By Roger Brown
Which do you think is the better route for inventors – licensing or manufacturing?
The answer is complex because it begs more questions.
You need to decide which route to take early in the process. To do this, you have to take an honest look at your idea and yourself.
Do you have the ability, resources and business savvy to manufacture and build a company around your product? Or are you better suited to license it?
Building a business around a product reaps you a larger share of the profits, as well as greater control over sales and marketing strategies.
But you’ll also have the lion’s share of the risk, including inventory expenses, personnel hiring, quality control, returns, late shipments, contract breaches, knockoffs, patent-infringement issues, long hours and a large monetary investment. And it all could end in financial ruin if your product doesn’t sell.
Another thing to ponder: Are you willing to work your current job while getting the business off the ground or quit your job and put it all on the line? Likewise, if you have investors, you’ll have to decide what equity the investors get in the company. Investors expect to have a say in how the business is run.
Licensing means you’ll receive a smaller proportion of the profits, normally 2 percent to 8 percent. But you have the least amount of risk and monetary investment.
Licensing requires you have to find a company willing to license your product and fund it.
You’ll more than likely have to pay for a patent search, patent, prototype, presentation and legal fees. You’ll have to do this if go the manufacturing route, too.
If you hire a licensing agent, whose duties include making calls to companies and negotiating contracts, you’ll have to pay her or him a percentage of the license.
You are largely at the mercy of the licensing company’s marketing and sales practices. Companies often change the product’s design to fit their vision of what’s marketable. You have to wait 30 days after each quarter to see if your royalty will be what you hoped. All the while you may be wondering if the company is pushing your product as hard as you would if you ran the company.
Despite all the caveats with licensing, I have personally favored this route. I have more than 240 products in sell-sheet form, ranging from kitchen and eyewear to lawn and garden. Each of these categories has its own set of rules and structure for getting to market. Just learning how to navigate each industry is a challenge on its own.
Manufacturing it yourself and licensing each has its rewards and pitfalls. Regardless the route you take, be as informed as possible, set realistic expectations and minimize your risks. You may be able to fool yourself about your product’s chances. But in the end, the consumer will be the final judge.
Welcome to the Machine is a regular section spotlighting trends and offering timely advice on two of the most crucial aspects of product development – licensing and manufacturing.