Developing your Idea
Developing Your Idea is one of the next steps after you have assessed both the technical and market feasibility of your idea or invention. Idea development relies heavily on both capital injections and experienced leadership capable of guiding the organisation through the early design and development process, while protecting the company's limited resources.
You will need to develop functional specifications as the basis for design, prototyping and production of your technology. Calling on technical expertise to assist you at this stage is prudent, especially if you are not experienced in product development within your target sector. Doing so will help to ensure that you adequately detail the technical requirements prior to product development.
Early Seed Capital refers to the initial cash injections required to start up a company, protect intellectual property, develop prototypes, field and market test the product or service and conduct market assessment. Entrepreneurs must understand from the outset that the fundraising process is continuous, with each stage involving some level of equity dilution.
Investors will want something in return for their investment: this will usually be in the form of some of the shares which you own in your company. Raising early seed capital however, remains one of the most difficult challenges facing the company in its life cycle.
The usual process to finance the earliest commercialisation or “proof of concept” efforts of the venture is for entrepreneurs to use their own resources or that of other individuals, including family members, friends and past business associates. Similarly, entrepreneurs may rely on access to bank loans, grants or gifts to fund their initial research and set-up. While the amount of early-stage seed financing required by pre start-up companies varies widely, generally speaking the cash involved covers only basic company establishment expenses, early prototyping, market assessment and protection of intellectual property.
In your initial development efforts, the following points should be considered:
- Start planning your business early – from the outset start thinking about developing the framework for a business plan.
- Compile a brief document outlining your vision of the company and seed capital requirements.
- Close consideration should be given to how the final product or service will be commercialised, i.e. licensing, selling (assigning), or production and distribution.
- Capital and human resource requirements will differ for each of these commercialisation options so early business planning will prove helpful.
- Undertake a feasibility study – assess the technical and marketing viability of your technology.
- Understand this is an ongoing process that needs to be revisited regularly throughout the commercialisation process.
- Access financial assistance – there are a number of seed and early-stage grants for developing technology that may be available to your venture, although there are strict eligibility requirements associated with these.
Collaborative research agreements – another means of accessing early-stage assistance (either financially or technically) is to consider entering into collaborative research agreements with other complementary organisations interested in developing your idea. Such agreements however, dictate a need to define inputs and outputs of each party, as well as the intellectual property rights and ownership of the idea being developed.
Bootstrapping is a means of financing a small firm through highly creative acquisition and use of resources without raising equity from traditional sources or borrowing money from a bank.
A significant part of starting your commercialisation activities is knowing where to spend your money. Being resource-poor at launch does not necessarily have to limit growth of your idea or invention. For most entrepreneurs, this means bootstrapping. You beg, borrow or lease to start the new venture – and this philosophy stays with such businesses for a very long time.
Some examples of bootstrapping include:
- running the business from home as opposed to leasing office space
- paying employees with company shares in lieu of salary
- obtaining loans from family and friends
- home equity loans
- leasing equipment or premises rather than buying
- buying on consignment from suppliers
- using State or Commonwealth Government Grants to subsidise your early-stage research and prototyping, business planning and marketing efforts.
Bootstrapping is a must for start-ups. It is complemented by spending money in the right places and at the right time; the founder must protect their initial cash resources as much as possible. From the outset, the founder’s choice of who will lead the company and manage the cash and human resources most effectively is critical. Ideally one of the founders is capable of leading the company as its CEO, though it is not unusual to see a change in leadership as a more formal company structure eventuates, and marketing and/or company administration requirements move beyond the capabilities of the founder.
Prototyping is a sample or model created to verify a concept design before fabrication of a product or development of a system.
The purpose of a prototype is to determine if the idea or invention will function. Prototypes are also used to collect the information necessary to build a product or system, as well as to highlight flaws and defects. Prototyping is a multi-stage process, from initial plans and drawing, to “proof of concept” prototypes and completed production models.
While the prototyping process is generally an extensive and highly expensive exercise for pre start-up and start-up firms, there are a few tips to assist you through the process;
- Seek references and check the credentials of professionals or firms assisting with prototype development.
- Work with your local Department of Tourism, Regional Development and Industry representative to determine if you are eligible for any Commonwealth or State Government grants to subsidise prototyping.
- At each stage of prototype development, try to conduct a market review and if possible, an end-user review to determine changes that should be made.