The Business of Ideas: Risk vs. Reward

Female inventor showing a new idea; image generated by Midjourney

Developing your intellectual property into a viable business opportunity is a complex proposition! In this series of posts, Porticos co-founder and President, Greg Patterson shares his insights on navigating the process. First written ten years ago, these posts revisit (and update) Greg’s original content for a new decade of product development.

Read previous post: Extraction

It has often been said that there are no rewards without first taking risks. What people fail to consider when evaluating ideas for product development is how much risk they are capable of taking.

I’m not strictly speaking monetarily. Risks include development risks of time and technology as well as liability risks that will inevitably be attached to the final product. We touched briefly on this subject in our last chapter; Extraction. The more risk you are willing or able to take, the higher the return you may expect. So what are some of the risks to consider?

The most obvious risk factor is cost. How much capital or access to capital do you have and what amount of leverage are you comfortable with? I equate it somewhat to bidding on eBay. It’s better to go into the auction with a set limit you are willing to spend. Otherwise, you can find yourself in a bidding war that makes the final sale price higher than the item’s retail value. Remember that feeling? The same type of rule should apply here. Once you’ve established your “line in the sand” you can then effectively establish how you are going to proceed. Are you able to go it alone or do you need additional investment? It will also help you determine whether you can realistically expect to take this idea into production or whether you can only prototype the idea with the hopes of licensing the technology to a company with deeper pockets.

What level of liability would the product expose you to? Ask yourself: what is the effect if the product fails to perform?

Probably the second most important risk factor, in my opinion, is what level of liability the product would be exposed to. This impacts not only your cost decision (liability insurance for a safety-type product can be very expensive) but also has the potential to impact your family’s security. Ask yourself: what is the effect if the product fails to perform? Remember that the failures do not need to be purely the result of design or manufacturing issues. There are plenty of examples of successful litigation in which the user was at fault. Is someone’s life at risk if the product fails to perform? If the answer is yes, then you need to be prepared financially and mentally to ward off potential lawsuits.

Please don’t convince yourself that this won’t happen. If you aren’t comfortable with that risk, then it should drive you away from manufacturing the product yourself and more toward licensing the technology. Granted, even that doesn’t fully absolve you of potential implications in a lawsuit. But it does add extra layers of shielding between you and the plaintiff.

Man working in workshop; generated by MidjourneyA third risk factor is the risk associated with investing your time and energy into developing the idea. How does your time affect your ultimate return on that investment? This is especially true if you have several ideas worthy of development or if your primary professional income is derived from some other aspect of your life. Can you afford the risk of going down the rabbit hole for six months or a year championing this idea instead of supporting your other obligations? If you’ve been reading this series thus far then you should have a solid understanding of what development of an idea entails and what the potential rewards can be. Use that understanding to determine if the risk of applying your time to this idea is economically justifiable.

I’ll add one other comment on the topic of your time investment. You should consider your personal obligations as well as your fiscal obligations. If this is starting as a second job or hobby, how will your spouse react to the additional time out in the shop? Do you have children or other family commitments that need to be considered? While it is often the case that the financial aspects and risks of building a business are weighted heavily at the beginning of any venture, I suspect that more often than not you will find that the personal turmoil and sacrifice created by the assumption of these risks is the thing that leads to the venture’s downfall.

Once you have evaluated your capacity for risk in these areas it will make it easier for you to determine what level of involvement you can make in developing the idea. In addition, it will help you to plan for what that development will look like. Should you try to license the technology or will you take the idea into production and become your own sales and distribution channel? Understanding and evaluating your risk is an important part of making those decisions as you build your Business of Ideas.

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Porticos, Inc. is a Product Engineering and New Product Development firm located in Research Triangle Park, NC.

Established in 2003, Porticos produces innovative and effective solutions for their clients and the markets they serve. Porticos provides broad expertise in development, planning, and production. 

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