As is true of everything in life, things can and do go wrong during product development. Whether you’re venturing or licensing, you will need to work with other people and companies to grow your business.
So, how do you decide who to work with and who to pass on? Few choices are as important when bringing an invention, innovation, new product or service to market. Experts and non-experts alike are taking advantage of the myriad ways it’s possible to bring products to market today. Research from Harvard published last year predicts the most creative breakthroughs will come from ‘ordinary’ people — not geniuses — in the future.
It’s extremely important that you identify partners that will benefit you and your goals — companies that you will enjoy working with.
The following insights are based primarily on my experience as a lifelong entrepreneur and designer of new products. Specifically, I spent decades licensing a wide range of concepts — everything from novelty gift ideas to an innovative rotating label. I’m no longer in the game, but I mentor people who are every day. (In 1999, I cofounded inventRight, a coaching program, to share my strategies for bringing products to market.)
At this point, I feel like I can spot a red flag from a mile away. But that’s only because I’m a veteran of this industry. I know firsthand the many reasons why licensing deals fall apart. Coaching so many other independent product developers has given me an even clearer picture of best business practices.
That said: Red flags like the ones listed below exist across every industry.
How many times have you gotten into a situation with someone that made you wish you had spent a bit more time identifying potential problems in advance? Our excitement can blind us from the warning signs. Don’t get taken advantage of.
When everyone you work with has a positive attitude and the timing is right, partnering up can be an incredible experience.
And then there are the times you get in bed with the wrong partner and can’t back out easily. Avoid making that mistake by keeping the following red flags in mind as you go about materializing your vision.
1. No product review process for licensing. The company doesn’t have a way of reviewing outside submissions from inventors. And because there’s no process, communication is always very poor. Overall, it’s a long painful process. It can be done, but it requires patience. Why patience? Because you’re going to need to educate them about what’s reasonable. Attempting something new will always require more time and effort.
2. One-sided non-disclosure agreements. Read any proposed confidentiality agreements closely. Is it mutual? Make sure it is fair and balanced. Some non-disclosure agreements essentially state: “Whatever you submit to us, we now own.” That’s definitely not fair. If you’re not sure, have a professional review it. One-sided relationships don’t tend to work out.
3. A terrible track record. If you type the company’s name followed by “complaints” and “lawsuits” and you see a lot of irate customers? Avoid that company like the plague.
This is so easy to do. If you’ve done something inappropriate, it’s difficult to hide from that these days. Please read between the lines. If they shipped product, was it on time? Was the quality good? These are customer services issues everyone faces.
Dig a little deeper, is what I’m saying. It isn’t always easy to tell on the surface who is the real deal and who isn’t.
4. Bait and switch. You think you’re working together, but suddenly that involves paying this individual or company money. They’ll help you commercialize your product — for a fee. Be wary.
5. Pressure. They tell you how great your idea is, but in the next sentence, warn: “You’d better protect it.” They put fear in your mind. Before you know it, they’re pressuring you to sign on the dotted line. Always read any contract that comes your way thoroughly. This takes time.
6. One-sided contract. Simply put, the licensing agreement put forth is not fair. For example, there’s a very low royalty rate, they own all improvements, there are no minimum guarantees, and they put all the risk on you in terms of ownership of intellectual property.
However, please know that most licensing agreements you will receive are boilerplate. They’re a starting point. Negotiating a reasonable licensing agreement takes time. But if after you negotiate they are still not reasonable, or refuse to negotiate at all, walk away quickly.
Another note: If no terms are defined and the contract is fairly short and very vague, that’s a bad sign. Vagueness is not a good thing when it comes to contracts. All aspects of your relationship should be spelled out for both parties.
7. Demanding money from you. They want you to pay for tooling, CAD drawings, shooting the commercial etc. This is no longer a licensing arrangement.
8. Poor communication. They are always in a hurry, always traveling for trade shows, and don’t have the time to sign a contract or even respond to a few simple questions. From my experience, situations like this never get better. If someone is late they’re pretty much always late.
9. No social media presence. Most reputable companies are transparent and accessible on social media. These companies want to hear your opinions and respect your thoughts. They’re accountable, in other words. If this company is not on social media, there’s a good chance it’s because they do not want to deal with ramifications of their poor behavior.
10. They require a patent. In some verticals, patenting is a requirement. That’s not the case for simple consumer product ideas today, whose lifespan is short. Requiring a patent is basically shorthand for “We’re just not interested.” I would move on. Companies that adopt this position are dinosaurs.
Like I said, intellectual property is important in some industries. It’s not unreasonable to want some, but an expensive utility patent is hardly the only option. Consider design patents, trademarks, and even copyrights. But if they require for you to have a patent before they’ve even taken a look? Walk away.
11. You have to fill out a form. Any company that wants you to fill out a form before disclosing or sharing anything about what they do or how is one I would be extremely careful of. You should be able to contact them.
12. Ads on television and the Internet. Companies that have relied on these techniques in the product development space to reach their clients have typically had a poor reputation and success rate.
13. Promises, promises, and more promises. Anyone who promises you the world is not to be trusted. They’ll do all the work while you sit back and collect royalties? This is completely unrealistic. Bringing a product to market typically requires significant time and effort. You and only you can make that happen. In other words, no one is going to do the work for you.
14. Product review. Do not waste your hard-earned money on someone who wants to charge you to review your invention. No one has all the answers — especially not some independent third-party. Who are you going to sell your invention to? Seek out that stakeholder.
If something doesn’t feel right or smell right, usually it’s not. Listen to your gut.
15. Name change. When a company has changed its name, that’s not a good sign. It takes a long time to build up goodwill. A name change could be a red flag that the company is trying to distance itself from its reputation.
16. Too small to execute. Investing in a new idea requires capital, there’s no doubt about it. I’d be wary of anyone who wants to test your idea via crowdfunding before they invest in it. Your partner has to be able to invest the time and effort it takes to bring a product to market. If they’re struggling early on… they will always be struggling, maybe due to youth or inexperience.
17. Loose lips. Avoid working with people who speak poorly of others. This is extremely bad form. People who badmouth are not to be trusted. Soon enough, they’ll be talking about you.
My advice? Don’t ever be in a hurry when it comes to picking a partner. Take the time to do your homework. Seek out referrals. Don’t just gloss over a pretty-looking website. Know what you’re in for.
A leopard doesn’t change its spots overnight.
