What's the perfect business plan for a new product ?

I had a meeting with an inventor about her product idea, and in our talking it occurred to me to put down what I consider the key points for a business plan for a new product. Although aimed at private inventors, it makes good sense for small companies too.

As the saying goes, if you fail to plan, you plan to fail. The outline given below is a simplification but a good start. I met many inventors in my time at the British Library and most, I'm sorry to say, were unrealistic and naive in their expectations. They did not realise how many experts they need to call on for help (much of which will be charged for). Nor did they think that exploiting an invention would take much time.

1. First is is vital to sort out what you are trying to achieve, and constraints in finance and time. All this may sound obvious, but keeping them in mind both informs and dictates the rest of the plan.

For example, is the prime motive making lots of money, to get an idea into production, to help the world with the invention ? Particularly if it is money, you have to take into account what economists call "opportunity cost" -- if you earn £50,000 p.a. and take a year out to earn £80,000 at a cost of £60,000 (the first figure is unrealistically high, the second is only too realistic), you've lost £30,000 in earnings. I once had a conversation with such a person who was convinced that income was profit.

In considering this, it is vital to think about what finances you have, your attitude to financial risk, and how much you are prepared to lose. Someone with £10,000 in savings will probably have a very different attitude to someone with £500,000. Are you prepared to say, "I will spend a maximum of £20,000" ? Many would say to me "I've gone this far, I can't give up now." That's what gamblers say, too.

Do you want to work long hours ? Chances are good that, regardless of making any money, you will be spending a lot of time on the project trying to get interest.

A timescale is also a good idea. Will you allow say a year, or two years, to get it off the ground ? That's not much time, and how is success measured ? That's your call.

2. The first of the four Ps (the other Ps are at the end of this list):

Product (what is it, why is it a good idea. Does it have a USP (Unique Selling Proposition) ?  Do people really need it, can they afford it ? Is the way it works important ? Its looks ? Both ? Does the product need to observe laws and regulations on safety, or to keep to technical standards ?) If you are not familiar with the industry, learn about it.

3. You should put together a SWOT analysis of your product and also of yourself. SWOT is a useful tool: it stands for Strengths, Weaknesses, Opportunities and Threats. In my one hour meetings with inventors when I worked at the British Library quite a few presented SWOT analyses of their product, but none offered a SWOT of themselves. Again and again they had the idea but no finance, no knowledge of accountancy or marketing or engineering... yet did not see any problem. Having weaknesses such as these won't necessarily kill the idea, but they make it harder for the inventor to succeed. My own preference was inventors who at least knew about engineering, and ideally worked with someone who knew about accountancy and/ or marketing.

In some areas, a PEST analysis of the product is also a good idea. It stands for Politics, Economics, Social, Technological. Think, say, of apps to summon cheap taxis. Perhaps the landscape has changed to suggest changes in products or processes.

4. Is it patentable ? A hugely complicated subject, and a patent attorney should be consulted. Many will offer an initial free half hour -- if so, make sure you ask questions like what will you do for me and how much do you charge for what. If it's not patentable then the odds against it being a success rise a lot. Do not reveal the idea except in confidence until you've filed for a patent, and if possible spell out the advantages instead of how it works. For example, you could say you have a new method of closing garments that operates without a zipper and which is easy for all to use.

5. Carry out a patent search, remembering that just because you thought of it doesn't mean it's not been thought of by someone before (I met someone who said he had written an idea down and locked the paper inside his desk, and was furious when he saw the product for sale a few years later. Clearly, he said, someone had burgled him). You can try doing a search online but it's better to employ an expert or at least ask someone at a public patent collection to advise you. Be prepared to take days searching and analysing the results (you will probably need help on this).

A useful starting point, particularly good for cheap products, is Google Shopping which can be used to rank by price products available through websites.

If'it turns out that the idea is protected in the country you want to sell in, give up. If not protected but it's out there already, that's a big strike against it. It greatly adds to the odds against success as competitors are either already out there or can easily compete.

6. What is your intellectual property (IP) strategy -- e.g. Europe and USA ? Patent, trade mark ? Add more countries if you like but remember that you'll need to translate the patent specification into the local languages, and probably advertising, brochures, etc. into them as well -- do you want to spend that ?

7. Make a working prototype. I can't remember how many times people would tell me that no they knew nothing about the industry, but yes, "in theory" the product would do the job. No need, they thought, to go to the trouble of making a working prototype to persuade a company to take them on. The problem is that they will immediately be shown the door.

If the prototype is to be shown at say a trade show or on Dragons' Den it needs to look good as well as working properly. Some companies offer to make prototypes and sometimes to help improve the product.

8. Should you sell, license, manufacture yourself ?

Some want to sell the idea and just collect some money. Usually in my experience some people are unrealistic in their expectations, like the man who thought of the idea of handheld flippers and didn't realise that the idea already existed. All he had was the general idea, not a specific design (this was pre Internet days).

Others like the idea of licensing it to a manufacturer, to keep some control of the product. This is a very complicated subject in itself, and is fraught with dangers (such as many companies refusing to sign non-disclosure agreements). 4% of the manufacturer's (not retailer's price) is usually the best the inventor can hope to be paid. Contract law is vital here.

Manufacturing the product yourself can be the most lucrative but also exposes the inventors to the most financial risk, and means they must spend a huge amount of time running all the aspects of the business. Rather than your own factory, it probably means sorting out an agreement with a supplier to make the product. This is very common -- it's Apple's method, for example.

9. Do you need outside finance ? Work out careful estimates, and decide how much you need. You may think crowdfunding sites are a good idea, or need business angels.

The remaining three Ps:

10. Price (how much does it cost to make, what retail price is anticipated, is it a premium product with high prices but low sales, and remember that often a retail markup is three to four times the manufacturer's price. It may cost too much for the market. Financial projections are a good idea)

11. Place (where to sell it -- online, through shops, etc. You should know by now the answer)

12. Promotion (which I've put last as the Place determines the publicity. Who is the ideal customer, what to call it, how to advertise it -- is social media vital, for example ? Despite what some people told me, not everyone will love your product, so market research to gather information is important)

Finally there should be an executive summary, which is a sober and realistic summing up of the 4 Ps. It's written last but is read first by a potential buyer or investor, and should be enough to interest them.

It may help to think through in detail what needs to happen to get from the idea to the product being in the hands of the consumer. There will be lots of steps, although not all have to be done by you. It may also help to imagine yourself in the mind of a manufacturer or supplier you might want to approach, as they want to make money too. Getting others to read the draft plan will probably help, too, especially if they have relevant skills. And don't forget to quantify as much as possible, for (realistic) figures will be your friend.

In the event only you can decide on what to do. To gather information and advice, it's a good idea to talk to local public libraries that deal in patents, join an inventor's club, and attending events aimed at business such as at the British Library's Business and IP Centre.

For Europe, see a list of patent libraries

For the USA, see a list of patent libraries