We recently hit on a great new concept. We’ve built prototypes of 50 new products and have many more ideas in the pipeline. We need more cash to investigate further but the bank says no.
This week I met a business – let’s call it Splash – which had been operating steadily, but not very profitably, for many years. Almost by chance a couple of years ago the business stumbled on a new concept. The CEO, John, showed it to a few people and their enthusiasm encouraged him to invest a heap of time into the concept to explore its possibilities. John felt that this concept could revolutionise not only his business, but also the world.
Two years later the business has taken the concept and formulated it into at least 250 product ideas of which 50 have been prototyped. John asked the bank for funding to prototype the other ideas, but the bank said no and right now John is not a happy man.
The business desperately needs the cash. The excitement of exploring the new concept focused all the business’s resources on developing ideas. The original business was pretty much ignored and unsurprisingly died a slow death.
Right now Splash has no source of revenue. Although prototypes of the product have been built, none are in production and not a single product has actually been sold.
Banks get a lot of stick for not investing in growing businesses and John has been very vocal about the bank’s refusal to further fund his prototypes. But on this occasion I think the bank has a good point.
Right now Splash needs to get product off the drawing board and into the market. In all likelihood once the product is in the market the business will get feedback from customers and potential customers that will require it to go back and finesse the offering. Developing product ideas in isolation is fun but rarely productive.
A good move for Splash would be to pick a small selection of products from its range of prototypes to manufacture and sell. The range should be the ones that are likely to have the biggest appeal and a shortest sales cycle – that way the business could generate some much needed cash.
And my guess is that the bank will be much more open to the thought of funding working capital to get a capsule range of products into the market, than they were to funding ongoing research and development.
As Thomas Edison said, “The value of an idea lies in the using of it.”
Julia Bickerstaff’s expertise is in helping businesses grow profitably. She runs two businesses:Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses. Julia is the author of “How to Bake a Business” and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University).
Smart Company is a sister publication to The Mandarin, catering to Australia’s entrepreneurs, small and medium business owners and business managers.
