Selling an Idea to a Company
In this article, learn tips and strategies for making money from your ideas using the licensing business model instead of selling them outright. Licensing an idea can be a win-win for both parties involved. In exchange for the rights to your idea, the company will pay you a royalty for each unit they sell. Here’s how to make it happen.
In this article, I share tips and strategies for selling your ideas to companies. Will a company buy your idea? I need to clarify something right away. Companies typically don’t buy ideas. There’s too much risk and too many unknowns to pay a lump sum for an idea upfront.
What companies are more comfortable doing is licensing ideas.
What is Licensing?
Licensing is a business arrangement that is similar to renting. In exchange for the rights to your idea, a company will pay you a royalty for each and every unit they sell. A royalty is a payment, typically a percentage.
To make money licensing an idea, you will need to negotiate a licensing agreement.
Negotiating a Licensing Agreement
Licensing agreement negotiations begin much sooner than people imagine — long before an actual licensing agreement is in play. People tell me, “I will contact you once I receive the licensing agreement because I will need your help negotiating good terms.”
But this reflects a fundamental misunderstanding of how professionals negotiate a good licensing agreement.
You begin setting the terms of your negotiation when you create your new product idea and that continues as you design your marketing material, protect your invention, and act professionally when reaching out to companies.
What I’m trying to say is, thinking ahead is a must to sell an idea. You need to plan your strategy out before you receive your licensing agreement. Thinking through potential issues upfront can help you negotiate later. When you provide the company — the licensee — with the correct information, you become an asset and give them a reason why they should pay you.
This is even more important when dealing with a publicly-held company. They must justify why they’re paying you to their stakeholders, stockholders, and management.
Here are a few things you can do to give yourself a little leverage when negotiating a licensing agreement.
To Sell an Idea, Focus on These 7 Things
1. A clear point of difference compared to the competition.
Everyone wants to provide their customers with the best possible products and customer service. Giving your licensee a product idea with a big “benefit” in the marketplace compared to similar products will be extremely important. The best way to do this is with a second sell sheet that shows all similar products and the benefit your product idea has over them.
When an idea is easy to demonstrate and understand, it makes marketing and selling it much easier. It makes it much easier for your champion within the company to sell it to upper management. This can give you momentum and leverage.
2. A product that’s easily demonstrated and understood by others.
Products that are easily understood don’t require education and are thus easier to promote.
Share your idea with others using a great one-page sell sheet or one-minute video.
3. Knowing customers will purchase your product.
Do you know the problem your idea solves extremely well? If you have created a very elegant solution to a problem, your experience matters. The best products are created by people who have experience in a specific industry, experience the problem repeatedly, and design an elegant solution. If you have experience in that particular field, let people know! It’s persuasive.
4. Great storytelling.
When your idea can be told with a story — especially a story that features a problem that everyone can identify with — that’s powerful.
5. A great retail price.
Create a product that has a price point that customers are willing to pay for. Knowing your manufacturing costs can be extremely important. Design your new product to hit a great retail price point compared to similar ideas. Having a product that solves a problem and has a lower price point is a guaranteed winner.
6. Perceived ownership.
Everyone likes to think they have ownership of an idea. In essence, they want to have a monopoly and keep everyone out. But today, that’s not so easy. Regardless of how difficult it is to protect a popular product, the most important thing you can do is to have perceived ownership.
There are tools at the U.S. Patent and Trademark Office to help you establish and protect the ownership of your intellectual property.
You can do this with a well-written provisional patent application (PPA) — meaning a provisional patent application that takes away risks and overcomes future arguments. Make sure to include a problem/solution framework, manufacturing details, and materials to use. Include any workarounds, variations, and make sure to include lots of drawings.
Doing a complete job will give the potential licensee confidence. Having perceived ownership helps you negotiate your licensing agreement ultimately.
Consider filing a trademark if the name of your idea has value and formally copyright all of your marketing material. This takes a little planning ahead, so don’t forget. Trademarks can take at least six months or more.
Getting a design patent, which is easy to obtain, might be a good idea.
Make sure you grab the URL for your idea too.
7. Being reasonable.
Licensing takes place between two parties. It’s a type of relationship. So, make sure you understand the business of the company you want to license your idea and the culture of their company. Try to learn what’s important to them. Don’t ever be a threat. Be an asset.
There are many factors that contribute to selling an idea.