Have ideas for new products? You can make money from your ideas by licensing them onto the market in exchange for royalties, a form of passive income. Product licensing is a form of entrepreneurship that is very low-risk.
To license a product, here’s what you need to focus on.
What You Need To License A Product
#1: A New Idea
You must have a new idea that people want and will purchase. You don’t have to reinvent the wheel to license a product— meaning, you don’t have to come up with something completely new. Most ideas that are licensed are simple improvements to existing products.
Improving an existing product is far less risky for companies. They know people are already purchasing the product, and would likely love the option of a new and improved version.
To make sure you have a new and novel idea compared to products on the market today, search online thoroughly. I like to use Google Shopping and Google Image searches. Once you have determined that your idea isn’t on the market, do a patent search to study the history of your idea.
Patent searching can be done on numerous platforms. I prefer Google Patents because it’s very easy to learn how to navigate when you’re just starting out. You can also visit USPTO.gov to do a more thorough search. You can also hire someone to do this for you. The technical term is a “prior art search.”
There is always going to be prior art! Prior art is the term for evidence that your invention is not new, and newness is a requirement for getting a patent. Basically, you will always be able to find something that’s somewhat related or even exactly like your invention. What you need is a point of difference.
Should you keep moving forward with your idea? The prior art will inform you. You might determine you need to change your idea to overcome a patent. Or, you might decide not to go forward at all because your idea has already been invented.
For me, personally, what’s most important is searching Google using shopping and image searches. If I can find my idea in a patent, but not on the market, I’m not too concerned. Instead, I become curious. What happened? Why is this so? This is how searching for prior art helps you overcome obstacles — this is your chance to look at the patent very carefully to see what the inventor did and did not do! You might be able to make an improvement.
#2: Protection
I cannot give legal advice because I’m not a patent attorney. I can tell you that I believe one of the best tools you can use to license a product is a provisional patent application (PPA). Once you have determined that you have a new and novel idea, filing a PPA with the USPTO will give you one year of “patent pending” status.
This allows you to investigate whether there is any interest in your product idea. You can draft and file your PPA yourself using an online program, such as inventRight’s SmartIP, or hire a patent attorney or a patent agent.
Make sure to explain your idea simply. State the problem clearly and your solution. I would also include manufacturing techniques to produce your ideas the most efficiently, as well as workarounds and variations.
This will help in that event that someone tries to redesign/re-engineer your idea. I would also include lots of drawings, because they help tell a great story.
When you do this correctly, your PPA becomes a great selling tool.
#3: Marketing Material
The best way to show off the benefit of your idea is with a one-page sell sheet. This allows you to sell the benefit of your idea first, to see if there’s any interest. A one-page sell sheet has a picture of your product idea and its unique selling proposition title at the top. Consider hiring a graphic designer to help you, because it’s important that your marketing material looks professional.
You want the image of your product idea to look realistic and attractive, so consider using a 3-D computer-generated graphic rendering.
Please condense the big benefit of your idea into one simple sentence or phrase — this can be a very powerful tool to convey your idea quickly and why they might be interested in it.
Have a short promo video? Include a link to it in your sell sheet. The most effective promo videos are very simple: Show the problem for 15 seconds, then how your product idea is a solution for 45 seconds. You can make a promo video using your iPhone. This format — showing a problem and then the solution — is extremely popular in the As Seen On TV industry.
#4: Proof Of Concept
Building a prototype of your idea is extremely rewarding and exciting. It will allow you to determine what works and what doesn’t work. This information is extremely helpful later on once a company is interested! Building a prototype is also helpful when you’re filing intellectual property.
However, please keep in mind that prototyping can be expensive and time-consuming.
Personally, I prefer to sell the benefit of an idea first to see if there’s interest, then build a prototype.
#5: Companies That Embrace Open Innovation
To license a product, you need to find companies that want to work with us independent inventors. Companies, in other words, that embrace open innovation!
Which companies should you contact about licensing your idea? Start by identifying companies that sell similar ideas. You can do this by visiting retail stores and finding the shelves where your product idea would eventually land — the companies within that aisle are your potential licenses.
Reaching out to these companies can be accomplished in numerous ways. For example, you can contact their corporate customer service line and ask for someone in marketing or sales. Then, when you are connected with that person, ask them: Do you work with outside inventors? What is your process?
This is a direct approach that worked for me for years.
Today, you can also use LinkedIn to reach out to companies to see if they’re open for product submissions. I recommend connecting with people in the company’s sales or marketing department. Someone in new product development would be my third choice. Make sure your LinkedIn profile looks professional first.
Before you share your marketing material, ask about their policies. Then, ask for permission. If they have a submission agreement, read it very carefully to make sure you understand the terms.
One big tip? Make sure you’re reaching out to the right companies.
Companies that embrace open innovation have told me repeatedly that they receive many product submissions from inventors that do not fit their product line. When you do this, you are wasting your time and theirs.
Once a company begins reviewing your product submission, it will take time for them to get back to you. So, ask them about their policy — when can you expect to hear back — and please be patient.
#6: A Licensing Agreement
If they’re interested in your idea, you will move towards a licensing agreement. Of course, they’re going to have questions for you first. Questions such as, what have you filed in terms of intellectual property? Do you have prototypes? What are you looking for?
I highly recommend you work with someone who has experience licensing product ideas. Licensing agreements can be very complex. You want to make sure you’re answering each and every one of their questions correctly, because they are interviewing you as well as reviewing your product. You want to take away risk and give them confidence you are going to be an asset.
