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Invention Joint Ventures

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Invention Joint Ventures

{Don Debelak’s new book, Turning Your Invention into Cash is now available on Amazon for $3.49. Go to Amazon.com and enter inventions Don Debelak to purchase. From the author of Entrepreneur Magazine’s Bringing Your Product to Market.}

For inventors, a joint venture is an agreement by two parties to work together to design, promote or manufacture a new product. The parties split the work and the profits. Inventors can form a wide variety of partnerships, including:

  • A partnership with a manufacturer who will help design the new product, build prototypes and eventually produce the product. The inventor is responsible for all sales and marketing activities and may also pay for the patent and other tooling expenses
  • A contract with a sales and marketing group that agrees to market the product
  • An agreement with an expert in the field–such as a pro golfer or a well-known doctor–to present the product to consumers
  • An alliance with an engineer or industrial designer who will finalize the product design
  • A joint venture with another marketing company to exploit a market other than the one originally targeted
  • An agreement with an overseas manufacturer to make your product for a reduced price and extended terms in exchange for overseas marketing rights

Inventors form alliances because either they need a partner to help foot the bill, or they need to offer an extra incentive to get help from key people in the market. For instance, an inventor who wants to penetrate the hardware-store market may team up with a top manufacturers’ sales representatives agency. Agencies might not be interested in taking on a product for a standard 10 percent commission. But they might be willing to take on the product–and pay for promotion–if they form an alliance and receive 50 percent of the profits.
When forming joint ventures and alliances, you might be hoping to do any of the following:

  • Introduce and penetrate the market as quickly as possible
  • Receive sufficient funding and support for a project that is beyond your resources and experience
  • Have more involvement in the ongoing success of the product than you would get in a licensing arrangement
  • Develop the product further before it can be licensed. An alliance can be a precursor to an eventual licensing agreement.
  • Generate additional market information and distribution-channel contacts that can be used for subsequent inventions
  • Obtain management, administrative and manufacturing support for a new product. A company with experienced personnel can do these tasks far better than most inventors

What You Need to Succeed

Alliance or joint-venture partners look for a significant business benefit when they decide to team up with an inventor. Typically, they are only interested in your product if it can increase their sales 15 to 25 percent, or if it provides them with a market advantage over their competitors. The perfect product, from their perspectives, is one that has considerable market impact.
From the inventor’s point of view, perfect products for a joint venture are ones that the inventor doesn’t have the resources to produce, or the marketing network or credibility to launch. A joint venture allows inventors to move their products to market quickly with much less financial risk. The key to success is finding the right size companies to approach. If your product can sell $1 million to $2 million per year, a $100 million corporation won’t be interested–but a $5 million corporation might be.
Here are some other factors to consider as you investigate joint ventures:

Money matters

Typically, the main advantage of a joint-venture strategy is that you get funding from your potential partner. For example, you may have identified a big market opportunity, but lack the money to create prototypes. You approach a potential partner company and discuss a possible alliance if the product is successfully developed. You can then ask for money or engineering support to finish the prototype. One strategy is to ask for support only for this first step; once the prototype is finished, the two parties can decide if they want to proceed. This step-by-step process is usually much easier to sell to a company than a licensing agreement.

Protection

You don’t really need a patent to strike a joint-venture agreement, but it does improve your negotiating position and helps ensure that the product’s intellectual property rights belong to you. You could apply for a provisional or design patent, but this can be dangerous. The provisional patent gives you only one year to apply for a utility patent. That year could easily run out before you finalize your agreement and finish the product design. You’re better off applying for a very broad patent, knowing your initial application will be contested by the patent office. Then you can keep going back and forth with the patent office for several years. This tactic can keep your patent rights open for three to five years.

Prototypes

Many inventors choose a joint venture because they don’t have the experience or the money to finalize a “looks like, works like” prototype. But a drawing often isn’t enough to get a positive response from a potential partner. Having a prototype is important. Don’t spend too much money creating a prototype; just take it far enough so the partner can see your product’s sales potential.

Research

You won’t have any trouble finding a partner if you uncover a product that satisfies the needs of a large market. But it’s up to you to prove the market is there. Your research should show that customers need and want your product, and that they’re willing to pay a reasonable price for it.

Manufacturing

Most inventors create a joint venture with a manufacturer that can make the product. Most sales and marketing partners won’t form a joint venture with you unless you have a manufacturing source.

Dos and Don’ts

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