Innovator's Dilemma - More companies solicit ideas online

Slim Odds for Inventors

by Sarah E. Needleman
Wednesday, October 6, 2010

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More companies solicit ideas online; success eludes most.

Stu Berger has created more than 50 consumer products from inventors' ideas -- including some of his own -- in hopes of turning them into commercial hits. He expects his first big break later this month when one of those products, a posture-correcting pillow called the Side Sleeper Pro, goes on sale at some Bed Bath & Beyond Inc. stores as well as the retailer's website. "I thought this day would never come," says Mr. Berger, owner of Integrated Merchandise Group International Ltd., a sole proprietorship in Mamaroneck, N.Y. The path to prosperity can be long and arduous for inventors. Even if they manage to secure a patent, which can take years, they usually need to find a business willing to manufacture, package and market the item.

In an effort to better connect with inventors, some large manufacturers including Clorox Co. (NYSE: CLX - News), Kraft Foods Inc. (NYSE: KFT - News), General Mills Inc. (NYSE: GIS - News), Staples Inc. (Nasdaq: SPLS - News), Procter & Gamble Co. (NYSE: PG - News) and GlaxoSmithKline PLC (NYSE: GSK - News) have launched websites in recent years for soliciting product ideas. Some of the sites occasionally feature specific requests from the companies' research-and-development teams.

Before they launched, "inventors would typically have to find someone to pitch their idea to and it would maybe make it to someone else and then someone else," says Greg Piche, who works in Clorox's innovation group. "It wasn't a very streamlined process." Clorox in May also launched a two-month campaign to solicit proposals for new antibacterial cleaning products; the yet-to-be-determined winner will receive a $2,500 advance and other compensation based on sales.

Similarly, General Electric Co. and several venture-capital partners in July solicited proposals for a next-generation power grid. GE says the program -- the first of its kind for the company -- attracted nearly 3,000 submissions. Five winners will each receive $100,000 to develop their ideas, though there's no guarantee GE will invest further in the products. Even if an inventor's idea gets noticed, the odds of reaping big bucks are slim. Companies typically offer compensation in the form of royalty fees, small percentages of wholesale earnings. Some companies also provide one-time upfront payments, depending on the stage of development an invention is at, what type it is and whether it has legal protection.

Competition is fierce. AllStar Products Group LLC, a private Hawthorne, N.Y., company perhaps best known for its marketing of the sleeved-blanket Snuggie, receives more than 10,000 submissions a year from inventors, says Scott Boilen, founder and chief executive. The company enters into licensing deals for between 75 and 100 inventions a year, with Mr. Berger's Side Sleeper Pro being a recent example, he says.

Once a deal is signed, AllStar usually promotes the invention through infomercials and then attempts to sell the most popular items to Wal-Mart, Target, Walgreens and other retailers. AllStar promises to pay royalty fees ranging from 1% to 4% of wholesale earnings for inventions it helps land on store shelves. Some deals include upfront payments of $5,000 to $50,000, with higher earnings going to inventors of patented goods, Mr. Boilen says. Top-selling items can result in "millions of dollars over the lifetime of a product," he adds.

Bill Felknor, an inventor in Knoxville, Tenn., signed a licensing deal with AllStar in 2007 for Topsy Turvy, a device for growing tomatoes, cucumbers and other vine crops upside-down. Since then, he says more than 11 million units have been sold. Mr. Felknor, who has invented nine other products, says Topsy Turvy has generated him the most income by far (he declined to provide specifics). Still, being an inventor "is a difficult way to make your living," he says.

Danco Inc., a maker of bath and kitchen products in Irving, Texas, says it receives more than 200 product-idea submissions a year from inventors; just 10 to 15 of those ideas make it into retail stores, says Michael C. Miller, director of product partnerships. "To put something on a shelf, another product would have to come off," he says.

Some businesses specialize in helping inventors identify companies to pitch, enter submissions and 

negotiate contracts. InventHelp of Pittsburgh charges inventors between $200 and $15,000,depending on the number of services an inventor selects. InventHelp strikes about 50 licensing deals a year on behalf of inventors; in general, large companies offer the biggest payouts, says Robert Susa, president. Deals include royalty payments averaging between 2% and 5% of wholesale earnings, plus sometimes initial payments of $10,000 or more, he says. "You got to sell a whole lot of units to make a significant amount of money," says Mr. Susa. "You don't want to quit your day job."