By Mike Semanco, President, Hennessey Capital

In our world of lending money to small and midsized companies for working capital purposes, we get calls all the time about how to commercialize a concept or product. 

Most of the time, these conversations are very difficult.  Entrepreneurs are passionate about their product and know it inside and out. The challenge comes in the form of addressing the following unknowns:

1) is there a market?
2) how is the initial launch funded?
3) how do you scale the business if the product takes off?
 
Setting the stage to address the above questions was a recent dinner conversation with a budding entrepreneur. She developed a clothing product for both kids and adults to use in the winter months. Even though there are similar products in the market, hers has a few twists which makes it very unique.  I proceed to ask the questions stated above and hear the following.

1) Of course there is a market, I gave it to friends and family to try out and they loved it. I think it could be a big hit in the retail market.
2) I hear commercials all the time from banks that they will lend money to small businesses so I will ask my bank for the money.
3)  I have no idea.

Interesting answers. We proceed with dinner and I put on my coaching hat and do my best.

A market test with family and friends is a good start but if you truly want to build a business and not just a hobby, don't think small. First, have you determined if the product can be patented in order to protect your idea before you begin approaching specialty retailers and distributors? As for financing the initial launch, I am sure sweat equity was poured into making the first few hundred products. Since the business had no sales outside of friends and family, the first round of financing will come from the entrepreneur's savings account, possibly from family members or friends of friends who believe in the idea enough to take the risk. Banks like to lend money to companies with a track record, typically 2 years or more and a history of some earnings. Lenders who specialize in purchase order financing and receivable financing may be able to help but they will require the business to have sales or a purchase order from a reputable buyer.

What happens if the product does take off?  Has the business owner considered which suppliers to approach for raw material as well as manufacturing, packaging and distribution sources?

The process of moving from prototype to production can be a daunting task. A task that an entrepreneur should not take on alone. Remember the business plan that was written a few years back when you thought it was not needed. Time to dust it off and use it as a framework to tackle the next stage in your business. Your CPA, attorney, friends and fellow business owners should be leveraged to help you think through the details of moving from prototype to production. This is an exciting time in an entrepreneur's life but it can also be one of the most stressful.