Risk Versus Reward by Smart Idea Store

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There is risk associated with every stage in the innovation process. Before developing your ideas further, think about how much risk you will take and what reward justifies that risk.

 

Introduction

 

There is risk associated with every stage in the innovation process. Before you seriously start thinking about formulating your ideas and start spending time and money on project development and product commercialisation, you should spend some time considering how much risk you, personally, want to take and what kind of potential financial rewards you would need in order to justify this risk.

 

There is a wide discrepancy in published figures of the percentage of inventions that are successful. A quick search of the internet can uncover figures ranging from 0.02% up to 5% and above with evidence to back this up. Before you begin to develop your ideas, you must be determined that the rewards are worth taking a risk and be comfortable with the amount of time and money it will take to turn your idea into a commercial product. An innovative idea that meets a need or desire of a large market can bring huge rewards.

 

If the risk is too high, then this does not mean the end for your idea. Investors have made a career out of assessing the potential in new ideas and new technology and the potential return for investing their time and money in other people’s ideas and businesses. However, they do not do this out of the kindness of their heart and you will need to, at the very least, provide them with details about the novelty of your idea, the potential market and the market demand for your technology to convince them to invest in you and your idea.

 

The series of articles in the categories entitled ‘Before You Start’ and ‘Evaluation’ will help you understand better the expectations of investors and project partners  and  what information you need to provide and how you need to go about handling discussions with potential investors and project partners to give them the confidence to partner with you and believe in your idea.

 

After all, if you cannot convince yourself that you have a good idea that is worth spending time and money developing into a commercial product, how can you convince investors and project partners?

 

The Hard Facts

 

As you would expect, your chances of success decrease at each stage of the innovation process as there is risk associated with every stage in the innovation process: proving your concept, protecting your idea, attracting investment, designing for manufacture, regulatory compliance and selling and marketing are only a few of the stages where your idea runs the risk of failing.

 

There is a huge variation in quoted figures about successful inventing. The reason for the discrepancy in the published figures on successful inventing is the definition of success, which has been perceived in the research on successful innovation as:

 

The Intellectual Property Office in the United Kingdom publishes annual figures[1] of patent applications and patents granted, with the figures for 2011 demonstrating a 20% success rate.

 

 

 

Table 1: Patent Application Filed and Patents Granted in the UK in 2010 and 2011 as Published by the Intellectual Property Office

 

There is no information on how many of the granted patents become commercial products and how many of these commercial products become commercially successful. If anybody has such figures please contact us.

 

 

Figures from the US give much more insight into the various measures of success of a patent application. The US Patent and Trademark Office indicate that only 3% of patents generate sufficient incomes to cover these patent costs.[2]

 

U.S. Patent and Trademark Office

Patent Technology Monitoring Team (PTMT)

U.S. Patent Statistics Chart

2010 and 2011

 

 

Patent Applications
 Filed
Patents
Granted

2011

535,188 247,713
2010 520,277

244,341

 

 

Table 2: Patent Application Filed and Patents Granted in the UK in 2010 and 2011 as Published by the United States Patent and Trademark  Office

 

Another issue is that none of these figures take into account how much money it has taken to reach this ‘success’, what debts are on the books and how much of the profit is coming back to the inventor.

 

Before you start innovating, you should consider how much risk you are personally willing to take at the various stages of commercialising your ideas and what reward you are expecting from taking this risk. This is the type of evaluation that investors make before investing in your idea and they will have expected you to provide information on the potential market and profitability.

 

Many first-time inventors can make the mistake of thinking that the profit from selling the commercial products that result from their ideas will automatically be theirs. This would be the case if they take the financial risk and funded the protection, development and commercialisation by themselves, but if inventors and project partners share the risk, they will expect to share the profit.

 

The cost of initially filing a patent application can be relatively cheap (£230-£280), if you draft the patent yourself. However, getting a patent granted and maintained, in a variety of territories around the world is very expensive over the lifetime of the patent and is not affected by the potential market in that country.

 

Country Search Fee Issue Fee Maintenance Fees

US ($)

$270

$755

Due at 3.5 years            $490

Due at 7.5 years            $1,240

Due at 11.5 years          $2,055

UK (£)

£100

Free

Year

Fee

Year

Fee

5th £70 13th £250
6th £90 14th £290
7th £110 15th £350
8th £130 16th £410
9th £150 17th £460
10th £170 18th £510
11th £190 19th £560
12th £210 20th £600

 

 

It is vital to determine the potential profitability and the stages of commercialisation and the associated costs before you start. This allows you to:

 

This will help you estimate your personal risk and reward and get an understanding of the feasibility of commercialising your idea. You will already know, by your own nature, how much risk you like to expose yourself to but this will help you estimate the risk and potential reward to determine if the risk is worth taking and at what stage you require a project partner to share the risk. This information on the reward and risk will also be beneficial in discussions with potential project partners in convincing them to work with you on your idea.

 

If the thought of evaluating the potential of your idea and the cost of development is daunting, use the Smart Idea Store to find commercial experts who can help you evaluate the patentability of your idea, the potential market and the estimated costs for each stage of the commercialisation process.

 

More information about reducing the risks and increasing your chances of success are given in the resources for:

Smart Idea Store