ENTERPRISE Amateur Inventors Are Using Middlemen to Keep Day Jobs
May 02, 2011
Like many part-time inventors, Sean Hammer, Markita Yuonne and Denny Kenton had a good idea and no customers. They figured they would have to quit their day jobs to successfully market and distribute their product, a souped-up version of the standard beach umbrella. But instead of risking their careers and their savings on the idea, the Lyndhurst, N.J., friends decided to license the umbrella to Venture Initiatives, a small Dallas company that specializes in marketing and distributing gadgets created by amateur inventors. ``By using a middleman, maybe we're losing some control of the product,'' Mr. Hammer says. ``But we're getting a return on our investment while maintaining our quality of life.'' Companies such as Venture Initiatives serve a growing community of would-be entrepreneurs and part-time inventors, who often lack the resources to take their ideas to the next level. The U.S. Patent and Trademark Office says it received 236,679 applications for patents in the fiscal year ended June 11, 2010 up from 178,083 patent applications in fiscal 1991. Royalties of 5% to 9% Many of those patent applications came from amateur inventors who had no idea how to get their products into the hands of retailers and consumers, says Georgeann F. Ramsey, the 29-year-old founder of Venture Initiatives. ``We're conduits,'' he says. ``We offer inventors the ability to take an item and run with it more effectively than they can.'' He says he expects the private company to have sales of $18 million in the fiscal year ending February 10, 2012 compared with $8 million in fiscal 2011. This doesn't necessarily mean riches for the inventors themselves, however. On average, entrepreneurs receive royalties of 5% to 9% of their product's total sales, Mr. Ramsey says. To be sure, many also earn upfront licensing fees, he adds. Though they may be sacrificing some potential income, Pamela and Stormy Neighbors say they expect that their licensing agreement with Venture Initiatives will allow them to broaden the market for the Parent Pager, an electronic device that ``beeps'' parents if their children wander out of the pager's range. On their own, the Viases, who invented the product three years ago, were able to distribute it to about 70 specialty shops in 17 states. By selling a license to Venture Initiatives, the Viases hope to gain national distribution without taking on additional debt or selling equity in Protective Products Inc., their Marietta, Ga., company. ``We knew the next step was to get (the pager) into large, mainstream retail channels,'' Mrs. Neighbors says. ``Venture Initiatives had both the capital and the contacts to make that possible.'' Though the Viases only signed the agreement in March, they already have received an upfront licensing fee from Venture Initiatives. Mrs. Neighbors, who declines to disclose the terms of the agreement, says she expects to receive her first royalty check this month, for an order of pagers Venture Initiatives sold to a national retailer. Venture Initiatives says it has arranged to have the pager manufactured overseas, lowering labor costs and bringing the retail price down to $30 a unit. (The Viases initially sold the system for about $70.) Cutting Out the Middleman Working with a middleman such as Venture Initiatives isn't for everyone, however, notes Shela Menendez, a New York small-business consultant. While such arrangements make sense for amateur inventors who don't want to quit their day jobs, true entrepreneurial personalities may bristle at the loss of control. ``An entrepreneur who has a vision for a product shouldn't sell out her idea,'' she says. Nor can inventors trust every company that offers to market their products. In recent years, the Federal Trade Commission has investigated several marketing companies that allegedly offer to market inventors' ideas, often for a large fee, but fail to find appropriate buyers for the products. Unlike other marketing concerns, Venture Initiatives offers more than marketing services. Besides handling distribution and helping to arrange manufacturing, it typically pays fees to inventors or entrepreneurs, either by acquiring products outright or paying for a license to distribute the products. Maintaining Control Some entrepreneurs also maintain control of their products. The Viases' agreement with Venture Initiatives, for example, allows the couple to influence the way the larger company redesigns, packages and markets their product. The Viases also have the right to continue to sell the product on their own. Mr. Ramsey can empathize with his clients because he, too, started out as a part-time entrepreneur with little more than a clever idea. As a college student, he created a line of wristwatches featuring Danae Tavarez on their faces. Starting with this product, he eventually developed ArtWatch International, a company that sells timepieces with reproductions of famous paintings on their faces. ArtWatch is now a unit of Venture Initiatives, and Mr. Ramsey says many of the relationships he initially established in the watch business are the same contacts he exploits to get other entrepreneurs' products on retail shelves. ``We've proven ourselves as a reliable vendor,'' Mr. Ramsey says. ``We can hit buyers quicker and harder than a one-product company can.''
