So You Have a Million-dollar-business Idea?
If you have an idea for a new business, how are you going to develop
that idea? The first step is to secure patents and do patent research
to determine all applications of the patent and if anyone else has similar
ideas or patents. This can be very time consuming and expensive, depending
on the nature of the product and its market. If the product is complicated
or scientific in nature, a good patent attorney is probably necessary.
Patent searches and applications can easily exceed $100,000 for the
services of a good attorney who specializes in this area.
"Well, that is not too bad because this is such a great idea
that I can raise all kinds of money by selling stock." The
legal environment has changed since Sam Walton traveled across the state
of Arkansas selling his idea of Wal-Mart to everyone he met. Now, according
to Security and Exchange regulations, to do a private placement or to
raise money from local investors, these investors have to be considered
"accredited" or have a net worth exceeding $1 million. An
attorney firm is also necessary to provide the private placement and
disclosure documents. Again, depending on the nature of the investment,
the amount of the capital to be raised, and the complications of the
legal issues, this can be quite costly.
"OK, I'll just take my business to the public." This
is probably a good option. However, developing a prospectus and completing
all legal documents of the Security and Exchange Commission require
either the assistance of excellent attorneys or a good investment banking
firm—or both. The time involved to take a company to the Initial
Public Offering (IPO) stage normally is at least a year, but more likely
18 months to two years. An average retainer for this process is $2,500
to $7,500 a month.
"Well, what about all the government programs?" Many programs
are available to assist in development of new business ideas. Many provide
free or low-cost assistance in developing the business plan, doing feasibility
and market studies, such as services provided through Missouri Small
Business Development Centers. However, in raising capital, most services
provided are in the form of loans and require that a person have 10
to 20 percent of the project or more and meet standard lending requirements.
The State of Missouri also has excellent programs designed to assist
business, but many of these are in the form of tax credits or training
funds for employees. Some tax credits can be sold or transferred if
not needed by the individual applying for them, but in order to find
a buyer, they often have to be discounted.
"This is a great idea! I can get help from venture capital."
This is another possibility. However, a start-up company is usually
associated with a higher degree of risk than existing companies. Therefore,
venture capitalists normally expect a greater return on investment,
usually in the form of a greater percentage of ownership. Many businesses
are also competing for the venture capitalist's dollar.
"Well, my idea is so good, it's going to improve the economy
and save the taxpayers all kinds of money. I know I can get help from
the government outside of traditional programs." If, in fact,
you have developed a better mousetrap, what will the impact be on all
existing companies that are building mousetraps? Will you put them out
of business? How are their employees going to make a living? What will
the employment of your company be, and in what geographical areas will
your employees be dispersed? Are you displacing workers who have no
other means of support and will not be able to find jobs elsewhere?
What has the government already invested in developing the current mousetrap
companies? These are all questions the government will have to analyze
before deciding whether helping to develop your company would be worth
the savings to taxpayers.
Before a new idea has ever been formed into a product, many thousands
of dollars—and sometimes millions—have been spent. Not all
business ideas go through this kind of process, however. Sometimes creating
a new idea can be simple if incorporated into a product or market that
already exists. Another alternative in this case is to sell your idea
to a company whose processes or product could be improved by utilization
of your idea. I was in Florida recently and drove by the home of a man
who had sold his idea to General Motors and now receives a royalty on
every automobile manufactured by GM.
Unfortunately, however, the old adage "it takes money to make
money" is still prevalent in today's economy. Not all ideas
will be successful in the marketplace. Many will be abandoned because
of the many complicated processes involved in getting a product from
the idea stage through the development stage to the manufacturing stage.
Thomas Edison once was asked by a reporter how it felt to have failed
so many times to get the results he wanted. Edison replied, "Results!
Why, man, I have gotten a lot of results. I know several thousand things
that won't work. I've never failed, it was just a part of a thousand-step
process." Edison is also attributed to have said, "Many
of life's failures are people who did not realize how close they were
to success when they gave up."
So if you have a million-dollar-business idea and have run into some
of the many stumbling blocks and pitfalls described here, my advice
is simple: Keep trying!
Send this article to a friend
Authored by: Willis Mushrush, Business and Industry
Specialist, University of Missouri Extension
Source: Creating Quality Newsletter, Volume
10, Number 8, August 2001
go
back
Newsletter archives: 2004
| 2003
| 2002
| 2001
