Smart Answers

License or Sell Your New Product


I have a registered trademark for my product. I am looking to match it with a certain type of company but not having much luck on my own. What kind of professional can I hire to help match me with the right business? —N.B., Rockwood, Me.

As you've found, it's not easy for an entrepreneur to approach a large company about buying or licensing a new product. Corporations worry that if they look at your product, but pass because they already have something similar in development, you will sue them later. Most big companies invest in their own researchers who are constantly tweaking existing products and working on new ones.

Meeting with entrepreneurs can be a waste of time for these businesses when, realistically, very few new product ideas are commercially viable, fit well into existing product lines, and can be manufactured and distributed profitably. For these reasons, many companies simply refuse to entertain product submissions.

There are ways to identify those companies that might look at your product, however, and specific things you can do to help your case. You've already taken a big step forward by getting intellectual-property protection. If you can construct a sophisticated prototype, conduct market tests, and get excellent feedback from end users, that will also help.

There are professionals who assist fledgling companies with market research, business planning, and new product development. However, they're not always easy to find and most definitely are not cheap. You also run the risk of unwittingly hiring an unscrupulous company that will praise your new product profusely, tell you that it has excellent market potential, and then charge you an exorbitant amount (as much as $20,000) for a useless report that won't get your product on store shelves. Advice for avoiding such scammers is available from this page on the U.S.Patent & Trade Office website, and from this page on the Federal Trade Commission's site.

New Product Pros

With the caveat that you thoroughly vet and research any professional you consider hiring, you may want to consider working with a new product development company, a marketing agency, and/or a business planning consultant.

A new product developer shepherds a product from concept to eventual licensing or sale. These individuals are highly specialized and usually have spent many years as industry insiders. They can spot marketable innovations, help you find prototypers or manufacturers, make contacts for you with corporate executives, and refer you to attorneys and investors. They usually charge an hourly rate of at least $100, and they may have to work with you for several months, depending on how far along you are, says William B. Simon, vice-president and COO of the Center for Emerging Technologies, a business incubator based in St. Louis.

A market research firm will thoroughly explore the potential market for your new product and evaluate its worldwide competition. Most companies that specialize in this work will not take on a project for less than $5,000, Simon says, and some charge up to $50,000 for research on products like new pharmaceuticals. You can undertake do-it-yourself market research online and by visiting trade shows and stores and writing down who sells similar products, who manufactures and distributes them, what they sell for, how they compare to your product, and whether they are national or regional sellers. You will also want to dig for details such as the overall size of the market, the typical margins in the industry, and standard royalty rates, Simon says. "Most licensees pay 1 percent to 2 percent or maybe up in the 7-percent-to-8-percent range," he says.

A business consultant can help you put together a business plan that will show whether your product is financially viable and whether it makes sense to pursue licensing or an outright sale. Again, you want someone who is very familiar with the industry and niche that your product fits into. Experienced consultants are likely to charge upwards of $100 an hour.

Cheaper Alternatives

Since most inventors are bootstrappers, the good news is that there are cheaper alternatives. One might be working with a local business school. Professors are often looking for real-world case studies for their students to tackle. Perhaps your new product might be the subject of a market research project or business planning course. "Offer to give the college a donation to make it work, or offer to pay the kids $10 an hour," Simon says. "You'll probably wind up getting a pretty good idea whether this product has potential, in which case you can raise some money to pay a professional. And if it's no good, you can pull the plug on it."

Business incubators are another option. "Some of them, like ours, will help entrepreneurs for a little while without any commitment or cost," Simon says. "I will at least advise people who approach me about whether they've got something they should pursue or not."

Once you are ready to approach potential buyers from a position of strength and knowledge, target those that are open to outside submissions. "The companies that are looking for new products usually have a detailed submission process listed on their websites," says Phil Baker, a new product developer and the author of From Concept to Consumer. Letting them know that you have a viable product that is protected legally and that you've tested it and gotten good responses will pique their interest, he says. Don't describe your product in detail at a first meeting; instead talk about the product category, your background, and whether their company is likely to be interested.

If there's not a specific person who meets with entrepreneurs, you're best off approaching the vice-president of marketing at midsize and larger companies, says Trevor Lambert, president of Lambert & Lambert, a licensing agency in St. Paul, Minn. "If you talk to the engineers or in-house product developers, you may be threatening their turf. And the president of a large company is going to be too busy. The VP of marketing is usually looking to drive new products, product-line extensions, and is more of a visionary," he says. Good luck!

Karen_klein
Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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