Last year, a small group of engineers and other technical types saw a problem and invented a new gadget to fix the problem. They test-marketed a "proof of concept" unit, which excited the customer who used the gadget and gained interest from others who wanted to purchase the unit, even at the hand-built stage the unit was in. The inventors realized this high level of interest meant they could go to market with a set of prototypes. Instead, wanting the product to reflect their engineering expertise and professional approach to problem-solving, they hammered on the design details of this gadget for the past year and finally filed for a patent last month.
One of the engineers brought me on board about a month ago to run the business side of their venture. After examining their gadget and analyzing the gadget's potential market, I assembled a business plan to give the inventors information they needed in order to see if they really wanted to incorporate a business, finalize the product's design for manufacturability, work with a contract manufacturer (CM) to mass-produce a bunch of units, start selling the gadget by the dozens and build enough momentum in the marketplace to attract a buyer. At the same time, I established a budget so the inventors could see the investment dollars they needed to offset the cost of the startup, including consulting/contracting fees for accounting and engineering support, salary for a technical manager and payment to a CM for a set of preproduction units (and the first run or two of production units, depending on cash flow).
As is the case for many startups, the inventors want to maintain majority control of the company so they will benefit from their invention whenever profitability and/or buyout occur. They don't want their invention to make someone a gazillionaire while they end up getting pushed out the door without so much as a dollar for their efforts. They have seen this happen to friends of theirs and don't want to make the same mistake. Therefore, I set up the business plan to show their majority ownership position to potential investors.
The investors we've spoken with so far see the great potential for this product, which is somewhat recession-proof and opens up a completely new market. Well, as luck would have it, we started selling the business to investors during the recent downturn in the stock market. In addition, the U.S. Presidential election takes place in two weeks. Combine those two uncertainties and investors have shied away from putting money into a new company until at least after the election and perhaps until after the first of the year.
So what's a couple of months, right? Well, with this delay, we've already lost one of the key members of the group, who would have worked as the technical manager to coordinate all the development activities but can't wait until 2009 for investors to fund his salary. He left this week to work a regular, six-figure, salaried engineering job and he's taken his expertise and the investors who counted on his participation to make the product a success.
Meanwhile, the remaining members of the team have agreed to move forward with the product, albeit at a much slower pace.
Those who take risks know they don't fail. They just add to their list of lessons learned. Although this current business venture hasn't yet failed, it has faced a setback and reminded me of a valuable lesson:
There's no such thing as the best time to start a business but there sure are times when getting a business started would be much easier!
I'll keep you posted.
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