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License My Idea or Sell It Myself?

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?

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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.

Venturing

Bookkeeping
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
Managing Distribution
Managing Advertising
Managing Vendors
Marketing
Shipping
Forecasting Stock, Orders ect.
Managing Employees, Workers Compensation, Health Insurance ect.
Managing Intellectual Property (Patents, Copyrights & Trademarks)

 

Licensing

Research Consumer Needs
Invent
Evaluate Your Ideas
Make Prototype or Sell Sheet
Filing Provisional Patents or Patents
Making Phone Calls To Pitch Your Invention
Negotiate License
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
Guest Bloggers
inventRight
www.inventRight.com

You can learn  more about InventorSpot and  the resources we have for Inventors here.  Our Invention Information Guide is here.

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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.

Comments
Apr 25, 2007
by Idi (not verified)

Congratulations on the great

Congratulations on the great bloggers you have been getting Michelle.  This site is coming along nicely and you guys are doing a really terrific job.

Stephen and Andrew:

I am curious as to what you think are the biggest benefits to porducing and selling your own product.  Is it the potential profits?  What would be the real difference in that on average?

Apr 25, 2007
by Idi (not verified)

Hi Andrew: Thanks for the

Hi Andrew:

Thanks for the awesome answer.  Finally, someone who just tells it like it is.  This is really helpful.

I think your process seems to advocate what Roger Brown on this site seems to advocate.  Rather than going through a painful and long process, just work the invention through the right licensing partners, right?

I look forward to your next article.

I'd like to know what resources people should use to find licensing partners.  Lots of people talk about it but I'd like the nitty gritty on how to actually do it. JMHO.

Apr 25, 2007
by Stephen Key (not verified)

Bobby Amore

Bobby,
Thank you for the kind words. It was a pleasure meeting you on American Inventor. I have been doing this for 20 years and have licensed a few products along the way and I could tell you have what it takes. Number one a great attitude that won't quit. Number two you have a product that people need. And Number three you know that you have to be creative and be able to adapt to any situation. 
Your website is awesome. Nice job! 
If there is anything I can do along the way for your next invention please don't hesitate to contact me. 
Sincerely,Stephen Key

Apr 25, 2007
by bobby (not verified)

one inventor to another

You are the real deal and people should know that about you. Thanks for everything and I will be giving you a call on other inventions. It would be my pleasure to pick your brain. You take care.
Bobby Amore

Aug 21, 2007
by maria (not verified)

Marketing my idea

Ok i have an invention. I paid a company inventsai 900.00 to do a patent search and put a portfoli together ok call me stupid! LOL any way now they want 9000.00 to go on with my invention wich includes marketing and i believe a patent. My Question  is how do i market my idea by myself i don't have this money to put out. Any help would be so helpful. P.S can they steal my idea? Tahnk you Maria

Oct 1, 2007
by jamesglenbrook (not verified)

I'm planning on going the Venturing Path

Hi Stephen & Andrew,

Great article you guysSmile Hmmm! where should I start. I'll start with the inventors company which is going very slow.Going on a year and a half sense I've started the invention, but they did everything they said they would do like: research portfolio,prototype,provisional patent,manufacturing and finding companies that would look at the product like SmithKline,Bayer and Boston Medical.That's all cool with me, but there's one problem these companies don't deal with my type of invention(pill reminder).Everytime the company wants to look at it, $375 is coming out my pocket for packaging and changing the package to the companies logos that fit them. That's cool with me but, if the companies keep on turning it down, that's alot of money out of my pocket for nothing. So licensing is getting kind of old for me. I'm thinking about Venturing on my own or have a partner that has alot of cash and split the profit. Venturing sounds like alot of work, but I have a strong drive to get it done and then I can say, I did it. IM NOT GIVING UP! How do you find a good Manufacturing companies?Lets say I want to hit up Walmart and show them my product, what's the best way to approach them?What's the best book keeping software out there right now?

I want to say thanks again too you guys for spending the time helping inventors out, that means alot.

God bless,

Jamesglenbrook 

Feb 7, 2008
by Rob Christensen (not verified)

The pill reminded

James,
Hi I see you have a pill reminder . I also have an idea for medications. I am a Captain in the fire service and have been chipping away at my invention for some time now. As a firefighter we are called to overdose after overdose of medications. For the most part these were not purposeful attemps to end one's life but more or less a flaw in the way people are trying to keep track of the medications that they have taken. The kicker is that they are soppose to do this while medicated???? Never has made much sense to me! Anyhow I would love to try to bounce some ideas off you sinceyou are further down the road od "MInd to Market" then I am.
Thanks for your time......
And Yes God Bless!!!
Rob C.

Feb 13, 2008
by mike ballard (not verified)

invention

Have a ideal on a product that has the potiental to be in the homes of every person in our nation and abound, up to two or three per home. Add up those numbers. What i think i need is a partner who knows the ropes or some one who will buy my ideal. Its 2 peice at least maybe 2 or 3 per unit liteweite and small. I have never seen or heard of one these on the market, and everyone will want them. help

Feb 13, 2008
by mike ballard (not verified)

invention

I have a ideal that i believe will be a big hit in retail outlets such as wal mart, k-mart, walrgreens, and many others. I do not have much cash [none] too market and or produce this , as seen on tv product, so Im looking for options and answers to a around the would 2 or 3 in every home in thin nation and abroud. I could even sell my ideal to a company or individual if i knew what to do first. help

May 30, 2008
by Anonymous

hard work

I have an idea that just uses modern pager/wireless technology for a specific purpose, but would be just ideal and invaluable in this particular application. I am following the rules and not disclosing my idea but its hard work to find the right route to take. I know it would be the answer to our prayers in my particular industry. but where now?

Sep 17, 2008
by Anonymous

new idea

hi dear ,,

My name is Ibrahim Abdullah and i would like to inform you that i have an invention taken from nature that can cure people of certain illnesses. It is a type of plant that has very

beneficial chemicals to people. Even though extensive results have not been made, maybe its something you can help me with if you are interested in this idea. If your company

is interested please contact me on my email.

thank you ,,

Sep 28, 2008
by Anonymous

need company to sell idea to

I thought of a wonderful idea and I am going to build it soon but I cant find a company to sell it to?Have any suggestions?

Feb 1, 2009
by Anonymous

Power Strip

I have a ideal to change the way power strips are made to work with saving energy/power. If my ideal was on the market now I would have already have supplied my home with 3. I just don't have the money to do what it takes to market it or most important the Patent .
This item will flood the market as soon as it could be Manafactored .So I am looking for business partner who agrees with my idea or that would take the time to see what I have in mind. K>L