Should I Manufacture or License My Invention?
I recently attended my local Inventors Association (Inventors Alliance in Northern California) and noticed that Inventors kept asking Andrew Krauss (President of Inventors Alliance) about the differences between manufacturing and licensing a product. New Inventors were confused about what these terms meant and wanted to learn more about the factors to consider when deciding which way to go for their own product. So I thought I'd take a minute to discuss both options as this comes up all of the time in my workshops and classes as well.
Let's start with manufacturing. Manufacturing is the process by which an Inventor actually designs, develops, sells and markets their own product. Basically they are working on a product idea from start to finish. They are responsible for taking a product idea and bringing it to market and creating an entire business around this product idea. Inventors who manufacture their products typically take on all facets of a business--they are responsible for product development, packaging, marketing, selling and more.
Licensing is a bit different. Licensing is when you essentially 'rent' your product idea to a company who will do all of the work for you. And when I say work, I mean they will handle all of the product development, packaging, marketing and selling of your product idea. In other words, you provide a company with a brilliant idea and they in turn will bring your product to market and write you a check for units sold.
Why would a company agree to license a product idea?
According to Andrew Krauss, one of the main reasons large product companies are interested in licensing is because they must continue to innovate in order for them to stay competitive in their marketplace. They typically have an efficient manufacturing process in place as well as excellent sales distribution channels for their existing products (ie they already sell products to Wal-Mart, etc). Therefore the only thing missing is coming up with new innovative ideas to keep sales growing and keep them ahead of the competition! That is why licensing can be such a great option for Inventors!
So which is the right approach for your product idea?
Well, Andrew said it beautifully that day when he explained that making the decision to license or manufacture your product really has a lot to do with your personality.
And he was right! Some people (like me) would only consider the manufacturing route because I couldn't imagine handing over my brilliant idea to another company. This is just my personality. I love working on a project from start to finish and wholeheartedly know that if I really believed in a product, I could make more money by doing the work myself. Plus I don't come up with brilliant product concepts everyday, so I would rather own my idea and just go out and make it happen.
My brother on the other hand is the exact opposite. He comes up with brilliant product ideas all of the time. Have you ever met anyone like this? They come up with solutions to everyday problems on a consistent basis. Ideas just flow out of them. These Inventors couldn't possible take on all of their manufacturing projects (they would probably go nuts or probably just go broke) so licensing is the perfect way to go!
These are just a few examples as to why a person would choose manufacturing or licensing a product idea. The reality is that you have to decide for yourself what makes sense for you!
Some of the questions Andrew Krauss made us think about that day were...Do you have the bandwith to take on a project from start to finish? Or does the thought of starting a business and developing your product idea make your head spin? Do you have the money to get started? Or are you tight on cash and need a company to do all of the work for you? This is a decision that only you can make!
Here's the bottom line...you don't have to stick to one option. You can trying manufacturing and licensing and see what works for you! There are so many inventors out there who've tried licensing and didn't get anywhere, so they switched to manufacturing. On the flip side, there are so many Inventors who have started with manufacturing and then switched to licensing because the project was too overwhelming to continue. That's the beauty of the Invention business. You just have to keep trying until something happens!
And I guess that's the point in writing this article. My goal is to provide you basic information about licensing vs. manufacturing so that you can decide which action steps to take. And ultimately, taking action is the only way for anyone to succeed in the business of Inventing. So my advice to you is that if you have a brilliant invention idea, go to your local Inventors associations and/or seek advice from industry experts. Just take the necessary action steps to get started! You could be the next million dollar Inventor success story!
Karen Waksman (Product for Profit,) is a Manufacturer’s Rep turned Author, Speaker and Consultant. She has written a step-by-step guide called ‘How To Sell Your Product, Invention or Craft to Major Retailers…No Sales Experience or Existing Buyer Relationships Required!’