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How to Make a Business Plan for Commercializing Your Invention
Business plans can fuel business development and are correlated with enterprise growth. In a recent study, a national survey of more than 800 who were in the process of starting businesses, the researchers found that writing a business plan significantly increased the probability that the business would actually be created. The correlation amounted to a business plan writer being two and a half times more likely to start their business. A similar study of over 1000 entrepreneurs found that those who write formal plans are 16% more likely to achieve viability than their non-planning counterparts.
There is no right way to write a business plan, though there are conventions when it comes to the information which should be included and how the sections should be organized. Broadly, there are four main things that should be made clear to readers:
- The purpose of the business and the void it fills in the market;
- The proposed product and its anticipated clientele
- The goals and objectives you plan to accomplish in the short- and long-term; and
- The financial state of the business.
Depending on the use to which the plan is put, other sections may vary in detail, or may be selectively included or omitted. The plan, however, should always cover the above basics.
When to begin thinking about a business plan
Many inventors believe that their invention needs to be patented before any commercialization steps can be taken. While a patent is certainly important for ensuring that your rights are protected from unscrupulous competitors, and certain steps on the road to bringing an invention to market can render the invention ineligible for patent protection without appropriate measures being taken, the patenting process can last for several years. Waiting until you obtain a registered patent before you assess the market for your product, the potential avenues via which to pursue funding, or the degree of competition in the market, can result in the incursion of significant expenses in relation to an invention that was not commercially viable in the first place.
A business plan can make answering these marketability, funding, and competition questions significantly easier. By compiling all relevant information into a single document, you will be able to streamline your business’ goal settings, and resource allocations, and anticipate future challenges. Investors, start-up accelerators, and funding sources will commonly familiarize themselves with your business by asking you for a business plan before requesting or accepting any further information.
For these reasons, inventors should start thinking about a business plan immediately upon deciding to commercialize their invention. While a business plan should incorporate intellectual property assets, whether current or anticipated, large portions of it can be written before the patent application process is even commenced.
Further, many businesses will begin operations and begin selling a product embodying an invention that is the subject of a patent application long before that patent is granted. Whether this is desirable will depend on many factors including the business’ tolerance for risk and its long-term goals. While a product that is the subject of a patent application can be sold after that application is filed without undermining the product’s eligibility for a patent in at least some jurisdictions, the exclusive rights to make, use and sell the product (invention) are only obtained after the patent has been granted. Recourse may be available to applicants which are eventually awarded a patent for certain third-party activities that occurred in a limited time period prior to the patent’s grant, but even if a number of conditions are met, that recourse comes after grant. What this means is that competitors could, once a patent pending product is brought to market, immediately and without penalty, knock-off that product. Some businesses will take that risk and rely on a “patent pending” notice in an effort to deter copying. Others will wait for their exclusive rights. To learn more about “patent pending” status and the benefits of its use, consult our resource on the topic.
The elements of a business plan
While there is no one set way to write a business plan – its structure is dependent on your goals and audience – there are a few standard sections that readers expect to see.
The first is an executive summary, which provides the concept and mission of the business, a summary of relevant financial information, and any significant achievements that the business has accomplished to date. If the plan is written with an “ask” in mind, make sure to summarize the value proposition and the financing needs to the reader.
Further, an executive summary is often requested as a stand-alone document by investors and venture capitalists. It is key to ensure that it is well-written, concise, and informative in order to peak the reader’s interest and prompt a request for the rest of the plan.
The next section is a business overview. Here, it is crucial to provide a description of both the industry in which your business will be situated and the particular niche that your invention will be filling. The structure of the business operation – wholesale, retail, direct-to-buyer, etc. – must be explained, as well as the business’ support systems, channels of distribution, and legal form (i.e., corporation, sole proprietorship, etc.). This section needs to also give the reader a clear idea of how your business is (or will eventually) be profitable based on the novel invention that you are bringing to market.
After providing an overview of how the business will function, address the people that will run the operations. This includes providing an overview of yourself and your co-inventors, if relevant, giving details on the number of full- and part-time employees that will be working on the project (including information about any that are already hired), and specifying which tasks, if any, will be outsourced. Often, investors and other stakeholders care as much or more about who the people are behind an invention than the potential of the invention on its own – it is well-known that people are responsible for much of a business' success. In drafting this section, you may therefore want to highlight your team members’ qualifications and experience which will support the success of the business.
Another important element is establishing the target market for your invention. To do so, you need to first establish which groups are most likely to use and benefit from your invention. Then, segment that group further to outline whether any preferential marketing will be conducted (e.g., while both men and women use razors, Venus markets preferentially to the female market). Explain what specific marketing efforts will be used to highlight the product’s usability to your target market. For example, if your target market consists mostly of young adults, more specifically generation Z, you might propose a marketing strategy that includes a large proportion of influencer marketing.
Next, provide an analysis of the competition. This needs to include both the broader competitors within the industry and the narrower group of competitors that sells a product that solves the consumer problem that you have presented. When assessing who your competitors are, make sure to not only focus on businesses that offer something very similar to your invention, but also the other ways that consumers could go about in solving the problem that your invention addresses. For example, if your invention is a new way to make coffee at home, focus not only on assessing other companies that produce coffee makers, but also coffee shops and sellers of other hot beverages like tea and hot chocolate. If relevant, provide details on how you plan to price or market your product in a way that would give you an advantage. It may be helpful at this or an earlier stage to also discuss current trends in your target market and how your business is responsive to these trends, if applicable.
In this section, give the reader an understanding of what differentiates you from the competition. This is often done through a strengths and weaknesses analysis of your competitors, or by clearly explaining how your proposition is so different that it cannot be matched by the market as it currently stands.
Finally, you need to provide comprehensive information about the financial state of your business. The three key documents readers will look for are an income statement, a cash flow statement and a balance sheet. Together, these documents will provide the reader with an idea of your business needs, its current assets and liabilities, and its financial outlook in the near and medium-term future. Although it may be tempting to provide estimates for future expansions of the business or other numbers that are not concrete, sticking to concrete financials that can be backed up by numbers may be best. In addition to the three documents above, which are crucial to include in any plan, you may want to provide a costs of production statement (if you have inquired about how much it would cost to produce a commercial version of your invention). When dealing with investors, the financial elements of your business plan, together with the information provided in preceding sections, help investors assess their potential return on investment and when they are likely to see that return materialize. A major question any business plan should answer, whether directly or indirectly, whether used to secure funding or not, is “How will the business make profit?”
Highlighting your intellectual property assets within the business plan
Both assets which you already have ownership of and assets which you are hoping to register should be included in your business plan. Intellectual property assets provide your business with legitimacy and show that you are serious about its long-term future. They also present an effective deterrent to competitors that may try to replicate your invention and immediately decrease the profitability of your enterprise. This is among the reasons investors like to see that a patent application has been filed when a business is centered around a new and inventive product. Your business having exclusive rights to the product, or having initiated the process to obtain those exclusive rights, reassures investors as to the security and profitability of their investment.
Importantly, addressing intellectual property in your business plan is a strong indication to readers that you are not infringing on the property of others because you have done searches or assessments during your own registration process. A patent infringement lawsuit could bankrupt a new business, thus due diligence in the form of freedom-to-operate searches having been conducted can be quite valuable to investors who want to see their investment returned. Further, it will be helpful to think about eligibility requirements for different intellectual property assets. For example, in the case of patents, patent searches and freedom-to-operate searches can help assess the likelihood of obtaining a patent and the likelihood of infringement on existing patents, respectively. For more information on patent searches and freedom-to-operate searches, please consult our resource on Patent Searches and Opinions: Patentability vs. Freedom to Operate. In the case of trademarks, a trademark search may help determine the likelihood of registrability for your proposed mark. If you would like to conduct your own trademark search, please refer to our resource on What You Need to Know about Conducting Trademark Searches in Canada.
Intellectual property assets are not limited to patents; trademarks, domain names, copyrights and industrial designs applicable to your business should also be included within your plan. Your portfolio also shouldn’t be limited to registered assets. Copyright subsists in original creative works as soon as they are created – registration provides certain advantages, but is not essential. Common-law trademarks, or unregistered trademarks that have been used in business long enough to obtain consumer recognition and goodwill, may be eligible for common law protection, and while the protection is narrower in scope than that which is available to registered trademarks, it remains a valuable asset and rights to these marks should be noted. Assets that are in the process of registration should also be listed. Make sure to make clear the status of each asset you include; that is, whether the asset is registered, in the application process, or unregistered, as well as the jurisdictions or regions in which the assets have protection.
Further, address whether your business strategy will be relying on any intangible assets owned by others, such as whether you will be seeking a patent licensing agreement for a current invention as the baseline for your modernized invention. This will be relevant where your product is an improvement of an existing product and may thus involve practicing a patented invention.
The biggest part of this section should be explaining what role the intellectual property assets will play in the commercialization of your invention. Here, specify whether you will be commercializing the invention by yourself once it is patented, licensing it to interested parties, or both. It is key to also address other potential stakeholders in the invention – was it developed in combination with other individuals? Have those individuals waived their rights to it either automatically through an employment contract or in a separate agreement? Finally, elaborate whether your enterprise will be working on developing other assets or only commercializing the intellectual property that you have already developed.
Making effective use of your business plan
A business plan can be invaluable to you if used as a tool for research and communication with interested stakeholders.
When writing your plan, do not cut corners. The information within your business plan, while aimed at other readers, can help you keep yourself on track and determine the viability of your commercial plan. While it may be tempting to finish the plan quickly by providing only rough estimates, or by focusing only on the best-case scenario to the exclusion of others, this approach is not going to be of benefit. Instead, approach your business plan as a guide to the information that is essential to running your enterprise and do your best to ensure your research is thorough and substantiated.
When drafting your plan, it is key to have in mind the audience which will be reading it. Do you intend to pitch your enterprise to investors or accelerator programs? Is the plan intended to attract talented employees to your company by giving them a look into the goals and objectives of the enterprise in the long-term? Or is it for internal use to aid with tasks such as marketing, securing suppliers, or guiding talent acquisition?
The intended audience should guide the plan’s structure. When dealing with busy investors, emphasize the financials and provide a concise executive summary. For potential employees or co-founders, clarify which types of skills are necessary to advance business goals and what long-term benefits exist for key members of the team. In other words, while the basic plan can remain the same for different readers, different sections will need to be highlighted or modified depending on the anticipated audience.
Finally, remember that, while a business plan is a useful tool, it does not bring value or progress on its own. Once you identify goals to attain and tasks to perform, make sure that you follow through on the timelines and solutions that you have outlined. Your invention is a valuable asset, but without taking steps toward commercialization, it is very unlikely to give you the profitability you desire.
If you are set on commercializing your invention and bringing it to market, you should consider obtaining patent protection for it. Contact us for a complimentary and confidential initial telephone appointment to learn more about your options.
