Licensing or even selling your smart idea may be the best way to cash in on it. Here's how to make it work
Having a great idea, of course, is not the same as building a company based on it. One alternative is to sell or license your idea to another company.
Not all industries are equally receptive to outside ideas. Consumer products companies buy lots of them, but aerospace and technology companies seldom do. You'll need both market and customer research to bolster your case. Some consulting firms will do this for you—but be cautious. "Inventors are endlessly targeted by get-rich-quick schemes," says Patrick Raymond, executive director of the Henrietta (N.Y.)-based United Inventors Assn., which provides education to inventors. Their Web site (uiausa.org) will help you avoid scams and find firms that are legit.
Then contact a patent attorney and ask whether your idea might win a patent. A provisional patent is easier to file than a full application, but it will still protect your idea for a year while you build a prototype.
Now you need to get your pitch—patent information, market research, prototype, and even a video of how the product works—in front of the right people. Your market research should have identified potential partners, and Web sites such as ThomasNet (thomasnet.com) can give you lists of players in a whole host of markets. Submitting ideas through a company's Web site is a long shot. Better to use your network to try to connect with someone at a company that might market the product. Social networks such as LinkedIn and trade shows can also help. If all else fails, start cold calling.
Roger Brown, a North Augusta (S.C.) inventor, finds partners by roaming the aisles of major retailers. In 2007, Brown invented a new pizza cutter—essentially a large pair of scissors that doubles as a spatula. Then he visited a kitchen supply store and noted 18 companies making kitchen tools. Brown hit pay dirt simply by calling one, Progressive International in Kent, Wash., and asking for the head of product development. "More companies are receptive these days because a lot of them have cut their internal R&D," Brown says. A concise pitch and an e-mail that day, complete with a drawing of the item, did the trick. Eight months later the cutter, retailing for about $14, was in 200 stores. Brown will get a royalty of 3% to 8% on each one.
If you get a meeting, you will often be asked to sign a confidentiality agreement, which you should first run by your attorney. If your product is a prototype with no sales history, you are likely to get a licensing deal, with a royalty in the single digits, rather than an outright purchase. Any up-front payment is usually small. You'll want some protection, including a minimum royalty payment that would guarantee some income should the licensor not effectively market the product. Entrepreneurs who aren't careful, says St. Louis patent attorney Dennis Donahue, "can give away rights to their inventions without getting any payback." In that case, even the best idea will be a big disappointment.
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