2 rail model trains!

In the model train hobby, a lot of what you'll do will flow from the theme that you've chosen for your model railroad. From scenery to rolling stock, from track to power supplies, everything will depend on your theme.When it comes right down to it, theme is all about what you want to do.Choosing a theme is all about:an era a setting an operating styleModel Train Eras:There are three main eras for model trains: steam, modern, and transition.1. The Steam Era covers everything from the Wild West (1870s) up to World War II (1940s), but for most people the steam era pretty much covers the 1930s to 1940s.

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2 rail model trains!

IntroductionIn this article arguments are made against third party invention evaluation offers. The opinion expressed is that they give the inventor any useful information and are generally just based on an opinion. An inventor may receive a positive or negative evaluation but in either case the inventor may not know how to proceed.Moreover, an invention with a positive evaluation could fail because of factors not considered in the evaluation.On the other hand, an idea with a negative evaluation could very well succeed. A negatively evaluated invention or idea could perhaps be modified in such a manner as to improve the chances of success. Maybe if the business model were changed to target a different market or application, the chances of success could be greatly increased.The purpose of this article is to give my arguments against general third party invention evaluation offers, and to describe to inventors/entrepreneurs a method for an evaluating the market potential of their idea or invention. In addition this method can be used to monitor their operations, if they decide to manufacture and/or sell their product themselves.One Size Fits All Snap Shot Invention EvaluationThe arguments are not against all forms of third party invention evaluations. It is reasonable and prudent for a third party to do an evaluation if they are going to put some skin in the game. For example, a third party evaluates your invention and on a contingency of their positive evaluation, they represent you at no upfront costs as a licensing agent.Furthermore, there are no objections if the company charges a reasonable upfront fee for the initial evaluation. This upfront fee is probably necessary to make some inventors think twice about submitting their idea. If not for this fee, some submissions might be poorly thought out ideas such as selling haircuts online or an at-home-ATM where software takes your debit card information and prints out cash on your color printer.These types of ideas might have gotten funding during the inflation of the dot-com bubble but times have changed.However, the arguments are against the types where they just hand you an invention evaluation and ride off into the sunset with the money. This often leaves the inventor standing in the lurch with no idea on how to proceed.The one size fits all approach will not work. All markets are different and what may be important in one market may not be important at all in another. No one can know all possible markets and furthermore even if they do learn another market, their interpretations may be colored by previous experience. They could predict the market behavior based on unsuitable previous experience. One market will not generally behave like another.Furthermore, any evaluation that is not ongoing and continual is just a snap shot. The economy and consequently the market environment are constantly changing. The competition will not just sit flat footed and let you encroach on their territory. They are most likely to respond in unexpected ways.The success of an idea or invention can also be affected by legal decisions. For example a decision can affect the costs of your product liability insurance or get your product dropped by a retail chain. An inopportune legal decision can make your product appear as a high risk item.New legislation might be passed that could drive up the costs of manufacturing and marketing your product. New tariffs and duties might be imposed. New environmental regulations might also, directly or indirectly, effect your costs.Natural disasters can also affect the business model, as a hurricane did a few years ago. The hurricane heavily damaged off-shore oil rigs. This negatively affected production capacity and drove up fuel prices. As a result, most major shipping companies added a fuel surcharge to their invoices.The experience and character of the inventor has a big affect on the success of an idea or invention. They may be risk adverse and unwilling to take financial risks or the inventor might not fully understand the character or magnitude of such risks. In addition, personal or family problems might unexpectedly appear and impact the inventor's ability to manage or fund the project.Since, in most cases, the paid for third party evaluation is a snap shot - a subjective judgment call based on fixed conditions - it has a limited shelf life. They are similar to battle plans in that they rarely survive an encounter with the enemy. It would be like setting sail with last week's weather forecast. There is a real need to constantly monitor the economic/market weather conditions and respond by adjust the project's course.Tips for Evaluating and Managing an Invention or IdeaFirst it is strongly recommend learning how to use some sort of spreadsheet software. After learning how to use the software build a table with week-by-week entries. What is suggested is something like:Project Week_______________________________1_____________2_____________3_____________4Month___________________________________January_______January_______January_______JanuaryWeek of the Month__________________________1_____________2_____________3_____________4Type_________Category______Item__________Cash Flow____Cash Flow_____Cash Flow_____Cash FlowIncome_______Sales_________Retailer 1______$5000Income_______Sales_________Retailer 2___________________$1500Income_______Royalties______License 1_________________________________$10000Income_______Royalties______License 2________________________________________________$2000Expense______Insurance______IP_______________________________________-$1200Expense______Insurance______Liability____________________-$150Expense______Warehouse_____________________-$2000Expense______Inventory______Product 1________________________________-$5000Expense______Advertising_____Email___________________________________-$5000Expense______Advertising_____PPC___________________________________________________-$3000Running Weekly Total_______________________$3000________$4350_________$3150_________$2150Weekly deficits and surpluses are carried forward into the next week's column. In this example, the $3000 at the bottom of column one gets added to the cash flow in the second week's column. This is carried all the way down the line to the last week column in the spreadsheet model. In addition it is recommended that this sheet is built out to a period of three to five years.Another recommendation is to modularize expenses such as insurance premiums and credit cards. What is meant is that the down payment, principal, and interest are entered on a separate spreadsheet page and that the payment is automatically calculated by the program. This payment would be shown in a cell of the same spreadsheet page. This cell could then be used by other cash flow spreadsheets. The advantage is that relevant values can be changed and the changes would automatically propagate through the entire spreadsheet workbook. An example of what I mean is shown below:IP InsuranceTotal_____________$12,000Down Payment______$1200Interest Rate______18%Monthly Payment___-$990.14Week of Payment_____3In this example the payment would be calculated from the entries of total, down payment and the interest rate. There would be a comparable separate spreadsheet for each and every source of income and expense.There are numerous expenses and all tend to be hard numbers. That is, if you request and accept a quote for intellectual property insurance, you will pay according to the agreed upon terms, so much down, interest rate and monthly payments. Similarly, if you agree to purchase inventory at a certain price you will pay the agreed upon amount. On the other hand, estimated income based on sales amounts is pure conjecture and unlikely to be accurate. Therefore it is recommended that several scenarios be constructed. For example, one would be where it takes longer for weekly sales to climb to a certain level and another where weekly sales climb quickly. Microsoft Excel allows the construction of several scenarios and the ability to toggle from one to another.The simplest way to construct the estimated sales volume spreadsheet is to put the project week on the left and weekly sales volume just to the right as shown in the example belowEstimated Sales Volume Scenario 1Project Week_________Units Sold1_______________________102_______________________203_______________________304_______________________405_______________________506_______________________607_______________________708_______________________809_______________________9010_____________________10011_____________________10012_____________________10013_____________________100This table is relatively easy to construct and can either be done manually or filled in automatically using a spreadsheet function such as forecast. In the example above, it was estimated that 10 units might be sold during week 1 and that sales would climb to 100 by week 10. The numbers in between where notched up by 1o units per week and entered manually.As before, it is advised to that you make the spreadsheet workbook as modular as possible. In the case of sales income the pricing levels would be on a separate spreadsheet, with several scenarios, and income would be calculated from the pricing levels and estimated sales volumes.Sales will typically climb to a certain level, level off for a period of time, and then decline.This is caused by the demographic composition and behavior of consumers and is known as the Product Lifecycle Curve (PLC).Attempts to accurately predict sales volumes fail more often than not and are purely speculative in nature. Therefore, it is best to experiment with various scenarios and observe the effects on the business model's bottom line. The only advice is to research the target or a market similar to it and try to be conservative. As a follow up also consider the costs for reaching that target market and include those somewhere in the spreadsheet model.In order to have a sales volume you need to have the product available. It takes time to make and transport the product. In addition, in most cases, an upfront fee has to be paid to start the manufacturing process - usually one half of the agreed upon costs. The other half is typically due when the product is shipped. If the product is made in China allow about 2 weeks for transit, a week to clear customs, and scheduling trucking to the warehouse will take another week. It will also take some time to deliver the product to other channels such as retailers and mail order business. Make sure to account for these delays in the spreadsheets by entering relevant expenses and incomes on the weeks they can reasonably be expected to be incurred.There are charges for clearing customs and trucking. Moreover trucking charges are seasonal and tend to increase during the year-end holidays. Warehouse charges for storing, pallet rental, and processing can also increase during the holiday season. This is yet another reason to make the spreadsheet as modular as possible.All these charges would be entered in the spreadsheet workbook on the project week where they are expected to or have occurred. These charges can be expected to occur well in advance of income derived from sales. There can be a lag of six months or longer between when inventory is bought and income is derived from sales of that inventory - if there is any...Estimated sources of income would also be entered in the spreadsheet workbook on the week they were expected to be received. As with the expenses, it would be advised to construct a separate spreadsheet for every income source. This will allow fine tuning of each individual income source. In the case of income coming from a retailer it will allow keeping track of defective product, promotional and other discount allowances.The spreadsheet workbook is an ongoing project and it will have to be adjusted as new information becomes available. The spreadsheet is just an estimate and the actual predicted values should not be taken too seriously. So if the model is inaccurate why go to all the pain of constructing it?Sensitivity TrainingThe real purpose of the model is to develop an understanding of the business and to determine what is important. By changing the scenarios, expenses, etc... and seeing the effect on the bottom line you should be able to develop a ranking system. For example, a relatively small change in an expense could have a big impact on your profits. By playing around with this expense on your spreadsheet you could determine the sensitivity of your business to that expense. Similarly, the sensitivity to other expenses could be determined.Initially those expenses which affect the number column furthest left on the bottom line are ranked the highest. If a change in an expense changes the number in the millions column and another changes the number in the hundreds thousandths column, the million may be more important. Another criterion is how big the change has to be to produce the effect. Dividing the resulting change by the amount of the change will help sort that out. For example is a $0.10 change in an expense results in a negative $100,000 change in the bottom line the sensitivity of the business model to that expense would be negative 10,000 dollars per cent (dollars/cents). By experimenting with the business model expenses and incomes, the various sensitivities would be determined and ranked. The components of the model that have the biggest dollar per cent sensitivity are ranked the highest. It would be wise to pay attention to the expenses and incomes that ranked the highest in terms of dollars-per-cents.Sensitivity mapping can also be used to make improvements to the idea or invention. By making adjustments to the design the bottom line could be improved. The spreadsheets would be used to determine which changes would be the most effective be in terms of return-on-investment. The costs of making the changes would have to be factored into the model. However the sensitivity again would be determined by the estimated bottom-line change to costs or savings achieved by changing the invention or idea. Some changes might increase the costs of the product but add features that would increase the size of the market. On the other hand, some changes might not increase the size of the market but would reduce the manufacturing costs.Along those lines, make sure any outsourcing bids you request for manufacturing your product are itemized in detail. A formal quote should include line items for materials, machine time, labor, packaging, etc... This detailed list is necessary to make sure the quote is fair and to look for opportunities to cut costs. It also serves to keep the contract bidder honest. It is not unheard of for the bidding manufacturer to quote a price of of the estimated retail price. If you an encounter such a ridiculous bid you may assume that the bidder is incompetent, lazy or corrupt. In any case, it would be wise to remove the bidder from the list of potential outsource manufacturing candidates.The spreadsheet workbook would also be used to determine the effectiveness of advertising campaigns by ranking the return-on-investments.The whole purpose of constructing and experimenting with the spreadsheet is to develop an understanding of the business model which is the core purpose of any idea or invention.In addition, such a model is very important for predicting and managing cash flow. A project can achieve spectacular sales volume increases and still fail because of cash flow problems. In this case, the projects failure would not be due to any inherent flaw in the idea or invention but the mismanagement of cash flow. An ongoing detailed spreadsheet analysis of the project before and during the execution of the project will bring to light any potential problems and allow the development of contingency plans.Benefits of the Painful Spreadsheet AnalysisThere are many benefits for doing such an analysis. Even for an inventor that is not planning to manufacture and sell their own product, having a detailed understanding of the invention business model will put them in a better position to evaluate future ideas and current licensing offers. The better understanding may also improve the quality of future ideas.For the inventor/entrepreneur, someone planning to manufacture and sell their own product, doing the detailed spreadsheet analysis will allow them to discover areas that might have a potential big impact on their business, make contingency plans, improve the business models and allocate resources more effectively.Finally, a detailed understanding of business models might help identify other potential business opportunities.

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