You had a great idea and you made the wise decision to try to license it. You searched for prior art and didn’t find anything. You protected your innovation with a provisional patent application. You created a sell sheet that includes video and identified the right companies to show it to. You submitted your idea to those companies by calling them directly or by using their online form.
In other words, you did everything right! Great.
But then you receive an email from a potential licensee that says the company has decided to pass on your idea.
What happened?
The smartest move you can make after one of your submissions is rejected is to set your feelings aside and ask why. What you discover could ultimately help you redesign your idea so that you can resubmit it.
There are many reasons why companies pass on licensing ideas — some of which are out of your control — but many of which are not. These are the most common ones.
1. Your idea didn’t match its current product line. They’re selling apples and you showed them an orange. This is a common mistake. When you submit an idea to a company that doesn’t complement what it’s already selling, it’s akin to asking the company to start over anew. To successfully promote your idea, the company would need to develop a new marketing strategy, find a new buyer, and perhaps even a new manufacturer.
2. The company doesn’t look at outside submissions. In my opinion, these companies are dinosaurs. They haven’t embraced open innovation, which is ultimately their loss. There are also those companies that publicly state that they are open to looking at outside submissions, when in reality their attitude is, “If it wasn’t invented here, we don’t want it.” It’s worth noting that employees in the same company can have differing attitudes. Sometimes you need to try someone else before moving on.
3. Your timing is off. Some companies have strict development cycles. You missed your window and now you need to resubmit your idea at a later date. Ask when to be sure. Submit your idea to other companies while the clock is ticking.
4. The company only looks at products that have been patented. In my opinion, companies that employ this policy are not really interested in open innovation. Requiring a submission to be patented is a screening mechanism. Speed to market matters most. If you wait to submit your idea until it is patented, chances are that the market will pass it and you by.
5. Your product is too close to its current line. Yes, your idea improves upon one of its products. But if the company has just launched that product, it has probably spent a lot of money on its development and marketing. Even if your idea is better, it can’t be embraced because of that. (This is part of the reason why I always advise inventing for sleeping dinosaurs — aka products that have remained unchanged for a long time.)
6. Your idea has too many bells and whistles. You over-designed it, and as a result, manufacturing costs are too high for the product to be profitable. This is why it’s important to educate yourself about manufacturing processes and what they cost.
7. The market for your idea is too small. The company has determined that licensing your idea is simply too risky. It’s not worth the expense. If you can prove to the company that significant demand for your idea exists, you may be able to change its mind. Crowdfunding your idea is one way demonstrating proof of demand.
8. Your idea cannot be manufactured using current equipment. To manufacture your idea, a new piece of equipment would need to be bought or made. That’s taking on too much risk for most potential licensees.
9. The company doesn’t have enough competition. There’s no motivation for it to innovate, because it owns the marketplace. This is often true of large, powerful companies.
10. You don’t understand licensing contracts and lack negotiation skills. You asked for too much upfront and the company decided to walk away
You shouldn’t give up licensing your ideas simply because a company turns you down. Most successful product developers I know have a list of companies they submit their ideas to regularly. They’ve established relationships with these companies, which is priceless.
Always remember that licensing is a numbers game and keep submitting your ideas.
Originally published on Inc.com January 14th 2015.
