Vol. 1, No. 7
May, 2001
No one really likes to be tested or examined. That's why most of us drag our feet when we are due for a wellness physical. The reason we do so is probably not because we think it is unimportant. Deep down inside, most of us are afraid the exam will reveal that something is wrong. Inventors are no exception as most ignore the idea screening/evaluation stage in the industrial innovation process while corporations typically pay careful attention to it. This is a major reason inventors find innovation to be a very risky business.
Originally I was going to start this session with a modest bit of marketing theory pertaining to the innovation process. I scrapped that start when I received a telephone call from a concerned inventor client who was upset because his evaluation report had arrived. He didn't question the evaluation and thought it was quite comprehensive. He didn't even object to the "Limited and Cautious" recommendation he had received. He wanted marketing help. Never mind the fact our disclosure form has some very specific statements about what we do and don't do. He had his mind set on pursuing his invention—without any regard to the commercial potential of his idea.
It was his statement, "But I didn't want an evaluation, I wanted help in developing and marketing my invention" that changed the course of this discussion. Why? Simple. With a mind set like this, this inventor and the many others like him are destined to be disappointed and to suffer loss of considerable time, money, and effort.
Note that I did not use the phrase "ripped off," nor did I point a finger at the invention promotion industry. The term "suffer loss" includes being ripped off, but it is much broader as it includes unwarranted investment in legitimate services including prototyping, patenting, product design, packaging, and a host of other such services that may be needed to ready a product for the marketplace. To be sure, being ripped off does add insult to injury, but equal or greater injury can happen in the best and most respected circles. Financial loss is financial loss, regardless of the circumstances. The hurt in the bank account is the same.
Permit me to be as graphic as possible. Plowing ahead without first considering your goings is like playing "Inventor Roulette." This is a bit like "Russian Roulette," but with a very big difference. Instead of one bullet in a six round cylinder, the cylinder is fully loaded save one empty chamber; but in Inventor Roulette the revolver doesn't have six chambers, it has between 100 and 1000 chambers, depending upon the industry and the current phase of development, and all but one are loaded.
These are not figures pulled out of the air. The new product development literature indicates that, on average, corporate inventors face an idea mortality rate of about 99 percent. The independent inventor, without corporate resources and expertise to back him or her up, faces considerably greater odds. No one knows for sure what the odds are, but the ratio of 1 successful innovation per 1,000 ideas keeps popping up in discussions with knowledgeable persons. Whatever the actual ratio may be, one thing is certain: innovation is a very, very risky business.
Corporations deal with this risk by evaluating potential new products very early in their gestation period. Over ninety percent of major corporations have a structured, formal new product idea evaluation process in place. Typically they do not stop there; they couple continued evaluation with research throughout the development and pre-commercialization phases of the innovation process. This process of reevaluation at each major stage in the innovation makes a good deal of sense because:
As a result, corporations face better than even odds at the market introduction stage with an overall new product success rate of 40-60 percent. Simply put, corporations do a better job of managing the risks involved. In contrast, independent inventors tend to blindly plow ahead without pausing for critical review. As a result, significant expenditures are made before the realities of the marketplace catch up to them.
Unfortunately, independent inventors face far greater odds than sophisticated, well-financed, and well-positioned corporations. As just noted, no one knows for sure what the odds are for inventors. One thing that is known is that as an idea turns into an invention and begins to wind its way through the innovation process, more information becomes known and it is possible to make better decisions about further development. The idea mortality rate is not likely to change. Even if this were possible, it might not be a good idea. Creativity depends upon thinking outside of the box. Anything that restricts that process is likely to reduce the flow of creative thinking. Financially speaking, creative thinking costs very little. Ideas are obviously critical to the innovation process, but they are also by far the least costly part of the innovation process. Education can help improve the quality of ideas and can help creative people become critical thinkers as well as creative thinkers. Still, the innovation process is inherently risky and the idea mortality rate will always be high.
Turning off the creative spigot won't work. People who don't invent don't make any mistakes in the process of inventing. They also do not produce anything of value to themselves and society. Invention should be encouraged, not discouraged. Unhappily, the current practice leaves inventors holding the bag of incredibly high risk and costly mistakes. The current widespread practice of not engaging in serious critical thinking has costly consequences. For example, consider the cost involved in patenting an invention. The best estimate I can coax out of my friends at the Patent Office is that perhaps two percent of independent inventor patents are ever commercialized; a fair number of these fail to produce any revenues for the patent holder. It is a good bet that less than one percent of all independent patent holders earn a profit from their inventions. Assuming an average total cost of $4,000, the system doesn't break even unless the lucky patentee earns more that $400,000, which is small comfort to the 99 who lost their investment.
One way to assess the potential of an idea or invention is through market research which typically involves survey research and analysis of secondary data published by the census bureau, industry associations, or other sources. A good deal of such information is readily available in libraries and through the Internet. The problem with such secondary data analysis is that it generally requires training and/or experience to make much sense out of this information. In addition, much of this information has little relevance to an inventor with an idea. Survey research can be a lot more relevant, especially if it provides some insights into the potential demand for an idea or invention. The problem with survey research is that tricky to do right and may require large numbers for statistical accuracy. Developing questions that are not open to different interpretations by respondents or that do not suggest the desired answer is not easy. It takes a lot of thought and effort to come up with a perfect set of questions. Even if perfection is achieved (which is rarely, if ever, the case), the person asking the questions can foul up the results if they are not skilled in the interviewing process. In other words, research that produces results that can be relied upon can be very expensive.
The garden variety of research conducted by inventors, usually limited to checking out a local store or asking a few friends and relatives, is usually worse than worthless as it is generally misleading. There is an exception to this: if you find a clone of your idea at the store or if your friends and relatives tell you your brainchild is ugly, you can safely shelve the idea without much fear that you are passing on a winner.
However, if you don't find your idea, don't assume it doesn't exist. Likewise, don't trust your friends and relatives to be truthful. After all, the chances are that they like you and don't want to hurt your feelings. In addition, chances are you have engaged in a fair amount of personal selling in explaining your idea or invention to them. Both factors introduce whopping big biases that skew the results way out of reality. In other words, asking friend and relatives will virtually guarantee you good news. The problem is that this good news is very likely to turn sour after you have invested a lot of time and money in your project. You can ask strangers, but again unless you are skilled in the interview process, you will likely bias their answers to such an extent that the results will be unreliable. They too don't want to hurt your feelings.
The situation isn't hopeless. In fact, the solution is relatively simple. Postpone falling in love with your invention and invest some serious time, effort and, yes, money in evaluating and researching the market for your idea. Remember this isn't all about how good your idea is, functionally speaking. To a far greater degree, it is about how the marketplace is likely to react to your idea, provided you can get through corporate resistance to outside new product submittals, or buyers who already have far more new products than they have shelf space for, not to mention a marketplace that is not nearly as interested in your invention as you are. It will take a good deal of market research and planning to chart your course through the barriers and complexities of the marketplace.
Before you invest in a patent or a significant amount of market research and/or product development, you should have a solid professional assessment of the risks involved in your venture. Evaluation is not just about how big the market might be for your invention. These estimates are often meaningless when the risks involved are assessed.
It has been our longstanding professional opinion that commercial or technical evaluations should be performed by independent professional evaluators with no other axe to grind. That is, they should be independent of, and have no financial ties to, other fee-based inventor services. There is an inescapable potential conflict of interest when evaluation is part of a bundle of services offered to inventors. This does not mean that a conflict of interest is inevitable, but it does mean that the potential is there. In fact, there is some evidence that some invention promotion firms may be using evaluation as a marketing tool used to sell other services to inventors, rather than as an objective effort to help inventors make decisions that are in their own best interests. Bogus or overly optimistic evaluations serve no one's interest except that of the provider. Optimistic evaluations are unfair to both inventors and those who may invest in their
inventions. This is precisely why the WIN innovation evaluation program will not engage in inflating the potential value or deflating the risks of an invention. Others depend on what we say. Therefore, we have an obligation to everyone to be honest and objective in our assessments.
The best way we know to avoid this conflict of interest is to separate invention evaluation from other inventor services. This is precisely what we have done. WIN is a cooperative venture of Southwest Missouri State University and the Innovation Institute. WIN receives no government or corporate support. We are 100% supported by user fees. At the heart of our service is the PIES-IX evaluation format I developed in 1974 under National Science Foundation funding. Since then, PIES has been used to evaluate perhaps 40,000 ideas, inventions and new products by various users in the US and elsewhere.
We do not provide any additional fee-based services to our clients. Referral to our national network of resources (see Volume 1, No. 6 ) is at no cost. Likewise, there is no charge for any referrals we make to any company; nor do we receive any compensation of any kind from any individual, firm, or organization to which we might refer you. Our objective is to provide inventors and smaller enterprises with an honest and objective assessment of the risk profile and market potential of their ideas, inventions, and new products.
The purpose of PIES is fivefold:
As indicated by Table I, PIES-IX uses 42 criteria to assess the commercial merits of an idea, invention, or new product under review.
| SOCIETAL CRITERIA 1. Legality 2. Safety 3. Environmental Impact 4. Societal Impact |
MARKET ACCEPTANCE CRITERIA 19. Compatibility 20. Learning 21. Need 22. Dependence 23. Visibility 24. Promotion 25. Distribution 26. Service |
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BUSINESS RISK CRITERIA 5. Functional Feasibility 6. Production 7. Stage of Development 8. Investment Costs 9. Payback Period 10. Profitability 11. Marketing Research 12. Research and Development |
COMPETITIVE CRITERIA 27. Appearance 28. Function 29. Durability 30. Price 31. Existing Competition 32. New Competition 33. Protection |
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DEMAND ANALYSIS CRITERIA 13. Potential market 14. Potential Sales 15. Trend of Demand 16. Stability of Demand 17. Product Life Cycle 18. Product Line Potential |
EXPERIENCE AND STRATEGY CRITERIA 34. Technology Transfer 35. New Venture 36. Marketing Experience 37. Technical Experience 38. Financial Experience 39. Management/Production Experience 40. Initial Distribution Strategy 41. Market Entry Barriers 42. Overall Market Attractiveness |
Note that only one criterion deals with the better mousetrap theory; that is, the functional aspects of the invention. However, many focus in large part on factors external to the invention, but which impact very heavily on the commercial feasibility of every invention. There isn't any magic in the PIES format and it is fairly straightforward to those who are reasonably well versed in the affairs of the marketplace. However, the interrelationship of these factors are often confusing to inventors not well versed in the affairs of the marketplace, or blinded to the complexities of the innovation process by their love affair with their idea or invention.
For example, most of you define your competition far too narrowly. The marketplace is not like the Patent Office where "not just like mine" counts. The marketplace could care less—it does not buy quarter-inch bits. . . it buys quarter-inch holes. Narrow definitions are comforting, but can lead to overstating the market and a multitude of strategic marketing errors. Competition does not end here. At the retail level, for example, your product will compete with every other product in that product category. Once on the shelf, you struggle with every other product in the store for the shoppers attention. In the case of the very large "mega" retailers, your competitors number between 65,000 and 90,000. Therefore, we define competition broadly. For a more detailed discussion of the dangers of a narrow definition of competition see "The Parable of the Ostrich and the Tiger" in an upcoming edition of Innovation Review (Vol. 1 No. 9—we'll be posting it in June.)
Just as many inventors bypass evaluation, inventors typically skip over many of the other barriers that lie in their path. Permit me to touch on three:
The PIES format is designed to consider these factors and to provide you with a profile of the risks that may not be apparent to the untrained eye.
In addition to a report detailing our findings, each client receives a copy of the PIES Innovation Evaluation Manual. It explains the PIES format and interprets our findings, and provides inventors with information about the innovation process. Thus, our program has a strong educational objective built into it.
In addition to our evaluation service, we have developed an innovation network of approximately 2,000 management, technical, legal, and technology transfer resources (our WIN Resource Partners). Referrals to state networks are made at no cost to our clients. There is a catch, however. If the evaluation indicates low potential, the referral service is not available. There is no sense in wasting either inventor or resource time and money on projects of little merit.
In a very real sense, we are in the sifting and winnowing business; we separate wheat from the chaff and try to make it easier for the wheat to go forward. But does this strategy work? Our research indicates that it does. Interviews conducted with buyers we've talked to suggest that the odds of getting buyer approval improved by a factor of ten for firms participating in our program. Likewise, a survey conducted some years ago indicated that the market penetration rate of our clients was about five percent, which is a good deal better—perhaps five or more times—than average.
Obviously, not all our clients get good news, but the results are not as bleak as the ratios above would indicate. About 15 percent are recommended for consideration by major retailers or other channels of distribution. This isn't necessarily good news—it simply means that many of our clients do not contact us until they are well along in the innovation process and after they have invested a substantial amount of money in their inventions. Only about 10-15 percent of our clients are starting with an evaluation. Another 15 percent or so have invested in a patent search, which is a good idea. The remaining 60 percent split about even between patent applicants and patent holders. In short, most of our clients have played the game of inventor roulette to varying degrees.
There isn't any magic or games being played here—just plain common sense. The WIN/PIES program works because it helps inventors to prepare for the tasks that lie ahead and it lends credibility to ideas and inventions of substance. In addition, it provides all inventors with a better basis for decision-making. The tough game of industrial innovation isn't just about winning. Few inventors are successful the first time. Our research of successful inventions suggests there is a learning process involved and that inventors fail three times before their first success. In a very real sense, PIES is designed to help reduce the high cost of tuition in this school of hard knocks.
Gerald G. Udell, Ph.D.
Copyright © 2001 by The Innovation Institute.
Permission to copy for free distribution granted to SCORE/SBDC's