Sell Your Idea – How to Sell an Idea to a Company (Without Them Stealing It)
Often, when people have a good idea or invention, they try to patent it before they try to sell it. A patent is useful because it grants exclusive legal rights for the inventor. Also, it lets the inventor decide who else can use the idea or invention. This legal protection keeps inventors from being ripped off by copy-cat inventions. However, you do not need a patent to sell your idea or invention. There are ways you can start selling your idea without going through the expensive and time-consuming patent process.
Do You Need a Patent to Sell Your Idea?
The inventor of a unique and original innovation can apply to the United States Patent and Trademark Office (USPTO) to secure a patent for the work. A patent is the single most secure protection to ensure that the inventor is the only one with rights to the innovation. A court will uphold these rights to stop others from using the idea without the permission of its original inventor. Most inventors look to patent their work. They want to establish the innovation’s identity in the marketplace. They also want the ability to earn revenue from selling or licensing the innovation. The problem is that the patent process can be expensive and very time consuming. Are there any other alternatives short of full-blown patent coverage?
Get a Provisional Patent
There is such a thing as a provisional patent. Getting a provisional patent is a quick and cheap alternative to the normal patent process. Although a provisional patent is faster and cheaper to obtain, it still offers the same legal protection and remains enforceable for 12 months. However, after the 12-month period expires, you will have to convert your provisional patent to full status. Nevertheless, during that 12-month period, you will be able to earn money on your idea while enjoying full legal protection.
A provisional patent can be filed with the United States Patent and Trademark Office (USPTO). You can even file all the paperwork online. Just visit the USPTO website and choose the File Online link. The website instructions will then guide you through the rest of the provisional patent filing process.
License Your Idea
A license is simply official permission or a permit to let someone elso use something you own. It should include a document of that permission or permit. A license can be granted by a party to another party as an element of an agreement between those parties. Granting a license is another way to sell your idea without a full patent. Growing companies are often looking for profitable ideas that generate revenue. If you can license your idea to these companies, you can start earning money without having to do anything more yourself. Think of liicensing like renting out your idea. You still own it, but get paid to let someone else use it. You can benefit from it because it allows you to earn profits from your idea. The business that licenses your idea earns profits by incorporating your idea into its existing infrastructure.
If you do want to license your idea, you will need more than just a great idea. Licensing only becomes possible when you introduce your great new idea by approaching a business with a great sales pitch. If you are not comfortable discussing your ideas, you will need to prepare marketing materials that sell your idea for you. Then, all you have to do is share these materials with the businesses you are interested in working with.
Sell Your Idea Online
If your idea is a workable invention, you may be able to sell it directly with a little online help. There are submission companies that will help you sell your invention. These companies can provide services that help you sell your idea. Also, they can promote your idea to sell the invention directly to consumers over the internet. Invention submission companies often operate by charging a fee to the inventor in exchange for helping sell that invention. Online marketplaces charge a fee or take a cut to sell your invention to consumers and stores for you.
To begin work with a submissions company, you first have to find the one you want to work with. After registering with the company, you can take advantage of multiple services that the company offers online. These services include graphic illustrations, press release development and publication lists that include information about where you can sell your idea. Online marketplaces, on the other hand, will help you refine the invention and sell it on your behalf, earning you money. You may have a fantastic idea but lack the right buyer.
In some cases, it may be best to attend networking events where you can connect directly with business owners or other inventors. If you are able to connect with other inventors, then you may be able find out if any local businesses would be interested in acquiring an idea or invention like yours. You never know a business’s or entrepreneur’s needs until you get a chance to understand their scenario and how your idea can fit in and make you a profit — without even having a patent. (Source: smallbusiness.chron.com)
Sell Your Idea – Preparation
There are certain steps that are necessary when you start a business. In the same way, there are certain necessary steps to take if you want to promote or sell your idea. It’s just common sense, the more information you have, the better off you’ll be. Selling your idea is no exception. Before you even consider approaching prospective companies to sell your idea, be sure you’re clear in the following areas:
Identify The Opportunity
You must thoroughly understand – and be able to explain – the opportunity you have identified. Why do you care about it? How you will overcome a customer’s reluctance to buy from you? Start by answering a few basic questions:
- Identify th Problem – What problem or opportunity have you identified?
- Present the Solution – What is your solution to this problem or how do you plan to capture the opportunity?
- Why Customers will Buy – Which customer pain will you alleviate?
- Share your Vision – What is your vision of the business?
- Explain Why Care – What motivated you in the first place?
Know The Market
Do your market research. This means gathering as much feedback as possible on your own invention idea. Surveys and consumer feedback, even among friends and family, can provide valuable insight. You should also compile data on similar and competing products. For example, collect information on what’s out there, what’s selling and who’s producing it. Your goal should be to persuade an investor that your idea addresses a real opportunity. Then, the next challenge is to make a compelling case that the opportunity is worth a risk and investment. You should understand and be able to present:
- Target Customers – Which group of customers want this idea and why?
- Market Potential – How big is the potential market and how fast is it growing?
- Competition – Who is your competition – what do they currently offer? How much does it cost?
- Your Competitive Advantage – Why is your idea the winning solution?
Do Preliminary Legal Due Dilligence
Go as far as you can to determine if your invention is patentable. Can it be produced without infringement on other filed patents? A preliminary patent search on www.ustpo.gov will get you on your way. Also, the more information you can gather about regulatory issues or necessary legal steps, the better.
Understand Production Requirements
Learn all you can about the production process. This can be extremely helpful. Does your idea or invention call for unique materials or unusual manufacturing techniques.
Outline the Business Model
You need to undersatnd how your idea will make money. This means not only undersatnding how you will generate sales. It also means understanding the costs of running the business and how much profit it can generate.
- Revenue – How much will you charge customers for your product and
- Customer Acceptance – why will they pay the price?
- Costs – What are the variable and fixed costs of your start-up and how much profit will it generate?
- Market Potential – How many customers can you win over time and why do you think they will buy?
Prepare a Professional Presentation
After you’ve gathered all the relevant information, you’ll need to present it to potential investors. If you have one, a working prototype is extremely effective. You should develop a simple presentation to convey all the information you’ve gathered. Your presentation does not need to be long and drawn out. Just a few pages to clearly present the following:
- Problem – The problem, challenge or need the product meets
- Solution – The product’s features and benefits
- Market – Your product’s market
- Ownership – The legal status of your invention (ie: patent pending, copyright or trademark info)
Who Can You Sell Your Idea To?
You’ve gathered and prepared your information. Now what? Your next step is to determine the companies most likely to appreciater this amazing business opportunity. As with any type of sales, the more prospects, the better. It’s a numbers game, and most companies will turn you down for one reason or another. Also note that a more focused list will bring you more effective results. So how can you identify companies that might make a good fit? If it’s a consumer item, it’s as simple as a shopping trip around town. Go to a store where you’d expect to see your product sold and make a list of manufacturers who produce similar products. You should also be familiar with many of these companies from your prior market research.
Another way to identify prospective manufacturers is to identify the trade association that serves the industry. Visit their websites and look for member lists. Some trade associations list the manufacturers scheduled to exhibit at their upcoming trade shows. Online databases can also be a great resource. Local public business libraries are often linked to database systems that allow you to search for companies in specific industries. And, from your own computer, you can visit www.hoovers.com . Hoovers is a great online database that provides information about many large-sized companies. The site even enables you to find companies that have specific key words in their description.
Qualify Your Target Audience
Once you’ve generated your list of 50 or so companies, you’ll want to prioritize them–or “qualify” them based on which will make a best fit with you and your product. There are a number of factors to consider when qualifying prospective licensees.
- Size. Large companies are easy to identify and generally have terrific distribution. However, small companies might stand to benefit more from your invention–and often make better prospects. Small companies generally have less “in house” product development staff and are less burdened by red tape and multiple layers of bureaucracy, which can make them easier to deal with.
- Geography. While you don’t need to limit yourself to local companies, they do offer advantages. Companies in close proximity allow you to leverage any contacts you might have locally, and set up face-to-face meetings (which is always valuable).
- Similar product line. The closer your invention matches a company’s already existing product line (as long as it isn’t directly competing), the more sense it probably makes for them to take it on–especially if it gives them a product that competes with a rival company.
- Access to a decision maker. The more easily you can identify and directly reach the decision maker, the more efficient your contact with a prospective licensor will be. (Note: if after several calls you can’t determine who the proper contact is–or get in touch with him/her–you’re better off focusing on other targets.)
- Company policy. Some companies’ policies for accepting submissions are more inventor-friendly than others.
- Manufacturer reputation. Find out the company’s track record for working with inventors, and if possible get personal references from those who’ve gone before you. (Source: entrepreneur.com)
Sell Your Idea – Close the Deal
You’re now armed with information, presentation materials and a solid prospect list. How do you go about getting the best deal? Understand there are no set rules or terms when it comes to negotiating a licensing agreement. The perfect agreement is one that gives both you and the manufacturer exactly what you both want. Therefore the terms are completely negotiable and can vary dramatically.
Seek out licensees in your market and prepare to pitch. You may need to network, place a paid ad, or reach out to several licensees before you find one that’s interested. Take the time to build relationships with potential licensees and learn their processes. This can pay dividends later if you intend to license more products in the future.
Sign a licensing agreement
Once you have found the right business partner, sign a licensing agreement. Don’t hesitate to have your lawyer review it and suggest edits to ensure your rights are protected. Most licensing agreements include the following:
- Subject Matter: This may be a patent, trademark, copyright, design, or trade secret.
- Granting of Rights: This defines what you’re transferring to the licensee.
- Licensor’s Obligation: This details any assistance or training the licensor will give.
- Licensee’s Obligation: This details financial requirements, guarantees, and confidentiality.
- License Fee: This refers to the sum that the licensee receives upon signing.
- Royalty: This specifies the percentage of the wholesale sales that the licensor will receive. Many agreements include a minimum royalty. Most royalties are paid quarterly.
- Term: This defines the length of the agreement.
- Designated Area: This describes the limits of the manufacturing and marketing area.
- Termination: This describes how either party can end the agreement.
- Guarantees: This includes any warranties or liabilities that the licensee provides. (Source: upcounsel.com)
Sell Your Idea – Know What You Want in Exchange
This is the money that the licensee pays the licensor up front for being given rights to the invention or idea. The payment is made before development or sales even begin. This can be an outright payment, but often takes the form of an advance against future royalties. The amount of up-front payment varies and is subject to negotiation. However, it’s not unusual for an inventor to seek an up-front payment that covers the cost of patent filing. Another way to come to an agreeable sum is to base your payment on projected sales expectations for the first year.
These are the payments made to the licensor based on a percentage of the licensee’s product sales. For example, if you make a 2% royalty, that means you’ll receive 2% of the wholesale price of each unit sold. The typical royalty tends to range from 2% to 5%. A proven product or turn-key solution presents less risk for the manufacturer. In this case, it is more likely to get an up-front payment or higher royalties.
Annual Minimum Payments
This is the contractual term that requires the licensee to pay the licensor a minimum amount of royalties. This minimum amount is due each year regardless of the actual royalties due from sales. The purpose of an annual minimum payment is to ensure that the manufacturer places sufficient effort and resources behind promoting the product. Therefore, annual minimums tend to be most important in the initial years of the agreement. This is when the product is being launched. It will help to ensure that the licensee adequately prioritizes this item when deploying sales resources.
Do you want to offer your idea or invention to one company only? Or, would you like to maintain the option to license to other companies in different geographical regions? Most manufacturers will want to have exclusive rights to distribute the product globally. However, this is subject to negotiation. Depending on each party’s motives, the agreement could actually divide up the markets in many ways.
It’s important to note that these four components are inter-related. The more you get in one area, the more you might have to concede in another. As with any negotiation, both sides will likely need to make concessions. Decide which of these components meets your short- and long-term needs, and negotiate from there. There are numerous books that provide techniques in negotiation. (Source: entrepreneur.com)
Sell Your Idea – Bottom Line
Once you weigh the costs and benefits of patenting versus marketing without a patent, you may find that the provisional patent application is generally the best choice. It combines legal protection with the means to determine your concept’s actual market potential. Intellectual property is a complicated area of law, but many inventors have successfully worked with a licensee as a viable way forward.
Often, creative people have a keen mind for inventing, but not much of a knack for business. Maybe they are actually good at both, but they would rather focus on developing ideas rather than launching a full-scale business. Fortunately, there’s are options to suits your needs. Licensing is one of those options. It can simply be the process of selling your idea to a company and letting them develop it fully. Licensing can free an inventor from taking on all the business-related tasks that launching a new product involves. It can also be a great option for those whose financial resources are very limited.