The First Two Questions Potential Licensees Will Ask

by | Oct 20, 2016

When a potential licensee is interested in your idea, the first two questions it is going to ask you are, “How do we make it?” and “How much is it going to cost?” So many products never see the light of day simply because they cannot be made at a competitive price point. It doesn’t matter how great the idea is. If it can’t compete price-wise, it’s a goner. It all comes down to profit. How much money are we going to make?

I experienced this reality firsthand when I developed a rotating label innovation for the packaging industry. Companies liked the idea, but eventually it became too expensive for them to manufacture. So they walked away. I had to find a way to produce the label more cheaply. It was as simple as that. If you are an inventor, you will save yourself a lot of heartache later on if you do a few simple things to educate yourself about manufacturing early on.

Because speed to market is so important, the strategies I teach my students these days are aimed at getting them to start submitting their ideas to potential licensees quickly. The way I look at it is: I want to know if companies are interested in my idea as soon as possible. At the end of the day, it’s their opinion that matters. I don’t want to spend too much of my own money. That’s the beauty of licensing. You don’t have to.

The step worth spending the most time on though, is studying the market. When I invent, I invent with the market in mind. An important element of studying the market is answering the questions I mentioned earlier. “Can it be made?” and “For how much?” Too many inventors invest in an idea that cannot be made. This is also the reason why most patents aren’t profitable.

When companies ask you about manufacturing methods and costs, they’re wondering, can we use existing equipment to do it? Will we have to create new molds? How much is it going to cost us? They’re also trying to determine how long it will take before they can ship. Is your idea price-competitive?

If you obtain this information yourself, you are in essence taking away risk and moving your project along faster.

So, how can you gain an understanding of manufacturing? If your innovation is very similar to other existing products in the marketplace, it can probably be made and you can even make a guess about how much. However, let’s call that what it is: An assumption.

One of the easiest ways of learning about manufacturing is by watching YouTube videos. There are so many videos about manufacturing. Enter in your search terms and start clicking away.

If your idea isn’t very simple and/or you simply want to know more, the smartest thing you can do is contact a contract manufacturer. To get the information you need, you will need to adopt the mindset of a detective. All of this information is out there, it’s not a mystery-but you may need to ask around to get what you need.

You could contact a contract manufacturer to give you a price quote if you have CAD drawings or a working prototype. I recommend choosing a contract manufacturer here in the United States as opposed to going overseas. Yes, the price per unit will be higher. You could also get an estimate from an engineering firm if you hired one to do your technical drawings. Make sure you work with a firm that has manufacturing experience, because you will want whomever you hire to factor in mass production.

To be clear, most of the ideas that come across my desk are slight modifications to existing products. When it comes to simple ideas, estimating manufacturing takes considerably less research. That’s one of the benefits of focusing on adding value to existing products.

However, if you have gone through the effort of contacting a contract manufacturer, providing a quote may save you time. Don’t expect the research you do to be final. Any company that licenses your idea will need to get its own quote based on volumes anticipated.

Different ideas have different needs. But you should always avoid making the mistake of failing to consider manufacturing when you invent.

Originally published on Inc.com September 11th 2015.

Author

  • Stephen Key

    Stephen Key is an award-winning inventor, renowned intellectual property strategist, lifelong entrepreneur, author, speaker, and columnist.
    Stephen has over 20 patents in his name and the d...