Business Tips for Entrepreneurs with Prototypes

Entrepreneurs who are building a company around a product idea and are following the proper steps of product development typically have a prototype built. Of course, it is a natural part of innovation to build a prototype but sometimes these prototypes are not used to their full potential. Here are five business tips for entrepreneurs on what to do with a functional and professional looking prototype.

1. Develop realistic cost models using the prototype design.
Developing credible financial plans is absolutely necessary for the entrepreneur to properly step out and launch their product into the market. When the entrepreneur has a prototype, enough information exists to develop realistic financial models. The prototype design will allow the team to work with suppliers to determine the expected non-recurring expense (production tooling, set-up costs, engineering expenses, qualification costs, etc.) and the total cost of the product (direct materials cost, direct labor cost, and indirect costs such as support labor, distribution, and shipping). These are important inputs into the financial model that are used to accurately portray the long term financial forecast.

SCORE, a non-profit entity that provides business advice, has many good profit and loss and cash flow templates that can be used to develop these models. If an entrepreneur is seeking investment to take their product into production, a three-year cash flow statement will be important to determine the amount of cash needed to build the company.

2. Demonstrate the intellectual property for potential licensees.
Entrepreneurs typically protect their product idea by filing for intellectual property such as design patents, provisional patents, utility patents, copyrights, or trademarks. Many times, the goal is to “sell” this intellectual property to licensees in return for a small percentage of sales and let the licensee handle all the manufacturing and distribution. This is convenient since these licensees typically already have factories and sales channels in place. The prototype is a great method of demonstrating the intellectual property to these potential licensee.

3. Include the prototype as the centerpiece for investor presentations.
An article in Entrepreneur Magazine confirms that professional prototypes will help an entrepreneur describe their product to investors. When you are up in front of potential investors, a great looking and functional prototype can be the centerpiece of the presentation and can more effectively describe the product than any words on a presentation.

While a prototype is essential in this presentation, remember that it is also necessary to be working with a great product development team. Investors not only invest in the product idea, they also invest in the team. Always be sure to have the right people on your team.

4. Receive feedback from target customers, distributors, buyers, and retailers.
A prototype is a great tool to get valuable feedback from all potential customers. These customers not only include individuals that might purchase the product, but also distributors, retailers, and buyers for retail chains and catalogs. Put your best foot forward with an excellent looking prototype and absorb the feedback received. Try not to go on the defensive when bad feedback is received. One trait of a good entrepreneur is to find, admit, and correct mistakes or issues in your product.

It is also important to show your prototype to industry influencers or thought leaders for feedback. Not only do these individuals have great insight to the trends in the industry, but they can indirectly influence others to purchase your product.

5. Validate the idea on crowd funding sites such as Kickstarter.
On crowd funding sites such as, creative companies offer unique benefits or pre-ordering opportunities to individuals who pool their money to help support the effort of a company. In essence, these crowd funding sites are not only a good way for an entrepreneur to get the financial resources to manufacture their product, but also a great way of validating their product ideas. When product description, pictures, and videos of the functioning prototype are posted on the crowd funding websites, it allows potential customers to evaluate the idea and determine if it would be worth ordering. If the idea is fully supported, not only does the entrepreneur receive the funds to start manufacturing but also validates that the idea will actually sell once available.

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