You have a great idea for a new invention. But should you try to license it out or try to manufacture and sell it yourself?
Our Guest Bloggers, Stephen Key & Andrew Krauss co-Founded inventRight to teach inventors to license their products. Stephen Key is a successful inventor who has licensed over 20 products in many different industries. Andrew Krauss heads up one of the largest and most successful inventors' associations in the world (www.InventorsAlliance.org ).inventRight is a simple, effective 10 step system for licensing your products. For more information about Stephen, Andrew and inventRight, check out www.inventRight.com.
Stephen and Andrew wanted to share their hands on how to information about the invention process with the readers of InventorSpot.com .
Here's their article:
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Walking the Right Path for You
Do I Sell My Idea To A Company (License) OR Manufacture It Myself (Venture)?
This is a question that not enough Inventors ask themselves.
You MUST make this decision early on. Why?
Because the path to license a new product and the path to manufacture and sell your idea yourself could not be more different!
If you were to agree that you have to take one path to Venture an idea and another to License, then why oh god why???......... would you blindfold yourself,............ spin yourself around......... and then just start walking down one of these two paths not knowing where you are going or what you are doing? Unfortunately, this is what many, many inventors do every day.
Making the decision to license or venture comes before, patents and prototypes. You need to understand each of these paths.
You need understand each path and ask yourself which one you want to take. But even more important than that, you should match your skill set and desires up with the right path for you.
How do you want to be spending your time?
Because you will be spending your time in dramatically different ways depending on which path you take.
Here is a list of a few things you will be doing for each path. Think about which tasks best fit your skill set and desires for your life.
Raise Money To Start Business. Most often $100,000 or more if you want to make a serious go of it.
Cash Flow Management
Doing Sales Yourself
Managing Sales People
On-Going Market Research And Competitive Analysis
Managing The Manufacturing Process
Forecasting Stock, Orders ect.
Managing Employees, Workers Compensation, Health Insurance ect.
Managing Intellectual Property (Patents, Copyrights & Trademarks)
Research Consumer Needs
Evaluate Your Ideas
Make Prototype or Sell Sheet
Filing Provisional Patents or Patents
Making Phone Calls To Pitch Your Invention
Receive Royalty or Ditch Idea. Either way you will move onto next idea.
These are just quick lists off the top of my head. Of course, there are many duties that are not included here. But I think you get the idea. These two paths are dramatically different eh! This is your life. The decision you make determines the lifestyle you live and how you spend your time. This is a serious decision and not one to be taken lightly.
OK, let's get to the money question. So what's important if you want to make good money with each of these paths?
Making Money With The Licensing Path
Well, if your product is not a high volume product and only sells a few thousand units a year, then receiving a 5% royalty on the manufacturer's wholesale price might not make you the kind of money you would be happy with. Does that mean you should venture an idea if your product is not in a high volume category? Absolutely not!
If you have no experience and/or no desire take on the duties listed under Venturing above, then the answer would be no.
Does it mean that you should look for and invent high volume products if you are taking the licensing path?
Yes, it does.
Is it absolutely necessary?
No, you can still license low volume products, as long as you are happy with less money. Just do the numbers. Five percent times the wholesale cost and then multiply that times the number of units you expect the manufacturer to sell.
Making Money With The Venturing Path
The nice thing about venturing is that you can still make money with low volume sales, because you make more of the money and don't need to share it with a manufacturer.
Does this mean that venturing is right for you?
Take a look at the list above for Venturing. This is just a few things you need to manage when you start your own company. Many Inventors end up with product in their garage because they didn't think about what it takes to run a successful company before they got started.
Get Started - $$$ Required Depends On The Path You Take
When you venture it requires lots and lots of money. Even the smallest product that only costs pennies will still take Hundreds of Thousands of Dollars and a lot of your time. As everyone knows, a lot of small businesses fail so the risk is extremely high.
If you are licensing your risk exposure is very low. Yes, you have to get some protection, which you can do very inexpensively through a PPA (Provisional Patent Application) or other IP (Intellectual Property) means. Yes, you have to do some other things like build a prototype, etc. But you can make prototypes with very little money if you have the right information. I have licensed over 20 products over the past 20 years on a shoe string budget.
Also, I know a lot about venturing now because I started a guitar pick company. Even though the guitar picks I'm selling are very low cost items, it still costs me hundreds of thousands of dollars to run and start up my guitar pick company. I have a very popular product that we sell around the world, and its still is hard to keep the business profitable. I'm making good money with my venture, but boy is it work. And it's definitely a different path than the licensing path.
No matter which path you take. Get advice from someone who has done what you want to do.
We look forward to hearing and responding to your comments on this article. In fact! We will base our next article on your responses.
We wish you much success in all your Invention related endeavors.
Stephen Key & Andrew Krauss
You can learn more about InventorSpot and the resources we have for Inventors here. Our Invention Information Guide is here.