There are many aspects to licensing your invention rather than building a business around your product. Prolific inventor Stephen Key has written many good articles on the benefits of licensing.
Let's instead focus more narrowly on 3 keys to licensing your invention successfully.
Most licensing deals ultimately either fly or flop because of the attitude of the inventor, not the value of the invention. Below are 3 (attitude) keys to successfully license your product:
- It's not about you, it's about them
- Check your ego and hubris at the door
- Make the best deal you can and move on
It's not about you, it's about them
Every inventor must continually defend his or her invention against a barrage of critical questions, doubts and rejections. Since we give birth to our invention, we defend it much like a metaphorical parent:
it's beautiful, it's wonderful, I love it, and you should too!
When you go to present your product before a potential licensee, you must discard this attitude and replace it with a more productive one.
Here is a new product that could be a great complement to your existing line of fine _______ products.
Notice it's about the product (not you) and how it could help them to achieve more success.
You are the humble inventor who stumbled upon a new product that could be an asset to them. That should be your attitude throughout the meeting.
Now you have their attention: you have deferred to their expertise and you are going to show them something that could help them achieve more success in the marketplace. Who doesn't want to hear about that?
Check your ego and hubris at the door
You must have pride and ego in yourself and your product or you'll never persistently present it, day after day, week after week to an army of indifferent observers, hoping to discover the one who actually cares about it. Though pride and persistence will get you to the meeting, you must check all ego and hubris at the door!
Once you are in the meeting with a promising licensee, your focus is on this product that might be of value to them, to help them grow their business, carve market share from their competitors. With that attitude, you will show them the key features of the product, how it works, its key benefits, and why it could be a great fit for their company as a new product to join their existing products.
Make the best deal you can, and move on
Close your eyes and imagine the following business investment scenario. You are a busy successful professional who works 50 hours weeks in a high stress career. Even with the hard work and long hours, there never seems to be much money left after the end of every month.
I come to your home and offer you the following business proposal:
a 3% equity ownership position in a multi-million dollar business, at no cost to you.
You will receive a quarterly equity check, based on sales, and you will not have to manage or take on any business responsibilities whatsoever. Are you interested?
Of course you are!
It is a much better deal than what you have now!
Guess what? That is a good analogy of what is on offer in any typical licensing agreement.
Unfortunately, rarely does a typical inventor see the deal in that light:
- Only 3%, I should get at least a 5% royalty!
- You guys are getting 97% of the profits and I get 3%, that is not right!
- I am the one who invented this product, I should get paid the most!
All of the above attitudes will take you somewhere, but never to the bank!
Here is the way I look at 1 – 3 above.
I'll ask why they are only offering 3% instead of maybe a 5% royalty (there will be a logical answer). Then maybe I can make a counter offer: 3% on all sales up to 300,000 units per year, 4% on everything above that. This is a low risk counter offer, because only if the product is successful will they be paying me a larger royalty – very easy for them to agree to. Now I have a better deal.
Regarding 2 and 3, who cares?
I am only supplying intellectual property (IP), my patent, as my sweat equity. I assume that the risk sharing partners should make more money off the deal than I do.
Risk sharing partners have to deal with manufacturing errors and mistakes, must deal with returns and damaged goods and delayed deliveries from the factory. They must fret over packaging and presentation and working with retail store requirements and deadlines and they must ship in product on time to retailers.
I have none of those worries, I just get paid a royalty check each quarter, based upon wholesale sales.
Maybe I negotiated a somewhat mediocre royalty deal on my first licensed product.
If it is a big success in the marketplace, I can still quit my job, live off the royalties and pay all my bills. Most importantly, I can use my new time freedom to come up with new products. Then, for my next licensing deal I'll have more leverage and can get a better royalty deal.
Make the best deal you can, and move on.
To quote the iconic Tony Start character in Iron Man:
“That's how dad did it, that's how America does it, and it has worked out pretty well so far.”