reasoning for changes in design, research efforts, observations and plans for next steps. She wanted to be ready for the day she would apply for a patent.
No artist, Wanda nevertheless made a series of rough sketches showing variations in the appearance of the product. She modified the idea over and over. Aside from the appearance of the product, she learned that she had to be specific about its function and materials and talked with friends who knew about electrical appliances, heating elements, and heating surfaces. She learned about safety standards and certification companies like Underwriter’s Laboratories. She learned how to include specifications for the electrical components, getting help from an electrical engineer. Her goal was to make the product novel, useful, and non-obvious, while functional and of high quality.
Wanda vetted her idea with a team of consultants, some of whom were her friends. She wanted input from consumers as well as professionals. She asked them all to sign non-disclosure agreements, which seemed a bit formal to some. However, she explained that this was a normal step in the world of entrepreneurship and was for the protection of all participants. It also showed that she was serious about her idea. This vetting process provided valuable input and helped Wanda refine the design further.
Wanda realized that she needed prototypes to test her idea and to vet manufacturers. She started by working with her own waffle iron at home. She hand-molded aluminum foil into a form with a raised letter “W,” stuck it into the waffle maker and pushed it into the wet waffle mix in the hot iron. She found that the foil did not behave well, that the mix overflowed at the edges and stuck to the form, and that the waffle was burnt in some places and nearly raw in others. She realized that the engineering issues were more complicated than she had originally thought, and that she needed professional advice.
Wanda searched online and found product design specialists as well as a list of waffle iron manufacturers located in the United States and abroad. She decided to go straight to the manufacturers, picked a few, and decided to ask them for advice. Some resisted, but others were willing to talk. There followed a series of emails, video meetings, and text messages. This process made her even more aware of the many design and function issues that needed to be addressed. She learned that there are cooking and waffle industry expositions and conventions, trade publications, news boards, and a multitude of resources for the makers and purveyors of waffle irons.
CHOOSING A MANUFACTURER
The quotes Wanda received for designing and making prototypes domestically were beyond Wanda’s budget. She turned to Upwork.com, Fiverr.com, MarketHire.com, and similar websites and found that there are design engineers around the world with relevant expertise, willing to design cooking products inexpensively, and that some of them have actually designed waffle irons. She also learned that there are manufacturers abroad ready and willing to help design, or to modify a generic waffle iron to suit her particular needs, at a fraction of the cost of creating and implementing a completely new design.
Wanda found websites (Alibaba and others) that match manufacturers with potential merchants. She learned that even as a small operator she could create a free account, submit a request for proposal (RFP), and receive bids from factories, or from brokers tied to factories. She posted a simple drawing and a description of the product. Within 24 hours she received dozens of responses, some of them irrelevant and probably generated by bots, and others tailored to her design, asking incisive questions to develop more specifics. Some of the bidders offered to convert her rough sketches to engineering drawings at no charge. There followed discussions about choices of materials and components, and references to industry standards. She started online conversations with a few of the best responders and researched their credentials and past performance with other purchasers. She spent several weeks conversing with and vetting the factories before choosing three of them.
The factory representatives quoted “mould fees” for the custom fabrication of a completely unique product, as the domestic makers had done. Most of the new quotes were still beyond Wanda’s budget. A couple of the factories then offered generic designs for the basic waffle iron, claiming that no patents applied and suggesting that Wanda could simply make minor changes to create a unique look.
Despite the factories’ assurances Wanda was concerned about the possibility of patent infringement, and thought again about conferring with an attorney. However, the generic approach was much less expensive and she decided to try it, at least for the prototypes that would be tested and not sold at retail. She still had to pay substantial charges per unit for her modifications of the generic units. She exchanged a series of additional drawings and specifications and arrived at the “final” designs for her first round of prototypes.
PURCHASE; INBOUND SHIPPING
Wanda ordered a total of 12 varied prototype units. She ordered four units from each of three factories, planning to evaluate them for function, appearance and overall quality. She expected that this would also demonstrate each factory’s packaging and shipping practices. Now more aware of the complexities of her project, Wanda had arranged to spend a few thousand dollars for the manufacture and shipping of the prototypes. She compared the factories’ quotes, haggled a bit with one that seemed high, then signed purchase orders online with all three. Payment terms were 50% up front and 50% prior to shipping, all done through an online portal. Wanda paid the deposit to all three and waited. Each of the factories kept her posted on progress via text and email. All three sent her photos of the prototypes being packed prior to shipment, then asked for the final payment.
Wanda learned about international shipping terms (Incoterms), shipping agents, and the allocation of risk in shipping. She learned that DDP meant that duties would be paid and delivery would be to her door, all arranged and paid from the shipper’s side of the deal, but reflected in the price she would pay. She learned about shipping via “express” versus sea, and fast boat versus slow boat. She learned that shipping charges may vary from month to month but were fairly uniform among shipping agents at any given time. She shopped for a shipping agent and vetted several candidates, thinking ahead to the day when she would place a large order. She chose an agent who appeared reliable and experienced, selected DDP and slow boat, and understood that delivery to her door would follow in 30 to 45 days.
Wanda ended up spending a few hundred dollars just to ship the prototypes. The units weighed about three pounds each and required bulky padding for protection during transit. She made the final payments to the factories online and likewise sent payment to the shipper through a separate web portal. Shipping was paid 100% in advance. She then held her breath and waited. ]Over the next week Wanda received status reports from the shipping agent: all three sets of prototypes had been picked up at the overseas factories, were then delivered to the outbound port, then waited for loading, and then started moving across the ocean. With the vessel’s name and ID number Wanda followed its progress. She received email alerts as the boat reached port in the United States and the cartons waited to pass customs. She then received a new set of alerts as the packages traveled via UPS to her home. As luck would have it, she was not home at the time the UPS truck came to her house, and found a pick-up notice on her front door. The next day she drove to the UPS warehouse nearby and retrieved the packages, which were larger and heavier than she had expected. Back home, the family gathered for the grand unpacking. The next day was a waffle fest, with the family as a jury on all of the prototypes.
Wanda learned that conceiving and developing a product was much more complicated and expensive than she had originally imagined. She still needed to finalize the design, which could take more rounds of prototypes; she needed to arrive at a workable cost per unit, ideally less than 25% of the target retail price; she needed a trade name, and decided that she should trademark it; and she needed a marketing plan, likely to include Amazon, Etsy, and other online outlets. For a bulk purchase from the factory she would need financing. She also learned that a product having any degree of complexity, like electrical components, adds challenges, and that size and weight are important factors in shipping and storage. Wanda considered simplifying her idea, changing to an insert that would fit existing waffle irons. This would streamline all steps, even if the potential profit per unit was reduced.
Having come this far, Wanda decided to consult with a patent attorney and to seek referrals to the other professionals who could coach her through product development. She found financing and was now prepared to invest the time, energy and funds necessary to develop her product in a serious way.
Steve Ring has practiced law in Maryland for over 40 years, with emphasis on civil litigation. He has many interests, including inventions.