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As an entrepreneur, startup, or inventor with big dreams you are ripe for being ripped off. Unfortunately, there are people and companies out there that try to take advantage of those with dreams.
In this article you’ll learn ways to prevent yourself from being ripped off, and from just losing your money in general, while bringing your product to market.
Conducting market research to determine if your product idea is worth spending money on is the first thing everyone should do when considering the development of a new product.
It is common for entrepreneurs or inventors to skip the market research because they feel so confident that their product is great. It’s going to definitely sell like hot cakes, right? So, there’s no need to do any market research? Wrong!
Always start with market research when considering the development of a new product.
This is one of the biggest mistakes you can make. You need to do market research ahead of time to know if you want to spend lots of money and time developing your product.
You may never get scammed or intentionally ripped off, but you may still be wasting your hard earned money if you develop a product without doing the necessary market research first.
Avoid the following…
Some of the biggest scams are conducted by companies providing “invention marketing or promotion”. Think of those late night commercials for InventHelp with George Foreman.
These companies will claim to do everything for you. They tell you exactly what you want to hear – that your idea is novel and fantastic, and is an excellent opportunity for profit!
They may even provide you a phony and highly inflated “feasibility score” claiming that your product is so unique and easy to manufacture that it will garner large profits. All you have to do is send them money immediately and they’re going to make it all happen without any work on your part!
Avoid like the plague any type of invention promotion or marketing company.
For example, earlier this year two women brought a $36 million class action suit against InventHelp alleging “fraud, breach of contract, false advertising, violation of consumer protection laws, dealing in bad faith, unjust enrichment and conspiracy.”
In fact, avoid any company or person that does any of the following:
They claim they can do everything for you. This includes getting the patent, developing your product, and marketing it. No reputable company is going to do everything for you. If you’re looking for a way to make money that will not require years of hard work, then you’re pursuing the wrong goal.
Anyone that tells you that your product is a winner and will make lots of money. They don’t know that. No one knows that. I would never tell someone that their product is good or bad. By bringing my own product to market, I learned that no one’s individual opinion of the product really matters.
What matters is how the market responds to it. You can have every single person tell you your product is great, but that doesn’t mean it will sell. The only way to know that a product will sell is to actually sell it.
They claim that it will be easy to develop your product. There’s no such thing as “easy” when it comes to any type of business, but especially a hardware start-up.
They use high pressure, sales pitches to try to push you into buying their services. Especially be wary of time sensitive offers that pressure you to pay immediately. They’re interested in your money, not helping you be a success.
They tell you exactly what you want to hear. That’s the most common strategy for invention promotion companies. They will tell you exactly what you want to hear – that your product is a fantastic idea, it will sell millions and you’re going to be rich. Just start sending them money.
Any company that claims they are going to promote your product or present it to various companies. That’s almost always a scam. In general, if you want someone to do everything for you, while you just sit back and collect royalty checks, then you’re going to be scammed or ripped off at some point. I suggest you stop the pursuit of getting your product to market.
Know your Numbers
Another way to prevent being scammed or ripped off, is you need to know your numbers. You need to have realistic estimates for developing and setting up manufacturing of your product.
Without realistic expectations on what things will cost you are definitely opening yourself up to being taken advantage of. If you have solid estimates on what things will cost then it becomes more difficult for you to get ripped off.
For example, by having accurate estimates ahead of time you’ll obviously know if someone is trying to overcharge you. But you’ll also know when someone is drastically undercharging you, which may be an indicator of a scam.
These are some of the reasons why I created the report service that I offer called the Predictable Hardware Report which gives you accurate estimates for all of the development and scaling costs, as well as the manufacturing cost for your product.
Stop referring to yourself as an inventor.
Inventor is a word so associated with scams that I recommend you look at yourself as an entrepreneur, not an inventor. Labeling yourself an entrepreneur, and not an inventor, will greatly help you find investors, cofounders and customers. It will also reduce your chances of being scammed.
An inventor is focused just on the product they invent. Whereas an entrepreneur is focused on the big picture of making money. If you want to make money off of your product, then do not label yourself as an inventor or call your product an invention.
Even better, refer to yourself as a “startup”. An entrepreneur implies a single person, whereas a startup implies a company.
Don’t rush to get a patent
One of the first things that a many entrepreneurs focus on is getting a patent for their product. In most cases I advise against this strategy.
Before you start spending a lot of money on your product, you must make sure that it is a product worth spending the time and money on. Don’t make a patent your first priority.
Never rush a patent. Start with a provisional patent instead.
Your first priority is getting market proof and having the data to show that your product can actually be developed and manufactured at an affordable cost.
So until you do that upfront work, you should refrain from spending the $10,000 plus dollars on getting a patent. Keep in mind that 97 % of all patents never make it to market.
Many beginning entrepreneurs focus on getting a patent and not what the market actually wants. Make gathering market research to prove people want to buy your product your first priority.
Also, don’t fall into the trap of fearing that someone will steal your idea without a patent. Stephen Key of inventRight explains it well in his article on AllBussiness.com:
“Thousands of dollars are spent and years wasted waiting for a patent to file. And what’s the final result? Too often, just a framed certificate that hangs on an office wall. What I’ve realized is, most people who file for patents don’t know how their idea is going to be manufactured. They’ve never asked, ‘Can my idea be manufactured at a competitive price?’”
Instead of a full patent, I advise that you start with getting what is called a provisional patent application in the U.S. A provisional patent application gives you one year of protection for your idea. And the cost is only a few hundred dollars, versus $10,000 plus for a full utility patent.
A provisional patent gives you one year to do the research required to determine if your product is worth pursuing at all. During this time you will also want to determine if your product can be realistically manufactured and sold at a profit.
Define clear milestones in deliverables
Having defined milestones may prevent you from paying more than what you were initially told.
If possible, get fixed pricing instead of hourly pricing. This will lower your chances of a project exceeding your budget.
Typically, with hourly estimates, things always take longer than expected. So your costs can go up. This is why Predictable Designs switched to fixed pricing about two years ago so as to provide more predictable costs. As much as possible obtain fixed prices for any services.
Unfortunately, it won’t likely be possible to get fixed pricing for everything. In most cases, you can only get fixed pricing on very well-defined steps such as designing a schematic circuit diagram.
Obviously have written agreements along with clearly defined deliverables and milestones. You want to have written agreements so everybody involved knows what’s supposed to be done and exactly how much everything is going to cost.
Get independent engineering design reviews
Conducting an engineering design review is one of the most important steps you can do to prevent yourself from being scammed or ripped off.
How can you evaluate if the work you have paid for is accurate and functional? Unless you have technical or engineering experience, you’re not going to know if you’ve been ripped off or not. Having an independent engineer review any work you pay for will help you evaluate things accurately.
Design reviews will also save you money in general. A design review catches mistakes before you begin prototyping. This will save you time and money, since you won’ t have to produce as many prototypes.
I had a client contact me a few years ago who had gotten scammed by a design firm they hired in China. They paid the firm thousands of dollars to develop a custom printed circuit board for their product.
They were excited to finally receive the circuit board, but they quickly learned that the board they had in their hands was not a custom board.
They found the exact same board for sale on the Chinese manufacturing website Alibaba. They realized their developer had merely put their logo sticker onto an existing, off-the-shelf circuit board.
They were entirely ripped off and lost thousands of dollars. So how can you avoid this happening to you?
This unfortunate incident could have been prevented if another engineer had reviewed this firm’s work. Prevent this from happening to you by having an independent engineer review any work you have done by a firm, or engineer.
Also present clearly defined milestones for your engineer or firm. When each of these milestones are reached, have an independent review done. Then you can catch any problems or scams much earlier.
Manufacturing in Asia/Sourcing Agents
Shifting to manufacturing in Asia is pretty overwhelming. Trying to find a manufacturer in a foreign country, especially when there are so many to choose from, is pretty overwhelming. It’s not a decision you want to take lightly.
Consider hiring a sourcing agent to help simplify manufacturing in China.
When you are ready to transition to manufacturing in Asia, I recommend that you use someone called a sourcing agent.
Sourcing agents deal with China on a regular basis and have connections with manufacturers. They can help find manufacturers to source your components and manufacture your product. Instead of dealing with dozens of suppliers or manufacturers in China, you will only have to deal with the one sourcing agent.
When you are ready to migrate to Chinese manufacturing, I highly recommend a company called Dragon Innovation. They’re a very well-known and respected company, and they set up the initial manufacturing for the Pebble smart watches.
They focus on helping hardware startups set up manufacturing in China in a safe, low risk, and predictable fashion. Definitely check them out once you’re ready to migrate to full manufacturing in China.
When possible, always get referrals for those that you hire. I know that’s not always possible, but in most cases it’s best.
This is one of the many reasons that you should always be working on expanding your network. Whether it be an engineer, a manufacturer, or an investor it’s always best to find people through a referral from someone you already trust.
Use Escrow Accounts
Another way to protect your money is to utilize escrow accounts. An escrow is simply an account that will pay your vendors through a third party company.
This can protect your money by preventing it from being released until the project is verifiably completed.
You can hire freelancers on popular sites like Upwork.com. Built into the Upwork platform is an escrow service, so you never have to pay if a freelancer doesn’t deliver as promised.
Alibaba is a is a huge website for finding components, suppliers and manufacturers in China. When you make purchases through Alibaba, they will serve the role as a 3rd party escrow company. This protection is especially welcome when dealing with companies overseas.
If you don’t use an escrow account, at the very least use a credit card, not a debit card. Your credit card gives you at least some protection against fraudulent charges. Most credit cards will allow you to dispute charges if you feel that a service or product you purchased is substandard or fraudulent.
A Network of Advisers
Another way to prevent yourself from being ripped off, scammed or making bad decisions in general, is to have a network of advisers. At least find one adviser that has business experience. It’s always best if you can run things by advisers who have gone through these things before.
If you are in the U.S. I highly recommend the nonprofit organization called SCORE. SCORE can hook you up with a huge network of volunteer advisers. You can find people with just about any level of experience. Many retired executives want to give back by helping out new entrepreneurs and business owners. The best part is it is all totally free.
Always worry more about someone taking your money than someone taking your idea. But worry the most about only pursuing a product with a proven market and that can be realistically manufactured and sold at a competitive price.
Invention promotion companies are masters at taking your money, and they couldn’t care less about your idea. They know how much work it takes to transform an idea into a successful product.
It takes an insane amount of work and the odds of success are always low for any new product or new business.
Always do your due diligence and watch every dollar that you spend. That’s going to be especially critical for a bootstrapped start up.
It’s important to remember that even if you have outside investors, there are no shortcuts when it comes to getting a new product on the market. Success is going to require years of hard work and there’s really no way around it.
If you’re not willing to put in the work over a long period of time, then I suggest that you pursue a different goal.
I hope you found this article helpful. Hopefully it helps you get your product to market without being scammed or ripped off.
Do you need affordable coaching, training, and support to bring your new electronic hardware product to market? If so, join the waiting list for the Hardware Academy and get early access with discounted pricing.