Small Business

The "Free" Market for Innovation


When it comes to marketing, Corporate America bandies about big words and backs them up with bigger bucks. Meanwhile, small-business owners implement major marketing efforts on minute budgets. In this occasional look at marketing strategies, Smart Answers columnist Karen E. Klein takes a small outfit's marketing strategy and runs it by Chicago marketing executive Meg Goodman for an expert assessment.

The Company: Invent Resources (IRI)

The Service: A staff of scientists and engineers with backgrounds in research, applied technology, and business formulates and patents new products and technical designs for clients. It also consults on product development and licensing arrangements. "Inventions on demand" is the way the outfit describes itself.

The Entrepreneurs: Richard Pavelle, PhD., president, and Ze'ev Hed, ScD, vice-president.

The Challenge: Persuade potential clients to outsource "idea generation." While the concept is both intangible and amorphous, the goal is anything but. Players in industries ranging from automotive to durable goods to cosmetics are constantly looking for the next "great invention" that they need to remain competitive. And while many large companies allocate extensive R&D budgets to support teams of inhouse innovators, others dedicate relatively few resources to conceiving and designing new products.

So, how does an "idea factory" like IRI convince potential clients -- including those with their own R&D teams -- that the service being offered represents value for money?

The Solution: Invent Resources tore up the rule book and decided to "give away" innovative ideas free of charge. Founded in 1992 by six people who boasted an impressive array of academic credentials and hands-on experience in the practical applications of innovation, IRI first set out to sell its ideas. But while traditional marketing channels proved successful in raising interest among prospects, the tried-and-true methods proved to be of little help when the time came to actually close deals. That's when the group decided to give away ideas as proof of their capabilities.

Now, IRI participates in initial discussions to determine a potential client's needs. If its experts feel they can help, a confidentiality agreement gos into effect and work begins. If IRI can't solve the problem, the client pays nothing. However, if the business does develop a viable solution, the client buys the "first option" and licenses the new product or design from IRI. If the client opts out of a deal, the contract allows IRI to license its brainstorms to third-party outfits.

"This approach has proven successful for us time after time," explains Pavelle. "Our clients can tap into our expertise with absolutely no risk. We get to do what we enjoy: inventing. And if we succeed, everyone succeeds. Many otherwise unapproachable companies have opened their doors to us with this approach."

The Result: IRI has grown steadily since offering the free-taste approach, with no shortage of companies wanting to get a sample its wares. In 2002, IRI's net profits grew by 20%.

The Expert's Verdict: "IRI has taken the classic marketing tactic of giving a 'free sample' to new heights," says Meg Goodman, a founding partner of the Performance Consulting Group, who specializes in strategic marketing services and new-business development.

"The time-tested approach of simply getting a product into a prospect's hands has traditionally been a challenge for those in the services sector. While tangible product samples may be simple to produce and distribute, an intangible sample of a service can cost a great deal of time and money, with no guarantee of return," she says. "By owning the idea and licensing it to clients, IRI has overcome that potential back-end gamble."

This twist on a proven marketing tactic is worth a serious look by any company that wants to let prospects sample their wares, Goodman believes. "If they put a little time into brainstorming ways to do this, I truly believe that any service company can come up with a clever way to leverage this approach. In my opinion, the sample tables will no longer be found only in the grocery stores on Saturday morning, but rather in companies large and small."


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