| Most inexperienced entrepreneurs are unaware of the | | | | license prospects for the product are not exciting. This |
| many options and alternative strategies available to | | | | number sets the parameters for the potential of your |
| push a new idea or invention to market. The most | | | | project and indicates to the potential licensee that they |
| common approach they seek to implement is a classic | | | | are dealing with a thoughtful, serious and skilled licensor. |
| funding round. When this avenue fails, and with | | | | Research |
| overwhelming frequency it does, the idea often is | | | | The licensee with an exciting opportunity on offer will |
| dropped. | | | | want to know (not guess) everything possible about |
| Driven inventors attend invention trade fairs, venture | | | | the market they are about to enter. This will include; |
| capital conferences, small business incubators, and | | | | customer demographics, size of market, growth of the |
| network at every possible opportunity in search of | | | | category, competition, and potential licensors. Cite |
| funding and working capital for their invention. It is | | | | sources of research and assemble as a portion of the |
| commendable and a tribute to the pursuit of the | | | | Opportunity to License document you will offer. This is |
| American dream that such efforts are expended in | | | | the knowledge that will set you apart from run of the |
| this daunting effort. However, virtually all will come to a | | | | mill tire kickers hoping to make a deal. |
| disappointing end with no funding and disappointment. | | | | Professional Endorsements |
| In 2005 over 500,000 new business incorporations | | | | Nothing resonates with buyers more than professional |
| were organized in the United States. This does not | | | | endorsements. I am not necessarily talking about |
| include the hundreds of thousands of sole | | | | celebrity endorsement. They are great for certain |
| proprietorships, partnerships, joint ventures and | | | | products. A pediatrician endorsing a juvenile product, or |
| strategic alliances formed. From this sea on creative, | | | | a professional association giving a positive quote on a |
| new opportunities only about 1000 were funded by | | | | service, or an educator endorsing a toy, are simple |
| traditional venture capital sources. The odds are so | | | | examples of taking a product and brandishing it with |
| long against a successful funding round: the wonder is | | | | the glow of an expert. This is invaluable and a |
| that so many entrepreneurs, with so much creativity to | | | | technique we utilize regularly for our projects. Include |
| offer, are chasing so few sources of funds. | | | | these quotes in all collateral materials. |
| There are other opportunities and strategies available | | | | Test Market/Focus Group |
| for successfully getting a great idea to market. The | | | | If you only have one prototype it can be difficult to |
| bar for acquiring venture capital funding is so high, so | | | | assemble a focus group or test market. What we |
| difficult and so competitive, that it is unfortunate how | | | | recommend is to show the product to strangers |
| many inventors quit the pursuit of their goal after | | | | sequentially in the field where the product would |
| receiving no traditional funding commitment. One of | | | | typically be used. Recently, with a single prototype of a |
| several alternatives to venture funding is a license | | | | baby stroller accessory, we spent an afternoon in |
| campaign. | | | | Central Park in Manhattan, demonstrating the unit to |
| Licensing is the assignment of intellectual property or | | | | mothers pushing strollers. We walked away with |
| product rights to a licensee for consideration. The | | | | positive quotes for attribution from 26 of 29 mothers |
| consideration may consist of a rights fee, royalty, | | | | that used the prototype. These we included as an |
| options, personal service fees, minimum annual sales | | | | exhibit in our product folio. |
| turnover and more. The licensee agrees to make | | | | Opportunity to License Document |
| good faith efforts to commercialize the product or | | | | With all of the above in hand, you have the data and |
| intellectual property and the agreement is memorialized | | | | resources to assemble an approach document. We all |
| in a License Agreement. | | | | have heard stories about the inventor sidling up to a |
| There are many more companies interested in | | | | banker in a bar, uninvited, and successfully pitching his |
| licensing a product or technology than there are | | | | idea over a scotch and soda. Good Luck! |
| conventional funding sources for startups. Having said | | | | You get only one chance to make a great first |
| this, there is really no difference in the requirements for | | | | impression. Do not shortcut on any aspect of the initial |
| success in either venue. You will just get more swings | | | | approach. With your patent, prototype, possible |
| at the ball when seeking a license for your project. | | | | endorsement, research and costs well in hand, you are |
| Entrepreneurs read about Blackrock Capital, Harvard | | | | ready to assemble the written document that will detail |
| Capital Management or Kohlberb Kravis Roberts | | | | the features and benefits of your project and quantify |
| funding a new opportunity for $200 million dollars or | | | | the opportunity. |
| more. This is exciting, motivating and for most, | | | | As you are not seeking funding, and are not interested |
| unrealistic. A fully fundable opportunity is a rare | | | | in self-marketing, a classic business plan is not required. |
| amalgam of huge upside, mitigated risk, unique, | | | | However, you will need a written synopsis of your |
| potentially disruptive product and REALLY strong, | | | | project, written along the lines of the business plan. We |
| experienced management. Very few entrepreneurs | | | | call this the Opportunity to License. |
| can present such a comprehensive package. | | | | This document needs to be crisp, exciting and short, |
| In the world of licensing the product, upside, risk | | | | eight to 10 pages, plus exhibits. The exhibits should |
| mitigation and disruption features are crucial. | | | | include; patent information, list of contributors to the |
| Management is irrelevant as the licensee presumably | | | | project, CAD art, bill of materials, cost of goods, |
| has the management in hand to drive the project to | | | | research data. |
| success. The same elements that excite venture | | | | Selling the Opportunity |
| capitalists also excite the licensee. They are keen on a | | | | Successful completion of the above now places the |
| strong Unique Selling Proposition detailing the niche the | | | | opportunity in position to seriously, and professionally, |
| product will claim. | | | | approach licensee targets. Your research will have |
| A powerful, well-structured sales model will quantify | | | | identified the obvious candidates. Networking, walking |
| and support the sales universe available to the product | | | | trade shows and scouring appropriate industry trade |
| or technology. | | | | publications will increase familiarity with added possible |
| There are many successful approach strategies | | | | homes for placement of the item. |
| available when seeking to license an exciting new | | | | The target list needs to be approached with care and |
| product. The following are some broad elements we | | | | diligence. Large, publicly traded Companies have |
| have utilized in our consulting firm with success. | | | | different, but fairly stringent standards for accepting |
| Remember there is no linear, set in steel index to | | | | unsolicited submissions. I find this barrier crazy, as |
| follow. Innovate, adapt and keep pushing and try | | | | many great opportunities are never viewed for fear of |
| everything necessary to get that appointment with the | | | | litigation. Mid-size and small companies, the really fast |
| decision-maker. | | | | growers, are more open to reviewing unsolicited |
| Create a Working, Production Quality Prototype | | | | submissions. |
| Whether you have a new product, a service or a | | | | Prepare mailings with care. Be sure to know the exact |
| technology, you MUST be able to demonstrate the | | | | name and title of the decision-maker at each targeted |
| unique features and benefits of your offering. Some | | | | potential licensee. Personalize each letter and |
| inventors have a facility to create, design and | | | | assemble the mailing in a folio. The cover letter should |
| construct the necessary demonstration unit. The great | | | | be on top in the right pocket with the Opportunity to |
| majority of people do not. This is a simple hurdle to | | | | License document directly behind. In the left pocket |
| overcome. | | | | place any public relations, positive user endorsements, |
| In every city in America there are job shops, product | | | | etc. |
| design and development firms, engineers and software | | | | Follow up the mailing with a phone call in 7 to 10 |
| writers capable of providing professional guidance | | | | business days. Now the ebb and flow of making a |
| resulting in production of the prototype required. | | | | deal begins. |
| A key by-product of this process will be the creation | | | | Negotiations |
| of 3-D, Computer Assisted Design art. This art is | | | | No two deals are alike. This not a cookie cutter, fill in |
| essential in the assembly of the product for production, | | | | the blanks process. Securing that face to face |
| in obtaining crucial and totally accurate cost of goods | | | | meeting with Mr. Decision-Maker is crucial, and the |
| and filing patents. | | | | opportunity cannot be blown. We seek to maximize |
| Patent Filing - Intellectual Property Protection | | | | every potential income stream for our clients. These |
| Very few licensees are interested in investing | | | | include: |
| significant monies in marketing a new product without | | | | Rights Fee |
| the guarantee of some patent, copyright and/or | | | | You must receive consideration in the form of a Rights |
| trademark protection. See a Patent Attorney. Patent | | | | Fee in exchange for turning over all aspects of your |
| law is exceedingly specific and for this reason it is a | | | | project to the licensee. This should be paid on signing |
| legal specialty. A competent patent attorney will | | | | the license documents and is not returnable. The |
| conduct a search and, using the results, advise the | | | | licensee should perform all due diligence prior to signing. |
| possibility of successfully receiving a utility patent (highly | | | | There are no make goods here. The size of the |
| preferred), design patent (patent on art, easily | | | | Rights Fee will be in direct proportion to the size of the |
| overcome) or not being artful enough to receive any | | | | opportunity you offer. |
| cover. | | | | Royalty |
| If an item has dicey patent prospects we like an | | | | This is the vast bulk of income any licensor receives |
| alternative strategy. I have been a proponent for | | | | from a successful product placement in a licensing |
| several of my clients of a strategy we call "patent | | | | deal. The variables in structuring percentages are |
| pending forever". Our goal is to keep a product in | | | | never ending. Some royalties are built to sales growth |
| patent pending status for as long as possible by timing | | | | and minimum sales promotion investment. Others are |
| addendum to the application and art and filing these in | | | | tied to achievement of tiered sales goals. Many contain |
| order to keep having the filing reviewed again. | | | | buyout options that automatically kick in at certain trip |
| During patent pending a filing is essentially in limbo. The | | | | points. |
| advantage for the inventor is that there is no | | | | The term (length) of the license is crucial. The licensee |
| publication of the details of the art, features and unique | | | | will want a shorter term. The licensor will want as long |
| benefits of their product. Secrecy is an asset. Once a | | | | as possible to maximize income. |
| patent number is received two undesirable things | | | | The details of each license are unique and specific to |
| happen: details of the patented product become public | | | | that particular deal. |
| knowledge, and the clock starts ticking against the | | | | Production |
| 20-year life of the patent. | | | | Another reason we are aggressive about controlling |
| For most entrepreneurs seeking a license, we do not | | | | the production sources, and knowing our costs is |
| push for international patent filing. International filing is | | | | because this often becomes another income stream |
| very expensive and we let the licensee assume this | | | | for the inventor. For instance, assume a dead net cost |
| expense. | | | | of goods of $1.92 per unit. Assuming we can maintain |
| Source of Production, Manufacturing | | | | production control in negotiations, and this happens |
| Depending on the product, service or technology | | | | often enough, we will quote the licensor $2.00 per unit |
| offered for license, you MUST source production. The | | | | COG. The difference of $.08 (4%) goes right to the |
| reason is simple: this will set you apart from the | | | | licensor when peeled from the Letter of Credit that is |
| dreamer. It reflects your commitment to the | | | | organized to pay for the offshore inventory production. |
| opportunity. It reassures that the product can be built | | | | $.08 might not seem like a lot of income per unit. |
| (we see a number of projects that are unrealistic from | | | | However, apply this number to potentially hundreds of |
| an assembly and economic standpoint). | | | | thousands of units per year, for seven, 10 or 15 years. |
| Now, let's discuss a touchy subject in the current | | | | Do the math! |
| economic climate. I love my country. America is the | | | | Several points to make here. |
| land of opportunity. However, I am a capitalist and the | | | | Do not be a hog. Hog's get slaughtered. A good deal is |
| rules of capitalism are much bigger than any one | | | | a deal where every party feels fairly treated! This is |
| individual: including you, the entrepreneur. If at all possible | | | | an area where we see too many deals go south. |
| I prefer to assemble components, source, and | | | | Every party should profit handsomely, according to |
| manufacture here in the United States. However, it is | | | | their level of participation. |
| becoming more and more difficult to be competitive | | | | Second, do not attempt to license a product without |
| here in America. | | | | undertaking the steps detailed above (or some variant |
| I have clients that are adamant they do not want their | | | | of the process). I have mentioned this before. This is |
| project assembled offshore. Do not be a Luddite. You | | | | just an outline. There are endless variables that apply |
| really have two options: you can go with the flow, or | | | | to different industries, styles and categories of |
| you can be drowned by the overflow. In the past | | | | offerings. Do your homework and do not attempt to |
| decade, we have not found a single project that could | | | | take shortcuts. You will be wasting your time and |
| be produced in the United States as inexpensively as | | | | resources. |
| we could produce offshore, including the cost of | | | | Finally, do not, EVER; utilize the services of an invention |
| freight, customs and duty. Not even close! | | | | mill. These firms typically advertise on late night |
| We search out four or five factories, or offshore | | | | infomercials and they prey on the inexperienced, |
| resources, for submission of the 3-D CAD art and a | | | | naïve and desperate. These firms are little more |
| Release Packet. The Release Packet contains all of | | | | than boiler rooms with a goal of separating the weak |
| the hard samples of components that will be parts of | | | | from their cash. Check with your Better Business |
| the finished product. After this is forwarded, we | | | | Bureau and State Attorney General for history on one |
| typically receive quotes in four to six weeks. | | | | of these houses. Even then proceed with caution. |
| This quote should include all line item costs contained in | | | | Licensing is a real, viable option for inventors having |
| the Bill of Materials for the product, plus outer | | | | opportunities that offer fresh, definable features and |
| packaging, costs of display (if any), shipping carton, | | | | benefits. The Unique Selling Proposition contained in |
| inserts (directions for assembly, etc.), plus freight to | | | | these inventions may have real value to licensees, |
| United States port of arrival, customs, duty and inland | | | | while venture capital may not be able to overcome |
| freight to your warehousing/fulfillment point. This is a | | | | one or more shortcomings inherent in the project. |
| dead net cost of goods. | | | | Funding sources are often seeking a different deal |
| Use of Cost of Goods (COG) | | | | parameter. Licensees are simply seeking the |
| Knowing the cost of goods is crucial! This number | | | | opportunity to bring in house a product, service or |
| proves the viability of the products pricing model, | | | | invention that compliments their array of assets. This |
| confirms margin assumptions and the ability to | | | | makes licensing the best choice for entrepreneurs |
| construct an exciting sales model. If COG is too high, | | | | hobbled in one area or another: they simply have a |
| and there is no capacity to squeeze costs, the future | | | | great product to offer. |
