Explain you credit organization vision
Once you commit to partnership, you must invite your partner into the strategic planning process with you. KLM and Northwest Airlines do joint strategic planning for the marketing of the flight schedules. Coca-Cola and McDonald’s launch promotional activities as a result of strategic planning. To get additional value from the partnership, the partners must engage in some strategic thinking and thus planning in order to achieve the outcome they both desire.
The Strategic Framework is a format I’ve used to help partners get the greatest value from their partnership. Based on the Holistic Organization Model, it explores both the material and ethereal realms of each business. With this format you can see how these two separate realms complement and support each other as they create the outcome: the product or service they want to deliver. Starting at the top of the model I ask the partners to explain their organization’s vision.
Professional partners improve your credit chances
Professional partners are a special category of partners. They do not invest money. Instead, they invest their professional services in exchange for a share of your invention or your business. Patent attorneys, patent agents, professional prototypers, accountants and contract attorneys all have the potential to be a professional partner. Before you get too excited that this will be a way that you can dramatically decrease your expenditures, be forewarned that professional partnerships are hard to come by. Some independent inventors think that when their patent attorney sees their great idea, he will eagerly barter his services for a share of the invention. This is rarely the case. Keep in mind; patent attorneys earn their living by seeing inventions every day, all day. They couldn’t make a living if they traded their services for a share of each invention that came across their desks.
We have heard of cases where a patent attorney did become a professional partner to an inventor but these cases are extremely rare. We mention it here only because it does happen on rare occasions and it may be worth it to you to suggest it if the individual you are working with indicates a strong enthusiasm for the invention. It is something that every patent attorney or patent agent has had suggested to him at one time or another. It doesn’t hurt to ask. and he will not be offended if you ask, but don’t get your hopes up.
Groups that help with credit and loan solutions
You may be thinking, “I’ll just go to a Venture Capitalist. Isn’t that what they do?” The answer is no, rarely, if ever, for you as a small independent inventor. Venture Capitalists are the big time. They invest big money, to be sure, but they want a virtual guarantee that they are likely to make big money on their investment in a relatively short period of time. Independent inventing is entirely too risky for most Venture Capitalists. They are not an option for most independent inventors.
Investment angels, on the other hand, may be a possibility. Investment angels can be found informally among the people previously suggested: doctors, lawyers, accountants and so on. Or, they may be found in formal organizations. For example, many communities have investment angel groups. You can find listings for such groups in your local business journals.
You can find links for several angel investment lists in Appendix B at the back of this book. You can also find angel investors by running a classified ad for them. Your ad should say something like, “Inventor seeks angel investor for patent-pending product. Small investment opportunity. (Your phone number).”
Classified newspaper or Internet ads that you find listing investment angels may or may not be legitimate! They are often “services” that promise to put you in touch with angel investors in exchange for a fee. It is best to find your own angel investors.
Where can you find credit investors?
The first place to look for investors is among your family and friends. They love you. They want you to succeed and if you can convince them that you have a great invention idea, they may be willing to invest their money. For them, they are investing in you as well as your invention. They will undoubtedly be the easiest people in your circle of influence to convince to invest.
Second, look to acquaintances. This may be your doctor, lawyer, dentist, accountant, co-workers, etc. Professionals you know may be willing to invest some of their expendable income in your company/invention if you present your case in a compelling and convincing manner. The stock market has disillusioned many an investor in the last several years and these professionals may be willing to invest a small portion of their portfolio on your invention.
You will need to do your homework before you approach them. Don’t just go in with a great idea. Before they are likely to invest their money they will want to see, at the very minimum, a business plan for developing and marketing your product. If you have not written a business plan, they are likely to see your project as entirely too risky.
Use good credit to boost your profits
Almost every inventor who is operating on limited funds has had that “Aha” moment when they think, “I’ll just tell someone my idea and they will see how terrific it is and want to give me money to develop it.” If you are lucky enough to find someone who shares your enthusiasm for your product to the degree that he wants to invest his money in it, you should negotiate your arrangement with him in a professional manner. You will need to have a written contract that clearly delineates what he is giving you and what he is getting in return. Is he sharing in gross profits or net profits?
How do you determine what those are to everyone’s satisfaction? Will he have part ownership in your business or company? If so, how much? How much is too much? Will he have a percentage of your company or shares of company stock? How do you determine what is a fair percentage to give him in exchange for his financial investment? How much input will he have in the decision-making process of your company? Are you required to pay back his investment in addition to sharing profits? Does he understand the risks involved; that he may earn money on his investment or he may lose all of it? What happens in that case? Are you required to pay him back if that should happen?
If you are getting an investor it is a good idea to get a legal contract drawn up by an attorney to reduce the likelihood of misunderstandings down the line. This is true whether your investor is family, a friend, or merely a business acquaintance.
Insurance that will reduce your credit risk
Your life insurance policy may have a cash value against which you can borrow. The interest rate for borrowing your own money, in effect, is usually lower than almost anywhere else you could borrow the money. If yours is a whole life policy, this may be a possible source of money that you could use in the development of your product. If it is a term policy, there will be no cash value option. Check with your insurance agent to see if this is a possibility for you. Be certain that borrowing against the cash value will not reduce the benefits to your family should something happen to you. No matter how great your invention and how much faith you have that it will be a fabulous financial success, the financial security of your family should be your first priority, not funding your invention. You can find creative ways to plan for expenses or obtain funds for your invention without putting your family at financial risk.
A loan without putting up any collateral
If you want to get others to help you with the expenses related to your product development, you have several options. First, you could go to your local bank or credit union and get a loan. Often you can get a signature loan, that is a loan without putting up any collateral, for $2,000 to $3,000 if you have a good record with the bank or institution (no bounced checks, etc.). That may be enough money to launch your quest.
If that amount is not enough to fund the initial phases of your invention (this would likely only be the case if your invention were technical or complicated), you could get a larger loan by putting up collateral. Most often people use their homes as collateral for larger loans. This is a perilous proposition and not one we would recommend. We know that you believe that your invention is a sure thing and we hope that it is, but there are so many variables involved with inventing that no invention, no matter how good, is a sure thing. If you do not have a way to pay back such a loan without counting on potential income earned from your invention, don’t do it! No invention is worth risking your family’s financial security. We once heard from a want-to-be inventor who had done that very thing. He had mortgaged his home and had no way to make the payments when his invention failed to produce the income he expected. He was evicted from his home and found himself and his family homeless! Don’t let this happen to you!
The Small Business Administration is yet another possibility for obtaining a loan. SBA loans are actually loans you get through your local bank or credit union but they are guaranteed by the Small Business Administration. SBA loans are usually for between $10,000 and $150,000. They are most often given to small companies with a proven track record. They are seldom, if ever, given for something as speculative as an invention. Your best chance of obtaining an SBA loan will be if you have established a business around your invention or you already have a small business and are simply incorporating your invention into your business.
Credit card interest rates are high for high amounts
If you do not have personal savings with which to fund your invention, you could use your credit cards. This is a slippery slope, however. Never charge more than you can easily pay back within a reasonably short time. Credit card interest rates are among the highest and using credit cards for large amounts that must be paid back over an extended period of time is not a wise course of action. It is appropriate to use your credit card for small purchases of prototype materials or prototyping services, for example, especially if you are like us and like to get air miles for nearly everything you purchase.
How swiftly can you process your emotions?
Stocks trade on exchanges. Because dividends are either small or nonexistent, the value of your stock is determined solely by what other investors are willing to pay for it. In a calm market, you will experience a sense of unmanageability, because there is nothing you can do to force others to raise the price of your stocks. Even small losses in calm markets can be troubling because investors rarely want to admit their mistakes, feel the pain of loss, and move on. Focusing on prices rather than the cause of the losses, they hang on to losers until they can break even.
Optimism can grow into fantasy. Investors sometimes fall in love with their companies. They fantasize about new products and skyrocketing stock prices. All evidence of deteriorating fundamentals is rationalized away or ignored. Individual stocks can decline for years or decades. Believing fantasy can lead to many years of pain even in calm markets. However, we have seen few calm markets in recent years, and volatile markets are more troublesome.
In most markets, stock losses happen quickly. A bad earnings report can cut a stock price in half. An unexpected rate hike by the federal government can knock the whole market down 15 percent in a month. For still unexplained reasons, the whole market dropped 22 percent on October 19, 1987. Few investments move so quickly. Real estate rarely moves 1 percent a month. Unless you can process your emotions quickly, stocks will cause you a lot of pain.
Difficulties with employees is not going to change
I want to point out that difficulties with employees is not going to change. The interests of shareholders and employees have always been and always will be opposed. In fact, in the last two decades, employees have increasingly siphoned off a larger and larger share of profits. According to a 2001 study by Sanford C. Bernstein & Co., accounting tricks disguised the fact that there was no growth in profits between 1995 and 2001. Nevertheless, salaries, bonuses, and stock options soared. Industries in which shareholders have no chance to make a profit may soon be the norm. Claims that stocks are the best investment for the long-run ignore this trend.
You cannot change the fact that employees have an advantage over shareholders. This is an inalterable, long-term fact of stock investing. You must focus on yourself, not them. If you can handle a long-term relationship with decades of built-in conflict, stocks may be for you. If you currently have great difficulty with conflict in relationships, yet you really want to own stocks, you may be able to change. Always ask how you can change, not how you can change them, or how they can change themselves. However, be realistic about how much emotional turmoil you can handle and how much you will have to change internally if you are going to stay in stocks. Even if you can handle the conflict of interest with employees, there are other equally difficult issues.