First Muse -- physical invention

[distefam]

I came up with an idea for my first muse. It involves the niche market of loose leaf tea drinkers. I will be sure to post details in the coming weeks, however, for now I will simply post what I have done so far as well as my plans for the immediate future. Please feel free to comment and critique my approach, I welcome any advice from those of you who have been down this road already.

I first decided that I would need an LLC to protect my personal assets so I formed iinu works, LLC in my state of primary residence, New Jersey. I used incorporate.com to form the LLC and found their services very useful. I had some questions regarding the form I was filling out online so I called. Not only was the sales representative immensely helpful, but he dropped the fee $25 and added 6 additional months of registered agent service. Although the business is registered in New Jersey the main business address is in California, because I am currently attending university there and will be living there for at least another year. I registered a private mailbox at a local store for $15/mo and used that address as the main business address. I also applied for an EIN from the IRS.

I intend for iinu works to be a parent company under which I do all of my business under DBAs. If any one venture gets large I will form a separate LLC for that company. This made some of the questions on the LLC and EIN applications somewhat confusing. I was not sure what to file my primary business as so I opted for "Business Services" for the LLC and Retail for the EIN. The EIN options under retail allowed one to choose between selling exclusively online or several other options. I chose "other" and wrote that I intend to sell both online and through third party retail companies. Hopefully this will be sufficient. Does anyone know how strict this is?

I have contacted a mechanical engineer on elance with some sketches I made of my design (I had him sign an NDA first). He has agreed to help draft an initial prototype for me. I am uncertain at this point how and when I should go about filing for a patent. My plan is to first have a sketch of a feasible product, which I'm waiting on the elance engineer for, then submitting a provisional patent application.

I have not begun to test yet as I don't have any product photos at the moment. This is another point of uncertainty, how can I make a believable website with which to test my product before I have any hard product? It will not be enough to simply describe it, people will want to see pictures and maybe even a video.

Once I have the product manufactured I intend to approach companies that sell similar products and offer exclusive rights to sell my product. However, I'm not sure whether this step should come first or whether I should start selling it online myself before I approach any retailers. Any advice in this regard would be greatly appreciated.

Tomorrow, I plan on going to my local branch of a major bank to open a business account. I also will call AMEX and MasterCard to apply for business credit cards. For the time being I have been using my personal credit card for all expenses (LLC formation, private mailbox, etc.) and keeping them in a spreadsheet in google docs. I want to get started with QuickBooks but I was uncertain if I should see an accountant first. I don't want to make any errors in these early stages that will prove costly down the road so I figure some prudence regarding bookkeeping now will pay dividends in the future.

I will continue to update this thread with my progress. As I mentioned above please leave any comments and/or suggestions. Criticism is welcomed too!

[Avex]

It sounds like you are making good progress on the administrative/legal side. But something tells me that you might want to do better research/testing before you fully commit. I've had "great" ideas in the past, and blew a bunch of money on that and never made any profit.

One of the tests of an entrepreneurial idea is :

- Can you name 10 people who will buy your product? If so, work with them to better define your product.

I recently found this site: http://www.quirky.com/ I see it as an alternative to Tim's way of testing products. This may be a good place to start with a physical invention.

[crlaiz]

Hi, distefam:

I'm stuck at a similar point. My first muse is also a physical invention, so there are neither pictures nor even simple sketches of my product. I have already discarded the idea of patenting it prior to testing, because it is too expensive and I really have little budget. In addition, I live in Madrid so most hints, sites and companies that Tim mentions on his book are useless to me because my business would be based in Spain. Legal stuff is too different from country to country.

My strategy for the moment is building a test site and see if the estimated sales are correct for the specific keywords I'm using. As you point out, it's foolish to try to sell something if potential customers cannot see what they are actually buying. So my site will show simple sketches about how my device works (not detailed ones, I don't like industrial espionage) and some pictures with dummy devices to see it in action. I can build myself that dummy (just the casing) with an external look similar to what the real product will be, just for that purpose. But I will be sure to include a disclaimer saying that the actual appearance of the product may vary due to developing issues (or whatever).

If the testing is successful, I'll consider finding an engineer to build the prototype. Then I'd update the pictures (and sketches, if necessary) on the website and test it again with the "real" product. And if that works fine, promising loads of money in advance (), then I'd go for the enterprise structure, then the patent stuff, and finally finding manufacturers.

Regarding retailers, I'm clear at this point: I don't want them in the first stages of my muse. As long as I belive my idea is revolutionary (who doesn't, anyway?), I want to collect the very first bucks that come out of it, and try to keep it away from sharks.

Last but not least, I haven't tried Quickbooks but I suspect that the differences between spanish and US legislation will make it useless for me. So the chances are that I'll hire an accountant for all the legal stuff and forget about it.

Good luck, and don't give up!

[Sven]

Originally Posted by crlaiz

Hi, distefam:

So my site will show simple sketches about how my device works (not detailed ones, I don't like industrial espionage) and some pictures with dummy devices to see it in action. I can build myself that dummy (just the casing) with an external look similar to what the real product will be, ... then the patent stuff, and finally finding manufacturers.

Any detail that is published is no longer patentable outside the USA. Do not publish any critical feature before the patent application.

[distefam]

Thank you for your advice and encouragement. I will be sure not to publish any valuable information pertaining to the device prior to the patent filing. Maybe it would simply be best to first file a provisional patent before testing?

Today I hired a mechanical engineer via elance for product design. I sent him sketches that I had drawn up and spoke via skype about some technicalities as well as logistics including payment and timeframe. The cost of the design, including several iterations is $150, which is, I must admit lower than I expected. He had a very good reputation on elance and his portfolio looked the most applicable to the type of work I requested out of all of the freelancers I researched on elance.The design is scheduled to be done in 10-15 days. He has told me that he can provide detailed 3D renderings fit for a test website and even animations if necessary.

I also contacted my bank today to open a business account. Unfortunately, because I'm registered in NJ, yet my business location (private mailbox) and bank are in California I was told that I need either to qualify to do business in California (over $500) or get a letter from a CPA stating that I have no intention to do business in California. I'm not certain what qualifies as "business" in California, but my business will be selling things online so I don't expect that I will need to register here. However, having the mailbox here may be problematic.

I did some preliminary research on accountants and contacted several CPAs. I am waiting back on their response and I hope to be able to visit tomorrow.
All I intend to get at the moment is the aforementioned letter stating that I don't intend to do business in California, however, I thought it would be a good opportunity to test out a few accountants.

I need to put a deposit down for the elance work (30%). Up until now I have been putting all of my expenses on my personal credit cards and I'm not sure whether I will be able to write off those expenses in the future. Should I wait until I am able to get a checking account before racking up any more charges or should I use my personal card until I get a business one?

This brings me to one other question. How soon has everyone applied for a business credit card. After looking at several applications online they require that one declare their income. I am a student at the moment and don't have any income that I may be able to declare so I anticipate that I will be rejected. I have had a personal credit card for over a year that I pay off each month, however. Maybe I will wait on the credit cards until I start making money. Does anyone have advice in this regard?

Thanks again for the advice and encouragement! I will be sure to keep posting with my progress.

[Hectorgmontano]

Thanks guys for all the info. You guys are truly inspiring.

[Bishop81]

You're fine with using your personal credit cards and stuff until you get a business account set up. You'll still be able to deduct them as business expenses.

[kprimo25]

There is rarely any benefit in setting up your business entity outside of the state you live in and doing so typically complicates matters, as you're seeing by the bank's refusal to allow you to set up a bank account. The fact that you're "on-line" isn't going to prevent California from viewing you as doing business in California, and the Franchise Tax Board is going to want to be paid their franchise fee ($800, not $500). You're going to be entering into contracts in California with vendors, etc., and as a California resident, you're going to be taxed on the income you make here, and if you wanted to sue someone, you'd want to bring the case in a California court. I would have set up as a California LLC, and then if you moved back to NJ, merge the CA LLC into a NJ LLC. Two ways to handle it: Dissolve the NJ LLC and start a CA LLC, or open your bank accounts, etc. in NJ, but keep in mind, the California Franchise Tax board makes the IRS look like a kitten. They are ruthless and evil, and the last administrative body I would ever mess with.

Oh, and the advice about not publishing anything related to your patent idea is excellent advice. Follow it. And good luck.

[distefam]

Kprimo25:

You are certainly right, this has proved to be a bit of a headache. I am not a resident of California though, as I have only a New Jersey driver's license and residence. Unfortunately, at the moment I'm temporarily living in California as a student (just one more year) before I move back to New Jersey.

I do not wish to register my LLC in California unless it is utterly necessary. I have heard of the problems you stated from others and know that it currently takes over 40 days for an LLC formation in California due to a backlog of work and a lack of personnel (I was told that the previous three offices dealing with such matters were recently reduced to two due to the 'financial crisis'). Additionally, I do not wish to be responsible for the $800 annual minimum tax fee in California, nor do I want to deal with the CA Franchise Tax board.

Because of all of this I would prefer to do business in New Jersey. I am flying home (to NJ) in almost exactly a month. Should I simply wait until then to open my bank account in NJ? I intended to use Chase because they have branches in both states, however, apparently it matters in which state you open your account. The problem with this arrangement is that it may appear that I am doing business in California because this is where I currently reside. Furthermore, I have a private mailbox, which is listed as the business's main address, in California.

Presumably businesses do this all the time. Register the LLC in Nevada or Delaware, even if they live in California. Am I wrong in this assumption? I contacted incorporate.com and was informed that to get a license to do business in California it would cost over $500, which is in addition to the minimum tax of $800 that California requires. Clearly, I do not wish to do this unless absolutely necessary.

What exactly counts as doing business in California? As I'm not a resident and have no retail space here I assume that I can state that I do not intend to do business in California, however, the holdup is that I currently 'live' here and that I have the private mailbox. If worse comes to worse I will just cancel the mailbox and get a forwarding service or something. Do you think this will be sufficient? I am not sure who to ask for advice at this point. I saw an accountant today and he wasn't very helpful. I suppose I could see a lawyer but I don't really want to go down that road unless it is necessary.

Also, thank you for seconding the advice to not publish anything related to my patent. Would it be ok to register for a provisional patent, then test? Or should I not include any 3D renderings or drawings on the test site regardless of whether or not I have registered a provisional patent? Otherwise, how am I supposed to test?

Sorry if I sound a bit lost. I appreciate your patience and encouragement.

[distefam]

Just a status update.

Last week I saw an accountant who agreed to write a letter indicating that I do not intend to do business in California. Since my permanent residence is not in California and I do not intend to hire employees in California, nor do I intend to have a retail presence here he said that it is fine. He was nice enough to provide this service for free.

Upon receiving the letter from the accountant the banker at Chase allowed me to open an account. The account is now open and I have made my initial deposit. I also applied for a business credit card though the bank, specifically, the Chase Ink card. I will find out in about a week whether or not I have been approved.

Following Tim's advice I decided to apply for a few other cards within the 48 hour timeframe so as to minimize the effect on my credit score. Prior to applying for cards I got a credit report via credit karma. I found that I have a 744 score, however, the detrimental factors are the number of accounts I have (only one credit account at the moment) and the duration of said accounts (just three years). I applied for the American Express gold and was rejected upon the basis that I do not have a sufficient amount of accounts. I have also applied for the Discover Business Miles card and will find out the status of that order in a week or so. Any suggestions of good travel cards that might approve a new business would be appreciated.

I got the final concept design from the person whom I hired on elance and I must say that I was very impressed with how he took my nascent idea into a viable conception. I now have 3D renderings that are sufficient for a provisional patent application as well as for my test website.

I began filling out the forms for a provisional patent on LegalZoom and should finish that over the weekend. Once the provisional patent is filed I will proceed onto testing. I have already performed an initial analysis of good keywords and have developed a rudimentary strategy for my adword campaign.

I will be sure to keep posting my progress. As always, comments, suggestions, or encouragement are welcomed.