I often get asked by inventors: “I have a great idea, why can’t I just sell it to a big firm for a bundle and let them run with it?”

Large, established firms don’t buy ideas—they buy cashflow and, while this is often disappointing when inventors hear this, there are logical reasons behind this position.

First of all, ideas are in infinite supply which makes them cheap. Ideas by themselves are practically worthless—it is the ability to execute on an idea, to turn it into a business model, then a business plan, to put a product manager in charge, to produce it, find launch clients, to market it broadly, to improve it and to put money on the bottom line that companies and their stakeholders value.

Secondly, large companies reject almost all unsolicited proposals, especially in the United States. A toy and game company, for example, will return any unsolicited proposal in its original envelope with a legal form letter basically saying they did not look at it and that they don’t want to look at it. They live in fear of litigation—if the proposal is at all similar to one they are already working on, their litigation risk is very real.

Thirdly, they know that most startups based on a gadget or gizmo will fail. The reason that major stores stock any item is that the suppliers they deal with will each have multiple products in the channel, will back those products up with major marketing muscle and will stand behind their products if there is a recall. They also integrate their supply chain into their inventory systems and they are much better off with a few big suppliers than many smaller ones. So one-product companies almost never catch on.

Fourthly, they know that even if a successful small competitor emerges they have two solid options—a) they can squeeze them out by lowering their prices or by buying more shelf space or b) they can buy them out.

In the latter case, they often squeeze them first and then buy them out relatively inexpensively.

Large firms know that small competitors can develop new goods and services far faster and far more cheaply than they can. So it is rational for them to simply wait and watch for the tall poppy to appear and then either squeeze it out, buy it or both.

Prof Bruce

Postscript: If an inventor does get a meeting with a large firm and a deal does result, it doesn’t necessarily result in any benefit for the inventor. Robert Kearns, the inventor of the intermittent wiper, had a terrible experience in his dealings with a large car company.

There is a saying amongst intellectual property law lawyers: “A patent is only worth what you are prepared to pay to defend it.” Kearns lost his marriage and years of his life in an all consuming patent infringement battle.

For most entrepreneurs, it is fast execution that counts a lot more than hiring expensive patent agents and spending years, first patenting the idea and, second, defending it. Remember that a patent application requires disclosure so your competitors can reverse engineer your product or service and then scheme to get around it.

In one case I am familiar with, a large firm paid $10,000 for access to an idea (LED Xmas light strings) and then did nothing with it for 20 years. The inventors got the first $10,000 but nothing else.

I tell most inventors of gadgets and gizmos to either simply publish their idea and allow it to enter the creative commons and be satisfied to simply take credit for being first with the idea or to put it into the marketplace themselves. In the latter case, I also tell them to treat it like a hobby—maybe an expensive hobby but not one that will wreck the financial state of their family. I tell them to use bootstrap capital (like finding launch clients who will foot some of the bill) and build an inexpensive website perhaps based on a Yahoo Small Business platform—a fully e-commerce enabled, customized site can be set up for about $40 per month plus a 1.5% transaction fee and a one-time set up fee of $50. This won’t break the bank…

If it takes off, great. If it doesn’t, so what? Most inventors tell me that they have the next Trivial Pursuit or Frisbee or Hula Hoop. But the chances of that are probably less than the odds of winning a major lottery like Lotto 6/49. Remember, you not only have to have a great idea, but be able to execute on it as well which the inventors of the above did do successfully.

In the 6/49, the winner must pick all 6 numbers correctly from the set of numbers 1, 2, 3, … 49. Dr. Fred Hoppe, Professor of Mathematics and Statistics at McMaster University, has calculated the odds of doing that as 1 in 13,983,816 or about the same probability as flipping 24 heads or tails in a row.

Estimates are that there were 12.2 million self-employed persons in the US in 2003 (U.S. Department of Labor, Bureau of Labor Statistics). To this number, you would have to add the number of persons employed by others who wish to become self employed and subtract the number of self employed who wish to be employed by others but can’t find a job. Let’s assume these cancel out and that each self-employed person has one serious new idea per year (experience tells me that the rate of idea generation by entrepreneurs is actually much higher than this—one of the problems that entrepreneurs tend to have is that they have too many ideas and a lack of focus is often a problem in terms of their eventual success or lack thereof).

In a generation of 25 years then you might see 305 million ideas generated by this group of which seven turn into Apple, Hula Hoop, Microsoft, Frisbee, Trivial Pursuit, Intermittent Wiper and Google. Your odds? 1 in 43,571,429. So make it a hobby until it proves otherwise.