Consider the origin of the word “prototype”:

c.1600, from French prototype (16c.) and directly from Medieval Latin prototypus “original, primitive,” from Greek prototypon “a first or primitive form,” noun use of neuter singular of prototypos “original, primitive,” from protos “first” (see proto- ) + typos “impression, mold, pattern” (see type (n.)). In English from 1590s as prototypon.

So think ‘first impression’.

I try to use a few more specific phrases to help articulate what the various forms of a prototype.

• Proof of concept – This would be an early level prototype that includes many of the final features, but usually has a low level of customization.  Typically we can take a few off the shelf devices, modify them, program them, etc., and prove the concept the inventor has in mind is practical.  They can then be used for raising early stage funds and validating your idea to focus groups.  They are generally not the prettiest things in the world, but they are a good start.

• Functional Prototype – This is a mid-stage prototype which usually has a high level of customization.  Most components are custom or designed for volume purchasing at this point.  Most of the features are in place.  There may be some compromises on functionality due to cost or time constraints.

• Pilot Run – This is a late stage prototype which you have before you start production without the engineers.  At this stage the device should represent what you intend to sell.  If you find issues here, you iterate, make minor changes and try again.

It’s important to state that there is a large continuum of what your prototype will be.  You can start out with very low tech methods, as I call ‘Garage and a glue gun’, and work your way up to a professionally made, ready to show the market device. 

You must start though.  Don’t be afraid of making something ugly or that it won’t come out right. It won’t.  You will get better.  Failure is OK.  Start somewhere and keep on working on it.

Iterative Design

Design and engineering don’t happen all at once.  Most famous painters don’t paint the perfect picture first time out.  With oil paints, you can just keep painting on top of what you have until it looks the way you want.  Your product will not be perfect the first time.  Keep making prototypes until it’s the way you want it.  Of course this needs to be tempered with budget constraints and your time.  Experiment, permutate (make different variations), research, test, and do it all over again. Dyson famously made 5,127 of his vacuum.  Edison had over 10,000 attempts at his light bulb.

Garage and a Glue Gun

This is where you just have to start somewhere.  Everyone can use tools to some degree.  The more you use them, the better you’ll be with them.  Sketch, illustrate, research, learn, experiment, modify, and create.  Repeat.  It will not be perfect.  The greatest obstacle to finishing a task is starting.  Also, this is a good time to take out your camera phone.  These early documentation steps will provide great entertainment for later and possibly help you defend your ideas.

Professional Prototype

After you’ve done some of your initial experimentation, and you have a plan, it’s time to consider a professional prototype.  You don’t need to be an expert at everything.  You should be very familiar with your product and have some very specific ideas about what it should be in the end.  When you approach a professional, you should have a written document.  It doesn’t need to be a full specification, but it should have the things that you care about along with the known unknowns; the things you know you need their help with.

A professional prototype development company should have a wide range of resources.  They will have better tools, machines, toys, skills, and disciplines.  Generally, a combination of electrical and mechanical engineering will be required for most projects, however if there are other specialties required, make sure they have access to those other skill sets either through contractors or partner companies.

When working with a professional service, especially product development services, be sure you understand your agreement.  Various companies have vastly different business models that may or may not be agreeable to you.  Be sure you understand what you are paying, what you are getting, and who owns what.  It is possible for you to pay for a design and not own it.  Some firms will work for sweat equity in part or in full which is great to save you money, but treat them like you would any other partner, as you will be working with them for a long time.

Conclusion

While I’ve tried to make this exhaustive, it by no means is.  Every idea and business plan will have its own nuance and particulars.  Product development is a tough road no matter how you slice it.  I think the hardest part of it is that the capital required to physically create something just to sell the first one is usually pretty high.  On the other hand, there is a lot of activity in software and web products there is more of a gradation in how quickly you can start marketing your product and the intangible aspect of it.  There are still many great product ideas out there waiting to be found and executed.  I personally love creating tangible products and entrepreneurship, so that’s what I do every day and I feel it’s all worth it.

Resources

• Anidea Engineering Blogs

–      http://www.anidea-engineering.com/blog/

• LMP, Inc.

–      http://www.lmp-solutions.com/

• Inventing Daily

–      http://www.inventingdaily.com/

• Sketch Up

–      http://www.sketchup.com/

• TinkerCad

–      https://tinkercad.com/

Web References

• Documenting Your Idea

–      http://www.docie.com/patenting-help/documenting-your-idea/

• Document your Invention or Idea

–      http://www.veritek.com/Media/EDocs/documenting_the_idea.pdf

• 3 Things You Need to Know About Launching a Product Business

–      http://www.entrepreneur.com/article/230068

• Launching a Product Business

–      http://www.entrepreneur.com/article/230068

• How to Build a Billion Dollar Business Plan

–      http://www.forbes.com/sites/alanhall/2012/08/26/how-to-build-a-billion-dollar-business-plan-10-top-points-2/

Angel Groups

• Angel Forum of Florida

–      http://www.aiffl.org/

• Gulf Coast Venture Capital Association

–      http://gcvca.org/

• New World Angels

–      http://www.newworldangels.com/wp/

• Tamiami Angel Fund

–      http://tamiamiangels.com/

IP Strategy

Intellectual property (IP) is a big buzz word these days.  It’s important stuff.  If you can convince the US government (or other government) that you have an original idea, they will help you protect and give you exclusivity of it for a period of time, generally 20 years.  That sounds great, doesn’t it?  You can also file a provisional patent that is kind of places a foot in the door which discloses that you are working on an idea, but you aren’t ready to file a patent yet.  If you file a patent based on your provisional, you’ll get an earlier file date. 

Ultimately what you want is a Utility Patent.  You want to patent the actual utility of what you’ve created.  Those are the good ones.  There are other types like Design Patents, but they are more easily circumvented.

Above while I was talking about the government helping you protect your idea, they will only do so much.  The patent office does try, and they do a decent job, of making sure the patent they give you is unique, however they are not the only opinion that matters.  In the case where two issued patents have overlap, people can go head to head for years dumping tons of money into lawyers trying to get injunctions or other compensation in place.  Alternatively, you may have protected IP and someone else is selling a product which infringes on your patent.  It will cost a good bit of money to make them stop. The old line is that a patent is only as good as your pockets are deep.

So why patent at all?  It’s a reasonable question.  In general, patent what you can with the finances you have, but don’t go overboard.  Or, you can always take advantage of some other techniques like “first mover advantage” or “first to market”.  Coke doesn’t have a patent on the drink itself, but people can’t copy the true ingredients.  Coke has a trade secret on their recipe and they have proven that they go through extraordinary efforts to protect it.  The proof of how hard they protect it, and it actually being unique, provides them protection.

Footnote: I’m not a big fan of patents.  Not because I don’t think a patent is cool, but that they get way over used and big business has ruined it for the common inventor.  I do think they are very good for impressing your mother, and who doesn’t want to do that.

General Protection Mechanisms

So you are going to need to talk to someone about your ideas, as no one can do it themselves and you have to build a team.  So the first step is to have a Non-Disclosure Agreement (NDA).  This is a basic agreement between you and to whom you are talking to that they will not disclose your discussions and they will not benefit from them (unless you end up hiring them in some way).  These are basic agreements.  You can download them for free/almost free.  They are a good first step.  If nothing else, it sets a clear expectation that you expect your conversations to be between you and the other party.  If you don’t trust the other person, the NDA probably won’t mean much.  Also, many people won’t sign them.  Investors typically won’t as it exposes them to risk, as they tend to see a lot of deals and ideas.  They may already know 3 people working in that space.  The suggestion here is start out slow, and make sure they have a legitimate interest.  As the relationship grows, they may sign an NDA and get more involved with your venture.  On a side note, most professionals only have their integrity and reputation.  We know not to talk about other people’s ideas or to try to leverage information given in confidence.

Keep your mouth shut.  Not everyone at the bar on a Saturday night needs to know about your whiz bang idea.  Be careful about who you speak to about your idea.  Think of it as a need to know kind of thing.

Also, as you getting started with your team, you may be thinking, “We’ll figure out the money later” type of thoughts.  No, do it now, while there is nothing to argue about.  Money makes people weird.  At the very least create a rough operating agreement that you sign with your ‘friends’.  Talk about the ownership distribution, who does what, and how a person can leave or come in.  Just get some basics out of the way.  If the money starts rolling in, the last thing you want to do is start fighting with your co-founders about who owns and does what.  It will be over before it begins.

Also, keeping ownership straight, everyone should read up on the Copyright Law of 1976.  It talks about who owns things when you hire a contractor if not otherwise agreed to.  Make sure you understand the agreements you sign with contractors, especially dealing with ownership and rights. Yes, it is possible for you to pay for something and not own it or full rights to it.  There are all sorts of variations here where a contractor may become part owner (sweat equity) or a manufacturer may partner with you.  The key here is to make sure you understand the agreements.

Read the next installment.

• Price points – How many will be sold at a certain price point.  Refresh yourself on the Law of Supply and Demand.
• Market Research – Who is going to buy your product?  How much will they pay for it?  Are there other requirements to be in this market?
• Competition – Are you the only solution to this problem?  How do they price and market their product or service?
• Customer Identification – How are you going to find them?  How will they find you?
• Cash Flow – How much will you need to become cash flow positive?  What kind of funding tranches will you need?  Understand all of your expenses.
• Prototype Costs – You will need to show incremental progress, what will this cost?
• Manufacturing Costs – How much will it cost to make your product?  What if you make 100 at a time?  What if you make 10,000 at a time?
• Consultants – Find specialized people in their field to help you.  And they will need to be compensated.
• Intellectual Property – How are you going to protect your idea?  Are you going to pay a patent attorney/lawyer?
• Lawyers – They are not cheap.   They can help you do things the right way so you don’t get in trouble later.  What will their costs be?  Are they setup to work with small entities?
• Funding Sources – Find an investor?  Find a partner?  Are you going to fund this whole thing yourself?
• Product Launch Budgets – Don’t get to the end and not have the money to tell the world about your company.
• Planning Costs – Everything costs.  See above about the plan.  You will likely need to compensate specialized parties to help you plan.  Business Model Generation by Alexander Osterwalder may be a place to start.

No doubt this looks like a daunting list.  It is.  There is a lot of work and planning to be done to start a company, and I by no means consider this a complete list.

Marketing

Who is going to buy your product?  Why are you making this product?  Marketing determines and conveys the answers to these questions.  It’s how you tell the world why and who and what you do.

There are really a few books I have to suggest here that I really just love about marketing:

Start with Why, Simon Sinek.  This is an awesome book and really transformed the way I communicate and operate my business.

Tipping Point, Malcolm Gladwell.  Fascinating stories about how ideas propagate to the world and market.  Really you should read everything from both of these authors.

Back to marketing, there are some key core business questions your marketing plan should answer.  Where is this product going to be sold?  How many will be bought at a particular price point?  Who is going to buy this thing?

Keep in mind that you really may end up with several versions of a marketing plan.  Sure, you could sell Bentley’s all day long if you could sell them for $10,000.  However you could never get the price that cheap to sustain that model.  Everyone could sell millions of their products if the price was cheap enough.  So the obvious question is how to you get the price cheap enough, make millions of them to drive the price down.  To get the price down, invest in engineering and machinery and process, and to do that, you need a lot of money.  See the problem in this line of thinking?  You haven’t proven you can sell 1 and you want to invest millions of dollars to make millions of the product.  Before you can make and sell a million units, you need to prove that you can make and sell 100, then 1000, then 10,000.  Determine how your marketing will change based on your volume.

Read the next installment.

Build a Team

This is probably one of the most important steps in any business or product launch.  You are not an expert in everything.  You may not be an expert in anything but the idea you have.  Find people to help you that believe in you.  Find friends, partner with firms and consultants.  Work with business associates.  Find people who can help you in the spare time and possibly jump in with you if things start to go in the right direction.  It is far better to have a team and share the wealth than to try to do it all on your own and increase the likelihood of failure.  You need to convince a few associates to put their blood, sweat, and tears into your project, if you can’t get that done, you probably won’t be able to sell your product.

There are many aspects to the team.  You’ll want marketing people, law/IP people, tech and engineering people, etc.  It’s going to take a team.  Build the core.  And they all don’t need to quit their jobs and follow you.  Some may be family, friends, or other professionals.  I would expect a few people would be putting in time for you at night and waiting in the wings for your vision to take off, then they might be willing to quit their jobs and follow you!

Funding

An important part aspect of the business plan will be determining how you are going pay for this venture.  Starting a company takes a lot of moving parts, and money will be a critical part to this.  You really need to figure out how much you are willing to risk on this idea.  Don’t wreck your life over starting a company.  Most likely, unless you are independently wealthy or have a very high paying job, you will be looking for money from other places like investors and partners. 

There are a lot of ways to raise money. In the infancy of your company, you may be looking for what is termed a ‘Seed’ or ‘Angel’ round.  Seed money is the very first chunk you throw in.  It’s usually all your or close friends and relatives.  At the Angel stage, you’ve got a plan in place, but you need to make it to the next step.  It would be great at this point if you have sales, but validation will be really important here.  Have you proven there is a market, they will pay your price point, and you have a good idea what it will take to get there?  The Angel (the person) will likely be a key part of your company and will likely provide a lot of guidance and maybe even a title role based on their own experience.  After that you get into more serious rounds like ‘Series A’. 

Keep in mind too that it is easier to raise $10M than $100k.  There is a catch here though, you need to have a $100M idea.  The point here is, have a big plan.  Think and figure out how your company would look if it actually worth $100M?  Here is the mentality to this.  If a theoretical investor is willing to invest $1M in a project, he probably is worth upward of $30M.  He doesn’t need to double his money; that doesn’t impress him.  He wants to 10x his money.  This is further compounded by the fact that lots of people have lots of ideas, and only a handful make it.  So he knows that he needs to put $1M into 10 places, and that only one is maybe going to make 100x his investment.

One other key factor to consider when trying to raise money for your company.  If you can’t raise money, it means one of a few things:  You aren’t ready (not enough validation), it’s not a good idea, or you don’t have a good plan (or you don’t convey your plan well enough).  It takes time to raise money.  You have to find the right investor for your project.  However, if after a year of being ready and trying, you can’t raise money, you should really consider some of the other possibilities above.  And don’t just turn around arrogantly and say that they don’t know what they are talking about and try to fund the project yourself.  People fund good ideas and plans; you just may not have one.  Go back to the drawing board to validate and refine; or be glad you still have a day job!

Consult With Score

For some context, I originally created this presentation for my local SCORE chapter and I present it a few times a year.  SCORE’s consultation with me was one of the key pivotal points which launched my company from a one man show to what it is today.  I highly recommend the organization for their classes and training.  They however don’t do the work for you.  They are an all-volunteer organization and provide a lot of support to the entrepreneur and small business person. 

If you are new to the way business works in general or have a few weak spots either starting or maintaining the various functions you will need to run your business, check them out.  Depending on what you need, they will help select a mentor for you.  Don’t be afraid to ask for others or more than one either.  Find someone who has the wisdom you need and you work well with.  If the relationship is successful, you will likely be working with them for a while.

Start a Company

Now that you have your plans in place, you’ve consulted with SCORE and other consultants and friends, it’s time to launch your company.  Now I understand that for other reasons, you may have incorporated earlier before having your full plan in place, which is OK.  Some of those reasons may be to have a protective legal structure or just a place to move money around in a non-personal environment.  I mean you are really starting to run and operate like a company. 

There are a few key types of organizations you can create, generally you are either a C or S Corporation or Limited Liability Corporation (LLC).   There are lots of legal and tax reasons for each of them.  I personally prefer the S Corp, but the LLC is becoming more and more common.  I personally find the flexibility allowed in an LLC is not all that required or necessary.  This is a good question for your lawyer.  In either case, the primary reason for setting up a legal entity is separation from yourself personally and the company.  Secondary reasons for a corporation are topics like allowing multiple owners, accounting, and identity.

Licensing

Perhaps after reading all of this, you determine that maybe you really aren’t ready to start a company manufacturing and selling your product idea.  That’s quite OK, you can always try to license your product.  Essentially, this amounts to many of the initial steps of starting your company such has validation and prototyping, but if you can find someone who wants to build and market your idea for you, you can sit back and collect checks.  There are drawbacks of course, it’s not a perfect plan.

The first drawback is that you get out what you put in.  You’ve taken far less risk on launching your product.  You are likely to make a few percentage points on your idea.  The risk was taken by the licensor who manufactured and sold your product.  They will make more money on your idea than you will, and that is OK.

The second is that these agreements can get really complicated and this is where you see inventors getting taken advantage of a lot.  You have an idea, you naively contact an ‘investor services’ company, and they license your idea away for a very low rate, and are not obligated to do anything with your idea.  There are many reasons why they don’t move forward with it, but there is nothing you can do about it.  Be careful with these agreements and get a licensing lawyer involved or someone experienced in the process.

Really the advantage is that you take much smaller risk.  You may have $10,000 in your idea and patent, and that’s it!  Find a good licensing deal and collect checks.  And if they don’t come in, you are out $10,000 and consider yourself lucky.

Read the next installment.

For the last year or so I’ve given presentations at my local SCORE chapter about how to take ideas from concept to reality.  It’s titled, “I Have an Idea, Now What?”  It’s been very well received and I keep getting invited back so I guess they feel it’s helping people; however, for those of you who don’t know what SCORE is (in which case I hope you will look in to the organization) or don’t live in our local area where I speak, I decided to write a multi-part blog detailing the presentation.  Here is my first installment.

My name is Gabriel Goldstein and I own Anidea Engineering.  I started it in 2001 while I was working in conventional employment.  During that, I was head hunted to work in a startup to develop some automated lighting equipment for music and entertainment venues.  When that startup was written off by our financier, I took Anidea full time.  Over the last 13 years, myself and my company have developed dozens of electronic and mechanical systems.  Everything from little things that blink and beep to GPS golfing assistants, and cow mating detection systems.

Before all that, I attended University of Central Florida and graduated in 2000 with a BS in computer engineering.  I worked as an engineer most of the time I was in school.

I come from a long line of entrepreneurs.  My parents are entrepreneurs, all of my grandparents were entrepreneurs, and 2 of my 3 siblings are entrepreneurs.  You can argue nature or nurture, but you can’t argue it’s not in my family.

Disclaimer

So here is where I tell you what I’m not.  I’m not a lawyer or patent attorney.  The content here is based on my 18+ years’ experience as an engineer and entrepreneur, your mileage may vary.  Everyone’s situation is different and needs specific evaluation. 

How Invention Works

So most people think this is the way invention works.  You wake up one day with this idea and get all excited.  You do some Google searching (maybe), find a manufacturer, then you sit back and wait for the money to roll in.  Keep an eye on the dollar signs in the presentation, they are proportional. 

How Invention Really Works

So this slide is still overly simplified.  There are many, many ways to get your idea to a profitable state.  The key decision is whether you want to start and run a company or license.  Sure there are lots of people who will offer free or cheap help, but you usually get what you pay for.  In this world, the more you put into something the more you get out; the higher the risk, the higher the reward.  There are exceptions (they are called luck), but you should be familiar with these life concepts by now.  There will be more on this later.  The key thing to understand here is that it’s a lot of work and it’s quite complex.

Why Am I not Rich Yet?

So you have this idea, you’ve toyed around a bit with it, and you have expectations that it is really a good idea.  So you may be wondering why the world isn’t blazing a path to your door.  Thomas Edison said “Genius is 1% inspiration, and 99% perspiration”.  Another famous person, Ashton Kutcher stood up at the Teen Choice Awards in 2013 and stated, “I believe that opportunity looks a lot like hard work.”  He didn’t discover this thought.   Credit goes back to the 1900s or so.  You have not yet begun to perspire.  So yeah, I get that quoting Kutcher may sound strange. For those of you reading this, people used to tell me I looked like him a lot when I was younger and he was more famous.  I’m also just trying to be relevant to the ‘kids’ out there. J

Idea

Time for some definitions.  So an idea is just the most basic starting point.  It has little intrinsic value.  People have lots of ideas, some are good; most are bad.  Don’t get too caught up on any one idea.  Ideas need to be nurtured and researched.  Linus Pauling said, “The best way to have a good idea is to have lots of ideas”.

Things to consider:

Do You Have an Invention?

So how do you know if your idea is an invention or not.  A time ago, this would have been a relatively difficult task.  Nowadays, one word, “Google”.  Google it, Google it again.  Use alternate search phrases.  Ask close friends how they might describe it, then Google that.  I can’t stress this enough.  Many times I’ve been sitting in new client interviews and as they start describing their product, I find it on Google, Ebay, or USPTO (United States Patent & Trademark Office) in 5 minutes.  After you’ve exhausted Google, move to the USPTO.gov site and search there for a while, then pay for a professional patent search.

Is Your Baby Ugly?

This is a tough one.  Not all your ideas are good ones.  Some are ahead of their time or just don’t have the marketability to sustain a profitable product development cycle.  Talk to trusted associates.  Get honest feedback on your idea.  Validation is key.  Investors always want an idea to be proved out to some point.  You are your own investor.  Validate your idea before sinking too much time and effort into your idea.  You will need to strike a balance between keeping your idea confidential and talking to enough people and assessing the marketability of your idea.  Remember, you need to think about this like you are starting a business.  If you are not out to make money and run this like a business, it’s a hobby.  There is nothing wrong with hobbies, just keep that in mind as you make what are really business decisions.

Risk Assessment

One should consider what they are willing to put on the line to achieve their dreams.  Not all ideas should be a bet-the-farm, let it all hang out, all-in venture.  Most should not for that matter.  However, this is what sets apart the men from the boys.  All businesses and ideas take risk.  You have to.  Few things in life are guaranteed, just death and taxes.  Do you have a lot of ideas to build a company around?  Are you prepared to quit your day job?  What will be sacrificed for you putting in another 30 hours a week in at night while you do the leg work to build your new business (something will, no exceptions). 

My point here is that you need to take smart, calculated risks.   Don’t dump your life savings into an idea before you know you have a market.  Do spend some seed money for a proof of concept for some market research to prove your direction is solid.  Do get enough validation, convince others, and get help.

This is entrepreneurship.  Believing in something before anyone else believes in it.  If you are going go down this path, you have to be prepared for a rough road.  You get out what you put into it.  At this point you are likely to have more time than money.

Read the next installment.