|Volume 1: No. 30|
Suppose you have a good product idea; how do you make it pay? A basic principle is that your idea becomes more saleable the further you move it toward production and retail sales. Once you're in production, it's very little trouble for another business to acquire and improve on the process. An existing company already has a sales channel, warehousing, accounting, etc., on a scale that you can't emulate. All that you need to supply is the product and enough of a market study to establish a fair price.
Another principle is that time and money are interchangeable. If you can't develop a product yourself, you can pay someone else to do it. One leading design house is 125-employee Innovation, Design and Engineering Organization (IDEO) Product Development (SF, London, Chicago, Boston), which has developed 68 computers (including the NeXT black cube) and more than 430 other products. IDEO is a merger of David Kelley Design with Matrix Product Design and ID Two. David Kelley says "If you're not thinking about subcontracting everything related to your company, you're not ready for the 1990s." [Jon Swartz, The Business Journal, 10/7.]
If you haven't got money, of course, you may have to raise capital by presenting one heck of a business plan. Try for loans instead of selling equity (e.g., to venture capitalists), but know that you generally can't attract qualified management assistance without giving an equity stake. You can get management advice from retired executives (SCORE volunteers, contacted through the Small Business Association), but that's not enough to satisfy venture capitalists. (Banks are even more hard-nosed, and will generally only loan against resale value of equipment and inventory.) Getting capital for product design may be especially difficult, since there's no product to demonstrate. If you can't find a sugar daddy, expect to put your mortgage at risk. And keep in mind that EVERY entrepreneur underestimates costs by at least 100%.