Invention City: 25 years of selling inventions equivalent to $600,000,000
In 1986, three guys in a family garage created the “SqueezeDriver”, setting the beginnings of Invention City, a company that would later manufacture, license, market and sell new product ideas, racking up an estimated +$600,000,000 in retail sales. In this outstanding interview, Mike, president of Invention City, goes through his never-ending entrepreneurial journey.
My name is Mike Marks. I’m 62 and have been living on Cape Cod for 23 years because of a promise to my wife, a start-up business and a need to be near the ocean. In 1997 I foundedInvention City, a company helps inventors with honest feedback, suggestions for next steps and, for a select few, the opportunity to earn income from licensing deals.
Even though the company was founded over two decades ago, we only recently began running it seriously and it’s in classic start-up mode, with everyone performing many functions. On any given day I’m providing direction to my partners, formulating business strategy, creating new services, negotiating licensing deals and drafting agreements, answering questions from inventors, reviewing patents, shooting and editing product videos, working on websites, writing product instructions, finding manufacturers, having 3D models made, sending out for quotations, filing trademarks, hiring people, making product pitches at trade shows, handling corporate administration tasks, observing and conducting new product tests. Some of our inventions are food-related and there are times when I literally cook and wash bottles.
Other invention related companies make their profits by primarily providing services and earn extra income if and when an invention is successfully commercialized. Our model is the opposite. Our primary income comes from successful invention commercialization and we offer low-cost services and free content to serve as magnets that attract good and great invention ideas. Our business model is to filter, identify and license the most promising ideas and then try to monetize them; roughly 1 in 10 succeed.
We leverage relationships to develop and test new product ideas at minimal cost so that we can absorb the failures that are intrinsic to our business. Each project starts with the idea of failing fast and cheap but, mindful that sunk costs are irrelevant, we keep going forward so long as the potential rewards far outweigh the known risks.
I grew up in Los Angeles at a time when the air was smoggy but there were opportunities and open space all around. 1960’s Southern California had an open-minded-anything-is-possible spirit and that spirit is a part of me.
Photography became my passion when I was 14 years old and my #1 hero was and still isEdward Weston. At the same time, I found the notion of business and entrepreneurship attractive. In high school, when my best friend asked what I wanted to do for a living, I answered, “start businesses.”
My early experiences in entrepreneurship were delivering newspapers (I had to go door to door to collect payment), painting houses and, of course, photography - taking pictures at parties and events.
In my first economics class in college, I learned that everything has a price, even human life. That fit my view of reality, so I majored in economics. Ever since that first class, an economist’s perspective and structured way of thinking have strongly influenced how I view the world.
After college, I took a job with Motorola selling two-way radios. That was intended to give me big company experience before getting an MBA. But photography was a passion I needed to pursue so I jumped off track, moved to New York City and dedicated myself to photography for the next 8 years. I had good success, met people like Mick Jagger and Ted Kennedy, went to exotic places, got to shoot the 1984 Olympics and Live Aid and was making a good living. Then the entrepreneurial urge hit hard.
One of my photo clients was a start-up company called Kensington Microware. Shooting photos for their ads and brochures I watched them grow from 3 people to twenty and then sell out to ACCO Brands. It was inspiring in a way that the photo business was not. My brother Joel had invented a cool new tool called theSqueezeDriver so I called up a college friend, Brad Golstein, who was a lawyer/MBA and we formed a company called WorkTools. I wanted WorkTools to do what Kensington had done. I left a successful photography career for a genuine garage start-up funded by family and friends.
In the event, WorkTools first product was a highly educational grind. We sourced parts from the US and Taiwan, assembled the product ourselves on machines built by Joel and sold in the USA and internationally in all channels of distribution - NAPA private label, Sears catalog, Brookstone, QVC, McMaster-Carr and many more. We received a lot of acclaims, many pats on the back and earned a small profit. Small. We would have made more money working at McDonald's. When it came time to launch our next tool we decided to try and license it because of… perfume.
The Perfume Story
While I was working as a photographer, I shot photos of diamonds for DeBeers, the people who came up with the brilliant business concept of selling diamond engagement rings with the phrase, “a diamond is forever.” While shooting the photos of diamonds it occurred to me that there should be a perfume called Wedding Night, a scent and a brand that embodied ultimate romance. I pitched the idea to everyone who came through my photo studio. Everyone liked the idea but no one did it.
Four years later, living in Los Angeles again and struggling on my meager WorkTools salary, I decided to try and make Wedding Night perfume a reality. My idea was to own the brand name “Wedding Night” and then line up businesses to invest their resources into making and selling products using the Wedding Night name and pay me a royalty. I trademarked Wedding Night, put together a stack of market research, had one friend create a logo and another do a photo of a bride and groom and made two phone calls.
My first call was to Modern Bride magazine. I spoke to the editor in chief, told him about the Wedding Night concept, said that I was speaking with Avon and asked if he would be willing to provide advertising and promotion on a rev-share basis (the magazine would make a percentage of sales but would not charge anything upfront). He said “yes” and asked when I’d be in New York. I answered, “in a couple of weeks.”
My second call was to Avon. There I reached a VP responsible for $800,000,000 in annual sales and told her I had backing from Modern Bride for a perfume called Wedding Night. She asked when I’d be in New York and again I answered, “in about two weeks.
So off to New York I went. Both meetings went great. Modern Bride was a solid yes and Avon went as well as a meeting could have gone short of having a signed contract at the end. I called my wife and said, “we’re going to be rich!”
But a few days later when I called the Avon VP to discuss next steps, she told me she’d spoken to Avon’s President and the President thought the name Wedding Night was “crude.
My WorkTools partner Brad and I tried disproving that thought by making random daytime calls to phone numbers in Bible Belt cities like Lubbock, Texas, and Pocatello, Idaho. Most women had no problem with the name, but they said the reality of their wedding nights was far from romantic. In any case, Avon was dead.
But I wasn’t. Wedding Night had come too close to give up. So I decided to try Revlon. I had two angles of attack. One started with cold calls where I set up meetings in NYC with two Revlon divisions. The second angle was to try and market the brand in conjunction with a TV series that I wrote a treatment for called, “The Wedding Knights.” The Knights were party planners who specialized in weddings and each week they’d face a new wedding disaster; perfume sales would ride along.
Ralph Kamon, a close friend of my family was the recently retired head of the legal department of Paramount Studios. Director Robert Evans (Love Story, Chinatown, Rosemary’s Baby, the Godfather) owed him some favors. Robert Evans was also a friend of financier Ron Perelman who then owned Revlon. Evans said he’d call Perelman on my behalf. As for The Wedding Knights, the idea didn’t interest him.
Neither my meetings with Revlon nor the string pulled by Robert Evans accomplished anything. From my first call to Modern Bride to my last meeting with Revlon, the process took about a year. Over the course of next year, I made two more attempts to commercialize Wedding Night and struck out again.
But the process itself had been amazing. I owned just two words, wedding + night. There was no perfume scent. No bottle. No customers. No manufacturer. Yet I had managed to get senior people at major companies to take the time to meet with me and seriously consider my proposal. It was a revelation.
In 1988, WorkTools’ introduced its first product, a manual squeeze powered screwdriver called SqueezeDriver®. That same year saw the introduction of rechargeable battery-powered screwdrivers that fast became the most popular tools ever sold. Nonetheless, even in the face of a cordless tidal wave, SqueezeDriver® won the Popular Science Award for Tools, received design awards in Japan and the USA, was written up in the Wall Street Journal, shown as a cover on the Brookstone Catalog, sold in Brookstone stores, sold in Sears Catalog, sold as a private label to NAPA auto parts, sold to McMaster-Carr and Grainger, was licensed toAll-Trade, sold in K-Mart, tested in Home Depot, featured on QVC a dozen times, presented by Joan Rivers, tested in a 30 minute infomercial, run in 2 minute DRTV spots and also sold in Europe, Asia, South America, Africa, the Middle East and Australia. SqueezeDriver® was even tested in brain surgery at Johns Hopkins and drawn by Stan Lee in a Spider-Man cartoon. Including knockoffs, an estimated one million units were sold, but WorkTools made little profit.
Two years after launching SqueezeDriver, WorkTools team decided to launch a new squeeze-powered tool, a staple gun (known as a “tacker” in Europe). Internally called CounterPoint, the tool worked opposite all other staple guns. Rather than pushing a lever toward the back of the tool and shooting a staple from the front, a user pushed the lever toward the front, toward the staple exit point. The forward action offered two benefits: 1) a user could not only squeeze but also use arm force, so stapling was easier and 2) pressing down over the staple, reduced undesirable kickback so that staples seated better.
Developing and prototyping was a two-year process with many dead ends. My brother Joel, the inventor, believed that we needed a die-cast housing to embody all of the features because die casting had the strength that a simple machined piece of zinc alloy would not. 3-D printing was just beginning and very limited. This meant Joel had to machine a plastic model, create a silicone mold to cast a wax replica and then, using a lost-wax process, cast the housing. There were many problems in getting this to work, the primary one being shrinkage after casting. So he invented a clever way of expanding the silicone used to cast the wax just enough bigger such that it would end up the right size after shrinking. It was brilliant and we ended up with a delicate working prototype that could be used to demonstrate the design… if it was used carefully (we briefly considered getting into the prototyping business and made a prototype bike helmet for Bell Helmets and a replacement sink handle for a 737 using the process).
WorkTools debated launching the CounterPoint on its own. That would mean raising more money, diluting stock, fighting well-established companies and being exposed to possible lawsuits from people who hurt themselves because the tool worked in the opposite direction of the industry standard. The team was exhausted from the Squeezedriver effort and thinking back to the near-miss with Wedding Night, decided to try licensing.
We identified Black & Decker as a prime target for licensing the CounterPoint staple gun at the National Hardware Show in Chicago. We liked the B&D people we met, liked that the company was dedicated to innovation and noted that they didn’t manufacture their own staple guns, but bought them from other manufacturers (private label). This meant that B&D had no investment in existing tooling to consider and would be open to something totally different.
We didn’t approach B&D until a few months after the show. Regrettably, while at the B&D show booth we had failed to get the names and phone numbers of the people we’d met. Without a name and number I had to call Black & Decker cold where I immediately ran into the brick wall all companies set up to avoid being contacted by unknown inventors.
I made a call to B&D’s main switchboard and asked for the product manager for staple guns. The operator inquired, “Regarding?” and I replied that WorkTools had invented a staple gun that would revolutionize the category. Mistake. I was transferred to the person responsible for inventions and was told we would need to sign a company disclosure agreement and submit our invention by mail. “We can’t sign your agreement,” I explained, “I’m sure it doesn’t protect us and our patents haven’t issued yet. We have developed a new type of staple gun that will revolutionize the staple gun business. It will grab 50% of the market and generate at least fifty million in annual sales within three to five years and could well generate over one hundred million in annual sales. I know your marketing department needs a tool like this. Could you please transfer me to the product manager for staple guns.” “Mr. Marks,” the woman explained, “I’m sorry, I can’t do that.” “Don’t you understand what I’m saying?” I pleaded, “I’m talking seriously, without exaggeration, of generating fifty to one hundred million dollars a year in additional revenue for your company but there’s no way I can go through your standard procedure. I need to talk to someone in marketing.” It was useless. “I’m sorry, the only thing I can do is send you out our submission agreement. It’s up to you,” she said. I thanked her and hung up.
How could I reach someone in marketing? Then it came to me. If I wanted to buy staple guns my call would go through. If I wanted to buy private label staple guns (which B&D didn’t make) I wouldn’t get a low level sales assistant, I would get someone with authority. Low level people barely knew the term “private label”. “Private label” sounded important and would surely get me kicked upstairs.
Two minutes later I called the main switchboard again, “I’d like to speak with the Product Manager for staple guns please.” “Regarding?” asked the operator. “We’re interested in buying private label staple guns.” Bingo. I was transferred to the Accessory Division where another secretary answered. I repeated my request, “Hello, my name is Mike Marks. My company is WorkTools, Inc. I’d like to speak to the Product Manager for staple guns regarding private label purchases. Bingo. I was transferred to the Product Manager. Now it was time to pitch:
“Hello, my name is Mike Marks. I have a small company called Worktools, Inc. and we’re interested in possibly buying private label staple guns from you. We’ve also developed a revolutionary new staple gun that you might be interested in licensing from us. Our new staple gun will grab a 50% share of the market and put a crater in Saddlebrook, New Jersey (headquarters location of Arrow Fastener, makers of the ArrowT-50, the leading staple gun with a 75% market share). We’ve done preliminary surveys with a prototype and 99% of the people we surveyed strongly preferred our design to the Arrow T-50.”
“Interesting you called,” came the reply. “We just set up a team to create a new staple gun. The name of the team leader is Gary. You should talk to him. I’ll transfer you.” Bingo again. I was through the brick wall. The subject of private label never came up again.
As mentioned above, prior to making its initial presentation to B&D, WorkTools seriously considered making and selling the CounterPoint staple gun on its own. We figured that within 2-3 years we would be able to earn annual profits of $1 million on sales of 200,000 staple guns plus staples. This represented 5% of our guesstimate of the annual US market. We thought that B&D, with its established name and distribution network, would be able to sell 10X as much, a total of 2 million units. Thus if we could earn an average of $0.50/unit on a royalty basis it would be able to earn the same $1 million per year with less risk and effort. We believed in the long term potential of the CounterPoint and, with one eye to making it ourselves, decided on a buyout number of $5 million. Of course there was no way B&D was going to pay $5 million up front.
When B&D asked how much it would cost to buy out the rights to the tool. I answered as follows, "We figure that within 5 years this product in B&D's hands should achieve 50% market share, generate upwards of $50 million in annual sales and over $10 million in profits. Further we believe that this product will add a halo of innovation to B&D as a corporation, generating tremendous publicity and effect a rise in the price of B&D stock on the NYSE of at least $0.25 per share. Since there are 80 million shares outstanding we believe that upon introduction of our invention B&D will see a gain of at least $40 million in value. With all of that in mind we would be willing to accept a buyout of $10 million…" I had a big smile on my face that signaled I knew this was ridiculous. I continued with a smile, "…but that's negotiable. In all seriousness we know that B&D isn't prepared to write us a huge check so we'll be pleased to discuss a royalty." And that's what we did.
For the initial meeting with B&D we had the following:
Working prototype with a highly evolved mechanical design;
Invention prospectus including strategic analysis of the staple gun market, survey data and a sample ad;
A secret internal understanding that we'd say "yes" to a royalty deal that we calculated would pay out at $1 million/year if B&D achieved 50% market share.
The subject of royalty and buyout was not seriously discussed until subsequent meetings. The working prototype was absolutely critical. The written information helped the B&D staple gun team sell the project internally.
The B&D stapler team needed management approval to proceed with WorkTools’ design and required our working prototype four times to get that approval. Even though we had a confidentiality agreement in place we decided that they could only review the prototype for one day at a time. Every time they requested the prototype I flew it out personally – night flight from Los Angeles to Baltimore – drop off to B&D headquarters at 8am –check into a hotel and sleep - pick up at B&D at 4pm – fly home. We wanted B&D to never lose sight of the fact that this was WorkTools’ invention and that B&D had no rights to it until a licensing deal was signed.
After six months of reviewing prototypes and doing a great deal of internal development, Black & Decker decided that it wanted to license WorkTools forward action staple gun. B&D called Worktools and set up a specific time and place for negotiations. The big question was how much they’d pay for it. The place for negotiations was a conference room at an Embassy Suites hotel outside of Towson, MD. Towson was B&D’s home turf. The Worktools team would fly in from Los Angeles. One day was set aside. There were four people on the B&D team (including a lawyer) and there were three of us (including lawyer/partner Brad Golstein).
Prior to flying out for the meeting I spoke with B&D’s team leader Gary. “Gary,” I said, “before we spend a whole lotta money flying out for this meeting I want you to understand that we’re looking for a royalty of 5%. If that’s way off base then please tell me now. We’ll walk out in a heartbeat if you can’t meet our number.” Money was seriously tight and we couldn’t afford the luxury of a practice negotiation. “Mike,” came Gary’s reply, “Everything will be fine. I’m sure you’ll be satisfied with our offer.”
So out we flew. On the first morning of negotiations the B&D team told us how wonderful our invention was and all of the great things they were going to do with it. It would be an “icon product”. It would be featured in TV commercials. Then they made their first offer. It was something on the order of a buyout for $250,000 or a royalty of 1.5% of net sales. I turned to Gary and said, “I told you what we were looking for. This is insulting.” Then Brad, Joel and I walked out of the conference room, across the lobby, into an elevator, down a hallway and into our suite. “Well,” I said to Brad and Joel, “I guess that’s it.” A couple of minutes later Gary called, “let’s get together again in an hour.”
An hour later we went back to the conference room and talked some more. The offer was improved, but not nearly enough. Deciding it was hopeless, we thanked everyone for their time and walked out again. It was the end of the day and we were getting ready for dinner and a morning flight home when Gary called again. “Let’s try one more time tomorrow. I don’t know if we have any more to give but let’s discuss some possibilities.”
Brad, Joel and I had arrived at the B&D meeting with a number in mind. That number was $1 million a year in Royalties if/when B&D achieved 50% market share – we assumed that to be roughly 2 million units a year. Whether B&D paid X dollars a unit or a percentage of net sales or whether the Royalty started high and went low or vice were all “points of indifference.” Our secret number was $1 million a year at 50% market share. The formula for achieving that number was completely flexible. And that flexibility was why there remained hope in continuing negotiations.
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We began the next morning by making a proposal to B&D. We said we could accept a Royalty that began at 5% for the first 500,000 units sold each year and dropped to 2.5% for all units sold for the rest of that year; each year would have the same sliding scale (we estimated this would pay out at roughly $1.5 million if 50% market share were achieved). We didn’t get a flat “no” so we talked around the point some more. When things were ready to fall apart again we dropped our proposal to 4% and 2.5%. After more discussion on how this might work and why it was fair we came to a standstill. This time B&D was ready to walk. It was very disappointing because we had come a long way and we were awfully close to an agreement.
I was fixated on the Royalty starting high and going low because I assumed B&D would prefer that structure. It was a structure that bet on success beyond 1 million units a year… something that WT certainly believed would happen. I was so fixated on this structure that I couldn’t imagine inverting it. Joel thought of that.
Joel suggested, “how about each year starting at 2.5% for the first 500,000 pieces and then going to 4% after that?” Everyone stopped talking and the kind of silence that speaks “maybe” filled the room. The B&D team asked us to leave so they could discuss the concept in private. When we returned more discussion ensued. B&D agreed that this would work. We were on our way to closing a deal.
Eventually a final deal emerged. Each year B&D would pay WorkTools a royalty of 2.5% of net sales for the first 500,000 units sold for that year and then 4% of net sales for units sold beyond 500,000 for that year. WT would also receive an advance of $140,000 of which 50% ($70,000) would be refunded via royalty deductions. B&D would advance the cost of patent filings too; that cost would also be refunded via royalty deductions. The maximum royalty deduction would be 50% for any given payment period. We shook hands, went out for a celebratory dinner and had a group photo taken.
But we didn’t have a deal yet. The President of the B&D Accessory division needed to sign off on the deal to make it official. We gave him 30 days to do that. It seemed like a formality at the time. 25 days later the deal was still unsigned. I called Gary to remind him of the deadline. He said he didn’t think the deal would be signed in time. “Why?” I wanted to know. Gary hemmed and hawed with embarrassment and said, “He won’t sign off on the deal until we have a final ornamental design.” In other words until the B&D team finalized what the new staple gun would look like, the President wouldn’t sign off and there would be no deal. Exasperated I said, “But you have total control over what the thing looks like.” “I know,” sighed Gary. “So what are you going to do?” he asked. “Well,” I answered, “if our deal isn’t signed by Friday (this was on a Wednesday), I’ll be talking to Stanley on Monday.” Gary said, “We’re going to continue working on this and hope we can still put something together later on.”
As soon as I was off the phone I called an acquaintance named John at Stanley Tools. John was responsible for Stanley’s staple gun program. I told John that we had a new staple gun and that I’d like to see him that coming Monday. John lived in New England. We set up a meeting in Boston. If B&D came to its senses I could always cancel the meeting.
On Friday I called Gary and asked if we would be getting a signature. He answered no and asked what we were going to do. “We’ll see” I replied. On Monday I met with John in Boston. John liked our staple gun a lot. We gave him a prototype to show to the folks at Stanley.
At the start of the National Hardware Show in Chicago that August things stood as follows: Stanley was evaluating the CounterPoint prototype and preparing to give us an answer; B&D was trying to finalize a housing design and sign the agreement we’d negotiated two months before. We didn’t want B&D to know we were talking to Stanley or vice versa. This was difficult since all of the players in this story were staying at the same hotel and there was only one prototype available for both Stanley and B&D to review.
In the event, B&D came to its senses and said it was ready to do a deal. At the same time Stanley decided against the radical new design. WorkTools was left with only B&D.
Back to the negotiating table we went. “Have you disclosed the invention to anyone else?” B&D asked. “Yes,” we answered honestly. “Who?” they wanted to know. “We can’t tell you because of confidentiality,” we lied. B&D postured, “Since you’ve disclosed the invention to someone else it’s now worth less to us and we need to change the terms of the deal we negotiated.” “You’ve got it all wrong,” we replied, “now there’s another interested party (there wasn’t since Stanley had said “no”), and it’s worth even more. You’ll need to give us something extra to sign the deal.” They reluctantly agreed to increase the annual minimum to maintain exclusivity from $125,000/year to $145,000/year. This gave us a moral victory and didn’t hurt B&D’s ability to proceed with the deal.
CounterPoint went on to become the PowerShot® staple gun, was featured in B&D’s annual report and won numerous awards including IDSA/Business Week’s “Design of the Decade” Gold Award alongside the Apple I-Mac, VW Beetle and BMW 325-i.
During the course of our relationship with B&D we managed the expansion of the PowerShot™ line by designing additional forward action tools ourselves and recruiting manufacturers and designers to work on spec. When B&D decided to sell its business in fastening tools we steered the sale to a young entrepreneur we wanted to work with. And when the business was sold yet again, this time to Arrow (who wanted to kill it), we lobbied at the CEO level for a management change that helped save the business.
Beyond the royalty terms, one of the most important aspects of the B&D licensing agreement was that we reserved the exclusive right to use the forward action technology for desktop staplers. That led to another licensing deal (with equity) and a huge success with a line of spring powered desktop staplers calledPaperPro. I should also add that we had fantastic advisers helping us. One was Ralph Kamon, the former head lawyer at Paramount, the other was my godfather Jess Rifkind who was a head of Xerox PARC when Steve Jobs stole the ideas that became the Macintosh.
In 1998 the Internet was still new and a guy named Jeff Bezos was revolutionizing bookselling with a company called Amazon. I thought I could do the same thing with inventing and Invention City was born. Sort of.
The initial premise was to review inventions for free, help inventors get licensing deals and get a percentage of the royalty. We did a few deals but reviewing inventions without charging took too much time because most all of them were not worth pursuing. I tried selling an electronic book on inventing and when that didn’t work I posted all of the content ontoInventionCity and made it available for free. I then left the site more or less alone and went on to pursue other projects.
One of the projects I pursued was aKickstarter for a knit beanie for a brand concept called NESurf (shades of Wedding Night). It only raised $12,500, but everything about the project was perfect. It was 100% honest. Nothing was exaggerated. There were no compromises. And it felt great. I wondered if I could do the same thing with Invention City. Could I be 100% honest with inventors about their inventions and, crucially, could I charge them money to tell them that their inventions wouldn’t succeed? That would filter out inventors who weren’t serious and enable me to cover costs while waiting for something good to turn up.
I tested the idea and surprisingly it worked. One reason it worked is that during all of the years I had leftInvention City’s website alone, the content on the site, combined with the site’s longevity, had produced Google magic: the site had great page rank for invention related keywords. The result was good traffic that cost nothing - the free traffic gave me the ability to try crazy things.
Around that time I met Dan Fulford who had resigned in frustration from another invention company and we decided to relaunch Invention City with help from my WorkTools partners. Things are going well today. We are orders of magnitude away from becoming Amazon, but give us some time.