Licensing

This week’s blog will be a lot shorter than normal since my father’s funeral was this week.

 

What is licensing?  It is giving someone the ability and right to produce (manufacturer) your idea.  It is getting paid on your ideas, without the hassle and experience of having to create the product yourself.

There are reasons you should pursue licensing versus producing your own product, so let’s talk about the Cons of manufacturing your own product.

 

Cons:

Let’s say you come up with a unique product idea that is a sure winner.  If you are developing it yourself, controlling the entire process, you will need to:

1. Develop a defined prototype so that you can test it out to make sure it works. The prototype could cost thousands or even tens of thousands to create.  It is also likely the prototype will need at least a few iterations before it is final, costing thousands of additional dollars.
2. Of course, if you have a unique product idea, you need to protect it through a patent(s). This could cost you thousands in attorney fees.
3. The work above costs you lots of money but just as important is that it costs you time while you manufacture and protect the idea.
4. The time it takes to get your idea to market is a key considering because the market window for your product is fleeting. The market is fickle.  What is cool and exciting one day could be old hat tomorrow.  By the time you create a prototype and go through the iterations on the product; secure a patent; the market has moved on.  You’re left with no market and a lot of debt.  Not a good situation.
5. What if you create the product and there was no market to begin with? You could have spent tens of thousands of dollars.

“Most people have it backwards”, says Stephen Key, an entrepreneur who has successful licensed many products.  He goes on to say, “They develop a product to solve a problem that bothers them personally without first confirming that it bothers the market universally.”

Now, let’s discuss the pros of licensing.

 

Pros:

1. You can get the product to market much faster by licensing your idea to a manufacturer. Years ago, companies developed everything in house, but that is no longer the case.  Many manufacturing companies have set up departments to evaluate and bring to market new product that originate from the outside.
2. The manufacturer, who focuses on a particular market, will have a good idea if your product will sell. They will evaluate your idea with the end market in mind.  While there is no guarantee the manufacturer decides to manufacture it, it is a guarantee that if they move forward, it has a good possibility of selling.  Otherwise the manufacturer won’t waste their time.

 

So How to I go about Licensing?

Find a promising idea.  Ok, sound good, but how do you find the idea?

1. Find a market where you have interest and a bit of expertise. For example, you may really like to cook and are pretty good at it.  You’ve used various cooking utensils over the years and have found some that are good products, but you are frustrated using it because it doesn’t provide a needed function.  You’re a bit frustrated with the utensil and “if the utensil did XXXX”, if would be a much better product.  Many new products are a twist on an existing product.  Creating a product with this feature could be your idea to license.
2. Ok, so you think the product with this new feature would be a sure seller. Would someone else buy the product?  Do they find the lack of your unique feature would be a reason to buy your product?  If so, ask them what they would pay.
3. Figure out what it would cost to produce the product. Manufacture cost is important to the manufacturer.  If you don’t have details on the cost to manufacture the product, the manufacturer will not be interested in the product.  It could be a great product and the market would love it, but if the manufacture cost is too high for the manufacturer to make a responsible profit, they will pass on the product.  You must do your homework; the manufacture is not going to do it for you.   Find experts in the targeted industry and talked to them about the product, to develop a good estimate on the manufacture cost.
4. Of course, before you spread the word of your idea, protect it with a provisional patent. You can do that for a few thousand dollars.  Consult an attorney about how you can go about obtaining a provisional patent and what type of documentation is needed.  A provisional patent will protect your idea for a period of time and can be obtained much faster and for much less expense than a full patent.  One of my full patents took 2 1/2 years to be granted, the other took 4 years.  But don’t get the provisional patent until you are ready to talk to licensees.

Licensing can be an effective way to generate income from your ideas while minimizing the cost of developing your idea.

 

Call to Action:

1. I challenge you to spend 30 minutes a day for a week, coming up with ideas for new products.
2. Leave me a comment about the blog and let me know if you’d like to hear more on licensing.