Product Licensing and Venturing

 

1. What is product licensing?

Product licensing is a business arrangement where an inventor (licensor) grants a company (licensee) the rights to manufacture, market, and sell their invention in exchange for royalties or a licensing fee. This allows the inventor to earn income without handling production or marketing directly.

2. How is venturing different from licensing?

Venturing refers to starting your own business to develop, produce, and sell your product. Unlike licensing, where a company takes over those responsibilities, venturing requires you to build and manage the entire business, including production, sales, and marketing. Venturing offers more control but also involves more risk and effort.

3. What are the benefits of licensing my invention?

• Lower Risk: Licensing reduces the financial burden, as the licensee handles manufacturing, distribution, and marketing.
• Faster Market Entry: Established companies already have the infrastructure to bring products to market quickly.
• Passive Income: You receive royalties based on sales, allowing you to focus on other projects.

4. What are the downsides of licensing?

• Less Control: Once you license your product, the company has control over marketing, branding, and pricing.
• Lower Potential Earnings: While you earn royalties, they are usually a percentage of sales, which might be lower than the profits you’d make if you ventured on your own.

5. How do I find a company to license my invention?

• Research: Start by researching companies in your product’s niche. Look for businesses that already manufacture and sell similar products.
• Networking: Attend trade shows, industry conferences, and pitch your product to companies there.
• Direct Outreach: Send pitches or cold emails to potential licensees, offering them the opportunity to review your invention.

6. What is a typical royalty rate for licensed products?

Royalty rates can vary based on the industry, product type, and the strength of your negotiation. On average, royalty rates range between 3% to 7% of the product’s net sales. However, some deals offer royalties outside this range depending on the circumstances.

7. Do I need a patent to license my invention?

While having a patent strengthens your position and protects your intellectual property, it’s not always necessary to license an invention. Some companies will license products that have strong market potential even if they are not patented, but a patent can make the deal more appealing.

8. What does a licensing agreement include?

A licensing agreement typically outlines:

• Exclusivity: Whether or not the company has exclusive rights to sell your product. An exclusive agreement can have parameters based on geography, or market type. 
• Territory and market rights: Where and in which industries the licensee can sell the product.
• Duration: The length of the licensing deal.
• Royalty structure: How much you’ll be paid and how frequently.
• Minimum sales commitments: To ensure the company is actively promoting your product. This is sometimes referred to as a ‘Performance Clause’
• IP ownership: Ensuring you retain ownership of the intellectual property.

9. How do I protect my intellectual property (IP) when approaching companies?

Before sharing your invention with potential licensees, it’s wise to:

• File for a provisional patent or secure IP protection.
• Use Non-Disclosure Agreements (NDAs) when sharing detailed information about your invention.

10. Should I venture with my product instead of licensing it?

If you want full control over your invention and are willing to handle production, sales, and marketing, venturing may be a better fit. Venturing offers the potential for higher earnings, but it comes with higher risks, more responsibility, and greater time commitments.

11. What are the steps to start venturing my product?

• Develop a business plan: Outline your target market, sales strategies, financial projections, and growth plans.

• Secure funding: Whether through personal savings, investors, or loans, funding is essential for production and marketing.

• Manufacturing: Find a reliable manufacturer to produce your product at scale.

• Marketing and sales: Set up an e-commerce website or partner with distributors to sell your product.

12. How do I know if licensing or venturing is right for me?

Consider the following:

• Licensing may be right for you if you want lower risk, prefer passive income, and are comfortable giving up control over the product.
• Venturing might be a better option if you want full control over the business, are comfortable with risk, and are ready to manage all aspects of production, marketing, and sales. You are starting and running all aspects of a business.

13. How do I negotiate a licensing deal?

Negotiating a good deal requires:

• Research: Understand the company and industry standards for royalties and licensing terms.
• Patience: Be willing to go through multiple rounds of negotiation to get favorable terms.
• Professional Help: Consider hiring a licensing agent or intellectual property lawyer to help negotiate and review the contract. There are a lot of clauses such as insurance and sub-licensing that should be addressed. 

14. What is a product pitch and how should I present it to companies?

A product pitch is a concise, engaging presentation of your invention, highlighting its benefits and market potential. When pitching, focus on:

• Problem-Solution Fit: Explain how your product solves a specific problem.
• Market Opportunity: Show that there’s demand for your product in the market.
• Value Proposition: Clearly communicate why your product is better than existing solutions. Include visuals, prototypes, or demonstrations when possible.

 

What about hiring a coach?

 

15. What are the benefits of hiring a product development coach?

A seasoned product development coach can guide you through the often complex process of bringing a product to market. The benefits include:

• Expert Guidance: Coaches bring industry knowledge, helping you avoid common mistakes and save time.
• Strategy Development: A coach can help you craft a tailored approach for licensing or venturing, ensuring that each step is well thought out.
• Connections: Coaches often have valuable industry contacts, including manufacturers, distributors, and potential licensees.
• Support: From ideation to final negotiations, a coach provides support and advice during critical stages of your product’s development.

16. How can a coach help with the licensing process?

A product development coach experienced in licensing can:

• Evaluate Your Invention: Assess whether your product is ready for licensing and offer suggestions for improvements.
• Research Potential Licensees: Help identify the right companies for your product and develop a targeted outreach strategy.
• Perfect Your Pitch: Coaches can help craft and refine your pitch to increase the chances of getting companies interested.
• Negotiate Contracts: Coaches can guide you through the negotiation process, ensuring that you get favorable royalty rates and terms.

17. How can a coach assist in venturing my own product?

For those looking to venture their product, a coach can help by:

• Developing a Business Plan: Assist in creating a comprehensive business plan that covers product development, marketing, sales, and financial projections.
• Setting Up Manufacturing: Guide you through selecting the right manufacturers and suppliers, ensuring quality and cost-efficiency.
• Marketing Strategy: Help you devise a go-to-market strategy, including brand development, pricing, and sales channels.
• Financial Management: Provide insights into budgeting, funding options, and cash flow management to keep your venture on track.

18. Is hiring a coach worth the investment?

Hiring a coach can save you time, money, and stress by helping you avoid common pitfalls. While there is an upfront cost, the investment can lead to better deals, faster time-to-market, and greater success overall. For many inventors, the guidance and expertise that a coach provides outweigh the costs, especially if it’s your first time licensing or venturing a product.

19. What should I look for in a product development coach?

When selecting a coach, consider the following:

• Industry Experience: Look for someone with a track record of success in product development, licensing, or venturing.
• Specialization: Choose a coach who has experience in your specific product category or market.
• Proven Results: Ask for testimonials or case studies of previous clients who successfully licensed or ventured their products.
• Approachability and Fit: Ensure that the coach’s style aligns with your goals and that you can work together effectively.

20. How can a coach help with protecting my intellectual property (IP)?

A coach can help you navigate IP protection by:

• Advising on Patents and Trademarks: Recommending when and how to file for patents, trademarks, or other IP protections.
• Reviewing IP Strategies: Ensuring that your IP protection strategy aligns with your overall licensing or venturing goals.
• Connecting with Legal Experts: Many coaches have relationships with IP attorneys who can help you secure and protect your rights.

21. Will a coach help me secure funding for my product venture?

Yes, many product development coaches have experience in securing funding through:

• Investor Pitches: Assisting you in creating compelling pitches to attract investors.
• Crowdfunding: Offering guidance on setting up successful crowdfunding campaigns.
• Traditional Loans or Grants: Helping you explore loans, small business grants, or other financing options that align with your venture goals.

22. Can a coach help if my product idea is still in the early stages?

Absolutely! A coach can provide valuable input even at the concept stage, helping you:

• Validate Your Idea: Conduct market research to confirm demand for your product.
• Develop Prototypes: Guide you through the prototyping process, ensuring your idea is ready for pitching or venturing.
• Refine Your Concept: Provide feedback to strengthen your product before it enters development or goes to market.

23. How long should I work with a product development coach?

The duration of your work with a coach depends on your needs. Some inventors may only need guidance through a specific stage, such as licensing negotiations, while others may benefit from long-term support from concept to market launch. Most coaching relationships are flexible and can be tailored to your timeline and goals.

24. How do I know if I'm ready to work with a product development coach?

Whether you have one idea or a notebook full, you’re ready to work with a coach when you're serious about taking your inventing to the next level. Whether you’re in the early stages of concept development, ready to pitch to companies, or preparing to venture your product, a coach can help refine your strategy, overcome challenges, and maximize your chances of success, while avoiding pitfalls. Want to find out if coaching is right for you? Click below to book a FREE 30-minute consultation call with Scott!

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