Use the system

Taking into account my previous comments regarding protecting yourself and your idea, there is a range of services and supports available to help entrepreneurs/inventors to develop and commercialise your ideas. You always need to remember who you are talking to and what they specialise in. So talk to:
• Local enterprise/development agencies (including local enterprise offices, partnership companies, local development bodies etc) about pre-enterprise programmes to help you develop your business plan and structure your thoughts on your idea
• University Technology Transfer Offices regarding the development of the idea (technical and commercial), IP protection and possible business incubation. This is for the any idea relating to technology, pharma, telecoms etc. The TTO office has staff who specialise in bringing entrepreneurs through the process and make the connections with the researchers in the university to help develop the idea technically. There may also be funding options available through feasibility grants, innovation vouchers etc depending on the country, region and time.
• Business incubators to help get a business started. There are a range of incubators: for profit, nonprofit, third-level and investment driven. They all provide affordable enterprise/office space for start-up ventures but they all provide other soft supports, networking opportunities and some give access to finance. If your idea is already developed and ready to go, go talk to your local incubator management about practical start-up support. Many incubators also offer business address services, where people can use their business address rather than using their home address if they do not have commercial premises
• Enterprise agencies regarding grants and funding, assistance with internationalisation (exporting), access to trade missions and support from sector-specific experts

Other agencies and enterprise-support organisations offer mentors, advice, connections to key business and public contacts and moral support when things are slow. There is a lot of funding made available by local, regional and national governments to promote innovation and new product development. Officials see this as a key economic growth factor and there is significant lip service made in this direction, even if the technical and economic understanding behind the rhetoric is a little thin at times. Find out what is available to your in your area and leverage the available resources to help you.

A final but important point is that agencies and organisations are made up of individuals and the strength of the agency is only as good as the strength of the people working there at the time. The reality is that many bureaucrats simply ‘do not get it’ and potential entrepreneurs may get frustrated by being ‘bounced around the system’. If you have a negative experience with an agency you must not be put off, it just could be the individual bureaucrat. In every system there are key, competent, people who do ‘get it’ and part of the process is finding the right people. Talk to people who have been through the system and had positive experiences and ask them who they dealt with and how they went about building relationships. Get referrals to the people in the system that do facilitate innovation and work with them. Use the system!

Getting funding

As noted in earlier posts on this blog, the 2 main sources of investment are business angels and venture capital (VC). Angel investors are the single largest source of funds available to start up enterprises (Sudek, 2007; Szerb, Rappai, Makra, Terjesen, 2007). Further many ‘venture capital-funded companies were at least three years old when they received their first round of funding’ (Schramm, 2004, 112). Thus, first get ‘seed’ or ‘angel’ funding and then build on to VC funding. Now it should be remembered that many ‘service’ type businesses can be built up through personal funds, natural growth and financial instruments like term loans, overdrafts and short-term funding but innovation companies tend to be faster growing and in need of higher levels of capital.

Sudek (2007) in his empirical findings noted that there were 4 themes that angel investors focused on:
• the passion of the lead entrepreneur
• the trustworthiness of the lead entrepreneur
• the quality of the management team; and
• the existence of an exit strategy or liquidity potential for the investor’ (p95).

He further noted that investors ‘liked teams that struggled through hard times and kept pursuing the venture’ (p96). Regarding exit, as IPOs are rare, ‘angels are very interested in learning who are the potential acquirers may be for a particular venture’ (p96). This brings us back to a point made in the previous post regarding the importance of building a management team. Investors tend to want to back a team of people rather than an individual. This makes sense as no one person can have all the necessary skills to build a fast-growing business and a team of people allows for the organisation to expand more quickly than a single individual which inevitably becomes a constraint on growth.

The other point that entrepreneurs need to understand is having an ‘exit’ strategy for the investors, especially angels and VC. Too often, entrepreneurs make great pitches on the idea and possibly the market. Usually, they are light on the financial figures (which is inexcusable of making a pitch to investors) but they rarely, if ever, demonstrate a path for the investors to get their money back and make a profit on exit. If investors cannot see a way to get their money back and make a profit then they will never invest. So now you know to focus on building a team, showing how you built the idea, show how you built the team and the organisation and how they can ‘exit’ with profit.

Commercialising the idea

If the idea is commercially and technically viable and you have protected the IP, the next step is to commercialise the new product or service. Gaining IP protection takes time, money and resources and should only be done if you intend to commercialise the protected knowledge. There are a number of ways to commercialise IP, such as
• Starting up your own venture to exploit IP
• Licence the protected IP to larger players and get a fee per year/sale
• Establish a joint ventures between yourself and other business maybe to exploit IP in other countries or regions that you cannot access
• Sell the protected IP for a profit

Starting your own business: this is the DIY option. There are a few things you need to consider before going down this route:
• Build a team: Nobody can build a fast-growing business on their own; no one person has all the skills. The lessons from successful tech companies of all varieties are that people need to build a strong management team first and then utilise their skills and experience to commercialise the product. Usually, this team requires a Chief Executive Officer (strategic boss who oversees the development of the business and strategic deals etc), Chief Financial Officer (the accountant and guardian of the finances: very important if you want angel or VC funding), Chief Operations Officer (the person who runs the floor on a day-to-day basis, usually a tech person), there is also going to be a senior sales and marketing person if not covered by the other positions. A key point; you can be any of the above positions or once the company is up and running you can be the Chairperson of the Board or President. Not all inventors are cut out to be the CEO, many might be COO or just hire in the staff and steer the company from the Board
• Build a market and customer base: Sustainable businesses are built on developing long-term business relationships. Repeat business is the key to building a strong company. Reputation is the most important asset you can have
• Get a good Administrator: You need to have someone who keeps control of the books, invoices, credit control and cash flow issues. Good administration means good cash flow
• Get investors who are committed for the long run: Get investors who will partner you in your business and gain maximum returns through building a strong enterprise, not a quick hit
• Plan, plan plan…: Planning is a process not a document. Constantly update your plans, measure and assess the current plans, tweak for improvements
• Keep an eye out for possible innovations and alternative uses/markets: Look for the outliers, look for different ways to utilise and apply the current products and services, maintain your curiosity and innovation

There are of course other options:
• License the invention to a larger company and take a fee on ever unit sold. Larger companies will have much stronger market power and ability to bring new products to market. You will need professional advice when negotiating with potential companies to ensure you protect your IP and maximise value
• You could sell the rights to the patent, license etc. Valuing IP is as much art than science and again a subject for which you will need to take professional advice.