Using Other People’s Money
Many people struggle raising money to introducing their product. But there are ways to get around that problem by using a shoestring outsourcing approach I call OPM (Other People’s Money) deal making—or, if you prefer, the OPM entrepreneurial approach—because not only are most functions outsourced, but the outsource partners put up all or most of the money. I have compiled some stories of successful inventors in this newsletter to help give you some innovative approaches to consider when introducing your ideas.
Story 1. Fred Culbertson knew from his own experience that screwdrivers often slip out of the screw head, and he decided that what was needed was a screwdriver handle that never had to be moved from the screw head. He thought that if could just rotate the handle back, as with a socket set, screwdrivers would be easier to use. Culbertson believed that the product would be a perfect item for Sears’ Craftsman tool line. The problem: Culbertson didn’t have the skills or money to make a polished prototype, and Sears doesn’t typically buy from small vendors.
Still, Culbertson wasn’t about to let such a great idea go by. He started by enlisting the aid of a machinist, who made a workable prototype; he found a company in his hometown that already sold to Sears to present the product; and then, when Sears showed some interest, Sears provided to Culbertson the names of manufacturers already supplying private-label Craftsman tools. The deal was done, and now the screwdriver is sold in all major Sears outlets. The final deal has the provider supply a private-label product for Sears with Culbertson getting a percentage of every sale both for his product idea and for his promotional efforts in stores demonstrating his new product.
Story 2. People who act as brokers of services are one existing type of OPM entrepreneur. Shawn Ferguson was an Emergency Medical Technician who observed that many people would prefer a short CPR training course, rather than the six- to eight-week course offered by the Red Cross. Ferguson started his business by getting a local community college to offer a short course, which he or his friends taught in return for a share of the revenue. Ferguson then offered the class at a home health-care show for a small fee. The show promoted the class to attendees, and again Ferguson’s friends conducted the class. Ferguson then branched out to become a full-fledged broker, setting up classes at events, trade shows, schools, businesses, and other organizations, and promoting the service to target customers. By this time, he used a group of service providers, who were EMTs working as independent contractors, to provide the training. The profit Ferguson made was the difference between his share of the class revenue and the total fees he paid to the service people who conducted the class.
Story 3. John Lawler worked for an airline and felt that both the typical video screens in the front of planes and the newer embedded systems with screens in the back of each seat had many drawbacks. First, everyone had to watch the same movie at the same time, and in the case of the big video screens, some people couldn’t see the movie well. Also, if the movie system went out, no one could watch the movie. To top it off, the entire system was expensive. A big problem of the embedded systems with screens on each seat was that they were too expensive, costing between $500,000 and $1,000,000 to install per plane.
Lawler thought that a much better idea was just having individual movie players that could attach to the back of a seat. Players would only cost $200 to $400 each, or less than $100,000 for a typical plane. The individual units could operate without the cabin crew’s assistance, and they could be leased to the plane. Passengers could then select the movies they wanted, and select when they wanted to start, pause, or stop a movie. The problem for Lawler was that the movie players were already invented; his idea was just to have the maker of the movie player lease them to airlines. What role and what value could he add to his project?
Lawler’s solution was to create a role that licensed the movies and reprogrammed the players monthly. He took the initiative to work a deal to license movies with a major movie studio, and then he made a deal with the movie studios for a license fee that allowed him to reprogram the players every month at a nominal fee. To sweeten his deal, Lawler leased the movie players from the manufacturer, which was willing to front the equipment to Lawler because he had a lease from the airline. Lawler then offered a licensing fee, which included both the player manufacturer’s fee and an additional fee for licensing the movies and reprogramming the players.
So if your product is too difficult to introduce on your own, and you can’t get any help, consider the OPM plan, introducing your idea with Other People’s Money. It just might work for you.