You have a great idea, it's perfect for Walmart and many other retailers and you want to sell as many units as you can. After all, more sales means more revenue to you. This is the dream of most inventors.
So here’s the burning question?
Can I license my product to multiple companies to help generate as much revenue as possible for me and my family?
Here's the short answer: Sometimes yes, but most often no!
What's the issue? It boils down to one concept: Exclusive or nonexclusive license. Let me explain.
Most of the time, when you are negotiating your licensing contract you will find that a company asks for an exclusive license, meaning they will be the only one manufacturing and selling your product......And I don’t blame them.
The company doesn't want any more competition than it already has. And if your licensee is going to spend money on tooling, advertising, tradeshows etc.. they want to be able to recoup those costs with revenue from sales. Competitors selling the same product will cut into and potentially reduce their sales.
A competitor might sell the product at a lower price and cut into sales that way. The situation creates risk for your licensee.
A lot of inventors thinking way to solve this problem is to try to license an idea to huge multi-national companies with the best distribution and the largest sales. I'm talking about the "big boys": Coca-Cola, Rubbermaid, Procter & Gamble, Ford, 3M - you get the idea.
Truth be told in all the years I’ve been in the licensing business I’ve learned that these large market leaders don’t innovate as often as you might think. They don’t license from individuals.
These companies wait for somebody else to test the market, spend their money, their time, and absorb the the risk. If a new product becomes successful or creates a new category of products, the large multi-national company does one of two things. They either buy the small company (frequently) or they come out with a similar product (now that the market segment is proven) and use their distribution and economy of scale to crush the competition. It's a very low risk way for a huge company to get into the game.
So, what companies should you try to license your product idea to?
My experience, and that of my students, is that midsize companies are your best bet. These companies don’t have as broad distribution as market leaders but they still have very good distribution, usually want to grow, are willing to take some risk to accomplish that, and they need you.
I was telling someone the other day these midsize companies typically treat you fairly, work harder on your behalf and your product doesn't get lost in the mix.
Let's get back to licensing to more than one company. When is it possible?
If you have a product idea that can fit in different categories which don't really compete with one another then you might be able to obtain multiple licenses If the companies that you license your product to don't compete head to head you have an opportunity to carve out either distribution, categories or territories. For example, if you license your product to a company that only sells in the U.S. then you might be able to offer someone else a license international Or, if your licensee only sells in drugstores, then you might be able to license to a different manufacturer with different distribution. You can carve out these areas in contracts and give multiple companies the opportunity to generate revenue for your product.
I want you to know, multiple licenses are very rare. I don’t see a lot of products that fit this description.
My spin label innovation was able to be applied to many different categories such as Pharma, soft drinks, nutraceuticals, food - and that gave me the opportunity to get multiple licenses.
One strategy to get more than one license is to offer a company an exclusive, but only for a limited time (say six months to a year). You are essentially giving them a head start in the marketplace. Then, you would offer licenses to other companies as well.
Be careful! There may be a down fall to this - once you give someone a headstart they may be able to brand your product in such a way that they establish perceived ownership. People view similar products as "imitations" of the original. Obviously, that will limit your chances of multiple licenses.
In my own experience with SpinLabel, we gave an exclusive for a short period of time to Rexall Sundown - a supplement company based in Boca Raton. They branded the products that used my label as "Twist-and-Learn". The product line was in Walmart and was supported by national television and print advertising that used Alex Trebek from Jeopardy! It was very exciting.
However, when Rexall's exclusivity period expired, we tried to license it to other companies in the supplement category. They wouldn’t touch my label with a 10 foot pole because the strong marketing program by Rexall Sundown had created perceived ownership of the technology. The other supplement companies didn't want to be seen as a "me too".
So, what's bottom line? Try to get a midsize company to license your product - and keep coming up with new ideas. That's the real way to generate more revenue - have lots of different products in the marketplace at the same time!
If you are interested in learning more, please feel free to watch one or both of these YouTube videos that feature my partner Andrew Krauss with more detailed information.
The Right Size Company to License Your Product
Focusing Your Efforts on Companies that Have Distribution