Getting Your Invention to Market: Licensing vs. Manufacturing
|Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog
Zies, Widerman & Malek
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Posted: Aug 16, 2014 @ 9:42 am
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In my experience the reason most people do not succeed is because they just don’t know what to do, not because they are lazy or unmotivated. My hope is that this article will educate inventors and help take some of the mystery out of the steps associated with turning an invention into a profitable endeavor.
Before you consider contacting anyone the best first place to start is with a simple question, which will help you chart the right course. Ask yourself: What you want to do with your invention? Do you want to make and sell your invention? Or, do you want to sell your invention rights to an individual or company who would make and sell your invention? Or, do you want to try and license one or more individuals or companies to make and sell your invention? After you make this determination your initial strategy should come into focus.
Licensing may be the way to go for those who do not have a lot of money to invest. Even a simple kitchen gadget can cost hundreds of thousands of dollars to take from idea to realization through patent and to market. Costs have gone down over the last several years, and you can proceed responsibly little by little, but to manufacture and sell is a big commitment financially.
When discussing with me the “Cashflow Comparison” graph (see below), Trevor Lambert, of Lambert & Lambert, explained: “The cashflow comparison shows that you go well deeper into the negative cashflow when you are going to manufacture it yourself, but your likely returns on investment are much higher. So licensing is more of the safer bet for those who are not independently wealthy.”
You can clearly see from Lambert’s exemplary illustration, the amount of money necessary to generate, develop and commercialize is far less for those pursuing a licensing path than it is for those following a manufacturing path. Through idea generation the cost is roughly similar, but starts to diverge to significant degree during development and even greater during commercialization. Of course, when licensing a product a royalty of 1% to 2% is not uncommon in many industries, so the long term profitability for licensing has an up-side cap that is much lower than the up-side potential for those who pursue manufacturing.
Several years ago I interviewed Stephen Key, an inventor coach and author of two excellent books: One Simple Idea: Turn Your Ideas Into a Licensing Goldmine and One Simple Idea for Startups and Entrepreneurs: Live Your Dreams and Create Your Own Profitable Company. During our conversation we turned to the question about licensing versus manufacturing. Key’s take is that you might not necessarily need to decide right away because many of the steps in the process will be the same for both paths.
QUINN: But it strikes me in listening to you talk that whether your ultimate goal may be to license this, or whether your ultimate goal is to set up a company and do it yourself, a lot of the initial steps really are identical. Do you see it that way?
KEY: Yes. They’re exactly identical. I’m glad you mentioned that. Because at the very beginning you need to say, look, is there an opportunity here? Do I have a product that’s going to work? So you need to test early. And I tell everybody, even if you want to venture yourself, manufacture yourself, or even license, try to license at first to companies. Get their feedback. Understand the good points, the bad points. Understand manufacturing. Do all the testing, even at the very beginning, it doesn’t matter. So you understand, number one, it can be manufactured. Number two, I can protect it. Number three, people do want it. And then you can determine which path you want to take. And sometimes they collide. Sometimes you can start a company and then license it later. A lot of people have done that. Sometimes you’ll manufacture and you might even license certain parts of the industry as well. So—
QUINN: If you’re licensing, too, and you have some short run success, that will help you there as well, right?
KEY: It’s the number one thing to do to take away risk.
Jack Lander, known as the Inventor Mentor, has been sharing his wisdom with inventors for many years, having helped thousands of inventors. His advice is straight forward: “If you want to license your invention for royalty payments, you have to deliver more than a “me too” product. Prospective companies will demand that your product exceed their standard profit goals in order to pay royalties, which represent increased expense.” And for those who who have an invention with moving parts, but do not have a tangible prototype, Lander suggests that you “consider making a virtual prototype. A virtual prototype is an animated video that is made by a graphic studio.” Indeed, the more you can do to make what you have tangible and easily understandable the better.
Of course, whether you are going to pursue licensing or manufacturing, for the first lesson is to realize that there are no tricks to invention marketing. It just takes work. Of course, you need to first determine what it is that you want to accomplish with your invention, which should be covered in some form of patent pending prior to beginning commercialization efforts. But once you have determined which path to follow you just need to focus your efforts and attention to identifying opportunities, pursuing them and not taking no for an answer. Certainly, there may be a time that you will have to retreat and move on, but those who succeed by and large share the same quality of determination. Determination is critical.
While you can certainly find individuals and companies that offer to do the work for you, you this typically comes with a cost. Hiring someone, such as an attorney or licensing specialist to engage in invention marketing activities can get quite expensive unless they work on percentage basis, also known as a contingency. It is very difficult to find reputable people who will work on a percentage basis. One company that does offer licensing services on a contingency basis is Lambert & Lambert. Another company to consider is Enhance Product Development. Enhance, which offers services for a fee with respect to design and engineering assistance, but they also provide licensing consultations and representation as well. You can and should consider making an inquiry with both companies. If you are an inventor in need of a mentor, certainly consider Invent Right, the company Stephen Key founded, or Jack Lander, who has been working with and helping independent inventors for decades.
For more information please see:
- The Business Responsible Approach to Inventing
- Financially Responsible Inventing: Prototype Basics
- Keep Your Money in Your Wallet Until Proof of Concept
- Why Do You Want a Patent?
- Invention to Patent: Pitfalls, Perils and Process
- Patent Searches: A Great Opportunity to Focus on What is Unique
- Inventing 101: Protecting Your Invention When You Need Help
- Invent to Solve Problems
- Should I File a Patent Before Licensing My Invention?
- To License or to Manufacture: That is the Question
About the Author
Gene Quinn is a US Patent Attorney, law professor and the founder of IPWatchdog.com. He is also a principal lecturer in the top patent bar review course in the nation, which helps aspiring patent attorneys and patent agents prepare themselves to pass the patent bar exam. Gene started the widely popular intellectual property website IPWatchdog.com in 1999, and since that time the site has had many millions of unique visitors. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, USA Today, CNN Money, NPR and various other newspapers and magazines worldwide. He represents individuals, small businesses and start-up corporations. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.