Outsource Entrepreneurs

An outsource entrepreneur uses outsourcing to quickly bring his or her product to market with low risk and low investment. There are essentially three aspects to bringing a product to market: research and development; manufacturing; and marketing. As the inventor, you perform the task of research and development (inventing and developing the idea) and outsource the manufacturing and marketing to investing partners. The investing partners will provide further development and pay for many of the startup costs. In return they will receive more profits than contracted work and will have some control of the idea.

This is often the fastest way to bring a product to market, is low risk and allows you to move onto new ideas quickly since the other partners will continue to manufacture and market your idea without excessive involvement on your part.  This is not for everyone and will require you to have strong deal-making skills, but the low-risk and low-investment aspect makes this appealing for most inventors, who are often strapped for cash.

 

{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.}

 

Chose the Best Partners

Not everyone will be a good candidate for becoming an outsourcing partner. You need to find manufacturers who can add your product without too much investment in new machinery and who are running below capacity. Marketing partners must carry products similar to yours and your product must represent a significant increase in sales for the firm, at least 20%. In short, you need to find potential partners who have a lot to gain from taking on your product. This usually means you will not be dealing with industry leaders, but smaller companies hoping to catch up and overtake those leaders.

You will need a manufacturing partner and a marketing partner for the outsourced model.  See lesson 9 on Manufacturing to find potential manufacturers. There are many options for marketing partners, distributors, small manufactures of complementary products, groups of sales reps, larger companies, and specialized marketing companies.  The best way to find outsourced marketing partners is by attending industry trade shows and association meetings. While at the shows walk around and talk to companies with smaller booths with complementary products, explain your product to them and ask: how they sell their product; what distributors they use, and see if they would be interested in any joint marketing programs.  I also like talking to people at the tables by where people eat lunch, they typically hold 10 to 15 people and meet people in the industry.  You can also use the trade show directory to look up people after the show and call them up and talk to them.

For both manufacturing and marketing models you need partners willing to put up high amounts of support and an investments.  There are several characteristics to look for when searching for both marketing and manufacturing companies:

1. You can add 10% to 20% to their revenue stream. Less than 10% and there is not enough incentive for the company, and more than 20% the company might not have the funds needed to move forward.
   1. The company has a stagnating product line, and has fallen behind competitors. Companies know when there line is old and you represent a low cost way for them to expand their line.
   1. The company has money to invest. You want to be a low cost option, but not a free option. Good partners offer support, manufacturers might pay for tooling, amortize tooling cost, offering extra-long terms, purchasing inventory, or offering a straight up investment. Marketing partners could offer down payments, pay for trade shows, run advertising programs or offer other assistance that helps promote your product. The partners know how to cost-effectively spend their money. If you pay the money, you won’t be nearly as cost effective

Set Up a Proposed Deal Structure

Before you start approaching potential partners, you should know what kind of deal you are hoping to set up. Have an idea about what kind of investments each partner will make, how you will divide profits and how you will handle the future of your idea. Remember this isn’t the final deal, but just a starting point for you and your partners. No one will sign on a deal that isn’t fair for them, so try to make it as fair as possible for everyone involved. Don’t devalue yourself in this process though, creating and developing the idea is very valuable and the basis for the partnership.

Basically what you have to do offer is an exclusive, that you will commit to produce the product with a manufacturer for certain considerations, and you will commit to selling only to the marketer for a certain length of time in return for certain considerations.  If you can do this without giving up any of your company that is great, but you may need to go farther, for example offering 10% ownership, and sometimes more to the manufacturer in return for more financial help, and you might need to have a private label or a joint venture agreement with the marketing partner. It all depends on what investment you require and what the return could be.  If you have a sewn product, with very little investment, you might not give away anything. But as the costs goes up the market needs to be bigger and the manufacturer and marketer may need a better deal and some ownership.

As a guideline, your partners will want to have an 18 month payback period, so they will make back in profits in 18 months their total investment. If you can get that requirement, you might be able to make a deal. To help your presentation consider contacting SCORE, which is a group of retired executives in every city, or the Small Business Development Center which you can find at www.sbdc.org

Check out the inventor story in the articles, Colin Roch, and Bobby Ronsse – Pen Again to see how they approach their situation. Just enter the inventors name in the search box on OneStopInventioShop.net to get the article

Approach Potential Partners

Approaching your partners can be difficult. Manufacturers don’t want to sign a deal unless there is a marketing firm guaranteeing sales — and marketers don’t want to sign a deal unless a manufacturer can promise to produce the projected volumes at a reasonable quality. The best way to overcome this obstacle is by first approaching a manufacturer and asking them to commit to the project if a marketing firm will sign on to the deal. If the manufacturer agrees, then you have a solid enough commitment for a marketing firm to be willing to sign on.

You should the process with a presentation. These are the key points

1. You have had some market success and very strong market research results.
2. You don’t have the money to pursue the invention on your own in a big way to accelerate sales
3. You want to see if you can find a way to work together
4. Explain who the other partners are that you are negotiating with.
5. Demonstrate an 18 month payback period

Approach Manufacturers

You have your proposed deal structure ready and now you should use that to start talking with manufacturers. Remember that you want them to commit to the deal if you find a marketing partner. You should also try to point out these advantages to the manufacture

1. You have a strong product and a strong marketing partner.
2. You have had impressive market research
3. You offer many tangible benefits to the company, which could include: a) a strong complementary product to other production; b) a firm base that they can count on for a period of time, this is particularly strong with contract manufacturers; c) this sales base should help them gain additional customers.
4. The point that will really sell is that you have an 18 month payback and you have a sales forecast that is believable due to your market research.

Approach Marketers

Once you have a preliminary agreement with your manufacturer, you can start approaching marketers. Make sure you have chosen your marketers carefully and approach the ones you think will be most likely to join the partnership. Marketers become wary of products that have been “shopped around” and will avoid your product if they think too many others have said no to you already. So do your homework and be confident that you approach those companies for whom your product would be a good fit. You should start by explain your business model. These are the key points

1. He product is complementary to other products they carry on the synergy of the products will increase sales for all products,
2. Your product is on the cutting edge and will help the marketer’s image as a progressive company
3. The momentum gained from adding the product will energize he company
4. Much of the risk is being handled by the manufacturer.

Once you find two partners who are interested you need to all sit down together and hammer out all the details and close the deal. You need to be protective of your share here. If you can prove that you can offer some kind of ongoing service for the project it will be easier to get your fair share. You may also want to hire an attorney to help you protect your rights. But you have several options in the final deal that could all benefit you.

1. Private label agreement, with a marketing guaranteeing to take a certain volume it will be much easier to get a manufacturer to sign on.
2. Joint venture, where one or more of the partners will own part of the company in return for their investment. You are best off doing this with only one partner as it will help you maintain some control.
3. Taking a marketing commission, of maybe 25% in return for the manufacturer picking up all the costs. This is an approach to take when you don’t have any money to offer, but have made industry contacts to help you market and sell the product
4. Exclusive agreements with both the manufacturer and the marketer in return for considerations including investments
5. Be flexible if the partners have another suggestion, but the first four points will cover over 90 % of the proposed deals

Most of the time, manufacturing and marketing partners want an intermediate step to prove the product will sell before jumping in too far.  You might want to propose an intermediate step of a small-scale product run and further market test with the partners’ involvement. If your product sells well, your potential partners will have nothing to worry about.  You should be able to set this up with the marketer so the marketer will use some of its close contacts to run the tests.  This will improve your odds of a successful test.

Other tactics that will improve your chances will be do be involved in the industry, so the potential partners see you do have contacts and a PR media campaign that highlights your success to date which will add credibility.  You can also try to give speeches or seminars at industry events to cast you as an expert with your potential partners.

Being involved in the industry will help you meet some potential partners and hopefully will connect you with a number of people from every potential partner’s company. Having people pulling for you within the company will help you seal the deal. e

Outsource Entrepreneurs

An outsource entrepreneur uses outsourcing to quickly bring his or her product to market with low risk and low investment. There are essentially three aspects to bringing a product to market: research and development; manufacturing; and marketing. As the inventor, you perform the task of research and development (inventing and developing the idea) and outsource the manufacturing and marketing to investing partners. The investing partners will provide further development and pay for many of the startup costs. In return they will receive more profits than contracted work and will have some control of the idea.

This is often the fastest way to bring a product to market, is low risk and allows you to move onto new ideas quickly since the other partners will continue to manufacture and market your idea without excessive involvement on your part.  This is not for everyone and will require you to have strong deal-making skills, but the low-risk and low-investment aspect makes this appealing for most inventors, who are often strapped for cash.

Chose the Best Partners

Not everyone will be a good candidate for becoming an outsourcing partner. You need to find manufacturers who can add your product without too much investment in new machinery and who are running below capacity. Marketing partners must carry products similar to yours and your product must represent a significant increase in sales for the firm, at least 20%. In short, you need to find potential partners who have a lot to gain from taking on your product. This usually means you will not be dealing with industry leaders, but smaller companies hoping to catch up and overtake those leaders.

You will need a manufacturing partner and a marketing partner for the outsourced model.  See lesson 9 on Manufacturing to find potential manufacturers. There are many options for marketing partners, distributors, small manufactures of complementary products, groups of sales reps, larger companies, and specialized marketing companies.  The best way to find outsourced marketing partners is by attending industry trade shows and association meetings. While at the shows walk around and talk to companies with smaller booths with complementary products, explain your product to them and ask: how they sell their product; what distributors they use, and see if they would be interested in any joint marketing programs.  I also like talking to people at the tables by where people eat lunch, they typically hold 10 to 15 people and meet people in the industry.  You can also use the trade show directory to look up people after the show and call them up and talk to them.

For both manufacturing and marketing models you need partners willing to put up high amounts of support and an investments.  There are several characteristics to look for when searching for both marketing and manufacturing companies:

1. You can add 10% to 20% to their revenue stream. Less than 10% and there is not enough incentive for the company, and more than 20% the company might not have the funds needed to move forward.
   1. The company has a stagnating product line, and has fallen behind competitors. Companies know when there line is old and you represent a low cost way for them to expand their line.
   1. The company has money to invest. You want to be a low cost option, but not a free option. Good partners offer support, manufacturers might pay for tooling, amortize tooling cost, offering extra-long terms, purchasing inventory, or offering a straight up investment. Marketing partners could offer down payments, pay for trade shows, run advertising programs or offer other assistance that helps promote your product. The partners know how to cost-effectively spend their money. If you pay the money, you won’t be nearly as cost effective

Set Up a Proposed Deal Structure

Before you start approaching potential partners, you should know what kind of deal you are hoping to set up. Have an idea about what kind of investments each partner will make, how you will divide profits and how you will handle the future of your idea. Remember this isn’t the final deal, but just a starting point for you and your partners. No one will sign on a deal that isn’t fair for them, so try to make it as fair as possible for everyone involved. Don’t devalue yourself in this process though, creating and developing the idea is very valuable and the basis for the partnership.

Basically what you have to do offer is an exclusive, that you will commit to produce the product with a manufacturer for certain considerations, and you will commit to selling only to the marketer for a certain length of time in return for certain considerations.  If you can do this without giving up any of your company that is great, but you may need to go farther, for example offering 10% ownership, and sometimes more to the manufacturer in return for more financial help, and you might need to have a private label or a joint venture agreement with the marketing partner. It all depends on what investment you require and what the return could be.  If you have a sewn product, with very little investment, you might not give away anything. But as the costs goes up the market needs to be bigger and the manufacturer and marketer may need a better deal and some ownership.

As a guideline, your partners will want to have an 18 month payback period, so they will make back in profits in 18 months their total investment. If you can get that requirement, you might be able to make a deal. To help your presentation consider contacting SCORE, which is a group of retired executives in every city, or the Small Business Development Center which you can find at www.sbdc.org

Check out the inventor story in the articles, Colin Roch, and Bobby Ronsse – Pen Again to see how they approach their situation. Just enter the inventors name in the search box on OneStopInventioShop.net to get the article

Approach Potential Partners

Approaching your partners can be difficult. Manufacturers don’t want to sign a deal unless there is a marketing firm guaranteeing sales — and marketers don’t want to sign a deal unless a manufacturer can promise to produce the projected volumes at a reasonable quality. The best way to overcome this obstacle is by first approaching a manufacturer and asking them to commit to the project if a marketing firm will sign on to the deal. If the manufacturer agrees, then you have a solid enough commitment for a marketing firm to be willing to sign on.

You should the process with a presentation. These are the key points

1. You have had some market success and very strong market research results.
2. You don’t have the money to pursue the invention on your own in a big way to accelerate sales
3. You want to see if you can find a way to work together
4. Explain who the other partners are that you are negotiating with.
5. Demonstrate an 18 month payback period

Approach Manufacturers

You have your proposed deal structure ready and now you should use that to start talking with manufacturers. Remember that you want them to commit to the deal if you find a marketing partner. You should also try to point out these advantages to the manufacture

1. You have a strong product and a strong marketing partner.
2. You have had impressive market research
3. You offer many tangible benefits to the company, which could include: a) a strong complementary product to other production; b) a firm base that they can count on for a period of time, this is particularly strong with contract manufacturers; c) this sales base should help them gain additional customers.
4. The point that will really sell is that you have an 18 month payback and you have a sales forecast that is believable due to your market research.

Approach Marketers

Once you have a preliminary agreement with your manufacturer, you can start approaching marketers. Make sure you have chosen your marketers carefully and approach the ones you think will be most likely to join the partnership. Marketers become wary of products that have been “shopped around” and will avoid your product if they think too many others have said no to you already. So do your homework and be confident that you approach those companies for whom your product would be a good fit. You should start by explain your business model. These are the key points

1. He product is complementary to other products they carry on the synergy of the products will increase sales for all products,
2. Your product is on the cutting edge and will help the marketer’s image as a progressive company
3. The momentum gained from adding the product will energize he company
4. Much of the risk is being handled by the manufacturer.

Once you find two partners who are interested you need to all sit down together and hammer out all the details and close the deal. You need to be protective of your share here. If you can prove that you can offer some kind of ongoing service for the project it will be easier to get your fair share. You may also want to hire an attorney to help you protect your rights. But you have several options in the final deal that could all benefit you.

1. Private label agreement, with a marketing guaranteeing to take a certain volume it will be much easier to get a manufacturer to sign on.
2. Joint venture, where one or more of the partners will own part of the company in return for their investment. You are best off doing this with only one partner as it will help you maintain some control.
3. Taking a marketing commission, of maybe 25% in return for the manufacturer picking up all the costs. This is an approach to take when you don’t have any money to offer, but have made industry contacts to help you market and sell the product
4. Exclusive agreements with both the manufacturer and the marketer in return for considerations including investments
5. Be flexible if the partners have another suggestion, but the first four points will cover over 90 % of the proposed deals

Most of the time, manufacturing and marketing partners want an intermediate step to prove the product will sell before jumping in too far.  You might want to propose an intermediate step of a small-scale product run and further market test with the partners’ involvement. If your product sells well, your potential partners will have nothing to worry about.  You should be able to set this up with the marketer so the marketer will use some of its close contacts to run the tests.  This will improve your odds of a successful test.

Other tactics that will improve your chances will be do be involved in the industry, so the potential partners see you do have contacts and a PR media campaign that highlights your success to date which will add credibility.  You can also try to give speeches or seminars at industry events to cast you as an expert with your potential partners.

Being involved in the industry will help you meet some potential partners and hopefully will connect you with a number of people from every potential partner’s company. Having people pulling for you within the company will help you seal the deal.