Early on in my career as a product developer, I decided to focus on licensing my ideas rather than trying to bring them to market myself. My motivation was simple: I thought I could improve existing products. And that if I did, companies would pay me for it. So essentially I would study the marketplace for a certain kind of product, come up with a slight variation that offered a big benefit if that were possible, and begin reaching out to companies that produced similar products to show them what I had come up with. If they were interested, they'd get back to me. I've been teaching other creative people how to do the same thing more or less since then.
In those days, it took companies about a week to get back to me. When they did, I was overjoyed. I felt like I had a deal! But in reality, I had my work cut out for me. When a potential licensee gets back to you about your sell sheet saying they want to discuss more, you need to be prepared. If your sell sheet has done its job, they're going to have a few questions. They might ask you pointblank, "What are you looking for?" Yes, of course, you have done a lot of work already. You've studied the marketplace. Maybe you've built a prototype. Maybe you've filed a provisional patent application. I get it: When you get that call back, it feels like a victory. And in some ways, it is!
But let's be clear. They haven't offered you a licensing agreement. You've merely opened a door. And right now, they're curious. Are you going to be easy to work with? Are you a professional? How you respond to their initial questions is telling. In fact I tell all of my students to get ready, because this is an excellent time to harness their creativity!
These are some of the questions they will ask. Think about your answers in advance. You don't have to get back to them right on the spot, necessarily, but you don't want to be caught off-guard either.
1. What are you looking for? This is an easy question to answer. If you want to license your concept, tell them that.
2. Do you have any intellectual property protection? In other words, do you have a patent? I've written at length about how helpful provisional patent applications (PPAs) are. You can file one for just $65 if you're classified as a small entity, which you most likely are if you are an independent inventor. Filing a PPA gives you the legal right to describe your innovation as "patent pending," which is great. So you can answer this question with ease if you file a PPA: Yes, the idea is patent pending. The company may ask to see your application, which is why you need to make sure it's as thorough as possible. No one at the United States Patent and Trademark Office will ever read your PPA, but your potential licensee might. Please note: Never share your application number with anyone else. Think of it like your social security number. It's private.
3. Can we see your prototype? For many reasons, prototypes are not the end-all be-all so many inventors make them out to be. Are they useful? Yes, absolutely. But you don't need a perfect works-like looks-like prototype to get a licensing agreement.Prototyping can become exceedingly expensive. Prototypes break. Basically, they don't sell. So before you worry about the fact that they might want to see your prototype, which you may or may not have, gauge their interest first. Just because they ask for something doesn't mean you need to give it to them right away! Is this a sincere request? Or do you get the feeling this is their default response? Get more of a dialogue going first.
Be honest. If you don't have a prototype, tell them that. You might have to build one. And that's fine. You have a reason to now! If you do end up needing to build a prototype, don't focus on making it look good. The company is interested in proof of concept. And if and when you do send them a prototype, don't expect to get it back.
Please realize this process takes time. It's not as if there's a sole decision maker on the other end. If the company is truly interested, they'll need to ask the manufacturing department if it can be made and at what piece. Someone on the legal team will need to examine your provisional patent application. And of course marketing and sales will have to determine if your concept is truly a good fit for them.
The best thing you can do? Be patient. Be enthusiastic. Get them what they need to fully evaluate your concept, when it's appropriate.
After you've answered their questions, it's time to ask yours. Are they still interested? What do they need to be successful? Your goal is to move towards the creation of a term sheet. Term sheets address big-picture questions like, "Do you need an exclusive? What is your standard royalty rate?" I wrote about how to move your conversation with a potential licensee towards a term sheet here.
If this is the first time you're doing this, take a deep breath. There's a lot to learn! You're going to need some help. But once you get a little experience under your belt, you'll see just how easy it is to repeat this process over and over again.
Originally published on Inc.com July 28th 2015.