Financial Catch 22 1

[desnov74]

Hello all and thanks in advance,

I have a new product with several patent pendings. My biggest concern, is start-up cost. New products have a lot of inertia financially. I really don't want to sell my soul to a VC, nor do I think they will back me. The US govornment says it gives money through SBIR and such, but I didn't find them very giving.

I notice most of the posts are on engineering consultancies in this forum, but business is business. I'm curious to know what your opinions might be on new product development.

thanks again & happy day to all fellow US engineers

 

[MacGyverS2000]

The SBA doesn't GIVE money away, it provides you with contact points on where may be had (such as government grants, which typically aren't very easy to get, as well as business loans through local banks).

And yes, the start-up costs are a killer on any new business.

Dan - Owner

http://www.Hi-TecDesigns.com

 

[desnov74]

Thanks Macyvers

I just looked at your website, and read your bio. How did you get obever the initial need for high capital? I assume your product was not that expensive to prototype, I could be wrong. But even so when you're layed off (and I've been there too) EVRYTHING is expensive.

thanks again

 

[BJC]

SBA won't give you money and most banks won't give you money usless you can prove you don't need it <%^(]

 

[MacGyverS2000]

I didn't get over the need, I just dipped heavily into savings and used credit cards (also heavily). I also learned to change the way I designed/built my products.

As an example, take the Windscreen Lights. Initially, I wanted a hand-held control unit tethered to the LEDs. So, I spent thousands having a CAD model made up, an SLA of the case, getting manufacturers lined up for the wiring harnesses, etc.

In the end, I modified the way users interact with the unit and select options, integrated all of the electronics and LEDs into one single board, and did away with the hand-held control unit altogether. I may have wasted a lot of money on the prototype, but I saved on the production cost (by removing the case, associated molds, and wiring harness) by changing the way I looked at the design.

While you may not be able to cut costs in the same way, you should always plan for the unexpected, especially as it pertains to cash outlays.

Dan - Owner

http://www.Hi-TecDesigns.com

 

[bvanhiel]

desnov74,

You've hit the point many inventors reach. You've hit on a viable idea, you've invested some money in protecting it, and now.....

Most inventors scrape together money from savings and then borrowing from family and friends. Investors won't be interested in giving you money until you've shown that you can make good use of it.

-b

 

[desnov74]

macgyvers2000 & everyone else thanks again for the posts!

I appreciate the input. Especially macgyvers' post, its this type of personal perspective stuff you can't find too often.

I'm getting the ball rolling by selling the product as a custom system to small commercial customers directly. This is making some cash flow, but not enough. Plus its helping to develop details about the final product design, the needs for the business if it were 100% operational. Its tough though because cost are an off the shelf low volume price, and its very difficult to make a good profit. Time is such a valuable resource too. Working and trying to develop this product at the same time is a challenge.

I'm also wondering, how does the relationship with the supplier help? I mean not just in terms of production, but financing. Will manufacturers typically, if they see potential in the product, assist with a little delay in payment?

As far as banks, if I could get a contract from a larger customer, could or would an investment bank give money on that basis?

There is so much to consider, what a learning curve! Thanks again.

desnov74

 

[MikeAnd]

I have seen many vendors that will offer very delayed payment terms if they perceive you to be a potentially large or strategic customer.

Starting a business with very little capital is a fine art, but it can certainly be done. By getting money from customers up-front and delaying payments to vendors, many businesses are able to drastically reduce their startup costs.

It is very very very risky, but I see a lot of new businesses that are funded with personal retirement accounts, home equity mortgages, and credit cards. I don't think that I could ever get up the confidence in myself and my business idea to put myself in a situation where I personally owed a lot of money, but a lot of people do.

Good luck!

Mike

http://www.partnerup.com/

 

[PatBethea]

As far as banks, if I could get a contract from a larger customer, could or would an investment bank give money on that basis?

Generally speaking, Yes. In the same vein, look for a smaller, "community-type" bank - their rules are typically less stringent.

 

[desnov74]

Hey again,

These are all very good comments. I suppose to wrap up the forum, unless issues come up. What are the bare minimum needs/steps for a buiness venture like this. I think as I see it:

1. Money, money, and more money....
2. Even more than money, guts.(hope I got it)
3. A good Prototype
4. Patent, or patent(s) pending
5. Your first customer, sales/marketing aka legs
6. Incorporation
7. UL/testing costs
8. Legal fees
9. Insurance product liability
10. Of course come luck

How much would these things or have these things cost in terms of $ and time to any past inventors?

 

[bvanhiel]

desnov74,

Your number 5 needs to be number 1. It is far, far more important than anything else on your list, and it's really the only thing a potential investor is going to care about.

Do you know how big your market is?
Have you had a marketing study done?
What kind of sales can you expect in year 1? Year 5?

You've got too much emphasis on product development side of things. To be successful you need to think in terms of selling your product. That means having marketing and distribution problems solved early.

-b

 

[desnov74]

This is good stuff thanks everyone again.

My hope is to start small. There is so much I don't know, I have such a BIG learning curve.I would like to workout issues with supply chain,manufacturing details, and marketing with a small local market. Then hopefully with more of the details worked out, to be able to go after a 1-2 larger clients.Finally with a small client base go to a mass market.

I'd like to stay under the radar a little bit because I really think a patent is useless unless I have enough cash to protect the idea in court. I think a larger competitor, has the ability to squeeze us really badly. The intellectual property may be air-tight, but the patents are useless unless they are backed by some money.

Am I being paranoid? Is there a better approach?

 

[GregLamberson]

desnov74

There's allot of cash out there looking for a place to be invested. If you haven't already, you need to put together a solid business plan. This will include you cash flows so that you will know what your start up costs are and can project your needs.

With that, there are hoards of investment banks and individual investors who, if the business plan were sharp enough and the legalities of your patent strong enough, would love to lend you money. But you have to have the Plan and it needs to be very well thought out, reasonable, implementable.

Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website:

http://www.oil-gas-consulting.com

 

[MacGyverS2000]

Be careful about "flying under the radar". The moment your patentable idea is released to the public (i.e., you tell your buddy or start selling something to friends), the clock starts ticking on your one year time limit to file the patent.

Dan - Owner

http://www.Hi-TecDesigns.com

 

[MikeAnd]

It sounds like you are hesitant to put money into the company or go in debt before you know more about the potential success of your product.

There is a really interesting post on PartnerUp's blog about this very issue:

http://startup.partnerup.com/2007/12/04/so-you-have-a-business-idea-now-what/

Mike

http://www.partnerup.com