The first step towards a licensing deal is finding the right companies to approach. This is harder than you might think, as the biggest names in your target market may be the least likely to want your idea. The second step is approaching companies in the right way. This is relatively straightforward if you follow our advice, which takes you from initial contact to your first meeting and its aftermath.
This Project, together with Project 10, also helps you avoid a fundamental mistake many inventors make. They don’t fully grasp that what matters most to companies - even technology companies - is profit potential. Not inventive steps, not clever design, not smartypants concepts. Profit, profit, profit.
Are you ready for this?
Before approaching any company you must be confident that you and your idea or product are in a presentable state. You obviously can’t get much better than showing companies a product that you’re already making and selling, but few inventors will be in that position. Discuss your overall state of readiness with your team or a trusted adviser, and check that you’re OK on all of these:
Knowing which companies to approach isn’t easy without expert knowledge of your target market - but by now of course, that’s just what you should have. If you don’t have that knowledge, you’re probably not ready to present your idea to anyone. Inventors who haven’t read this book will probably think only of a few big-name companies and will flounder once they’ve had rejections from all of them. In fact, we’d suggest that you don’t initially approach market leaders at all. Here’s why:
From your market research you should know which companies operate in your target market, and how they rank in terms of product range, market share, size and turnover. Though there may appear to be a great many eligible companies - especially if you’re willing to cast your net internationally, as is increasingly necessary - the likelihood is that after analysing the available information about them, your choice of worthwhile firms to approach will shrink considerably. It may be reduced to no more than a few dozen for a low technology product and perhaps only a handful worldwide for a highly specialised product.
However: the fewer companies there are to approach, the higher the chances of 100 per cent rejection. If that happens and your faith in your product is undiminished, it may be time to start thinking seriously about switching from a licensing to an entrepreneurial strategy.
No matter how well you’ve researched your target market, others may know it better - and there’s a good chance that one or more of them will be able to help you. If you’re having trouble finding companies to approach, ask your patent attorney (it’s not really their thing but they might just know a name or two) or seek advice from all the public sector business, innovation or technology support agencies in your area, or in areas known to specialise in technologies appropriate to your product. We know of several inventors who got openings by talking to advisers who took them straight to companies whose owners or managers they knew personally. Many business support agencies can also help you deal with companies and agencies elsewhere in the EU and often far beyond. In general, if you can demonstrate that you’re worth helping and don’t need carrying every inch of the way, you’ll probably find someone willing to go that extra mile for you.
You can of course also get help from private companies and consultants. This inevitably comes at a price, and it can be difficult to know in advance whether you’ll get value for money. Our advice would be to ‘go private’ only as a last resort. If you do need to use commercial resources, find out if you can get any of the cost covered by a grant or subsidy scheme.
One company, or more?
Most inventors dream of one large company offering them a licensing package that leaves them with nothing to do except collect royalties. It can and does happen, but rarely. In most industry sectors companies are becoming more specialised, with large companies tending to become clusters of smaller, autonomous divisions which in turn often license in the products they sell from other companies. This spreads the trading risk and protects the core business if markets suddenly contract, but from an inventor’s point of view it makes a single, all-encompassing licensing deal a much remoter prospect.
A possible solution is for you to play at least a partial entrepreneurial role to help speed up the licensing process. You may find that some companies want to sell your product but not manufacture it, while companies which can manufacture it won’t move a muscle without firm orders from retailers or distributors. If you can’t find one company capable of both making and selling your product, you may have to find two or more: one willing to manufacture, at least one other willing to buy. Your mission is then to win orders at the right price from the one(s) willing to buy, which you then take to the company willing to manufacture. As long as you build in enough profit for yourself, becoming part of the supply chain can be a highly profitable way of both exploiting and controlling your product.
If you put out enough feelers - mailshots, emails, media releases, glad-handing at trade shows - you may be contacted by some company you’ve never heard of, wildly enthusiastic about your product and eager to talk business. Be instantly suspicious. If you’ve so far had nothing but rejections and indifference this may seem like finding water in a desert. It’s much more likely though to be an invention promotion scam, as a genuinely interested company will be much more guarded in its initial approaches. Resist any pressure to respond quickly and take plenty of time to check them out. For example:
Often, the most frustrating aspect of dealing with companies is getting them to take notice of you in the first place. The following pointers may help when you start contacting companies to tell them about your product.
Write a brief summary of your idea - no more than three or four paragraphs on one side of A4. Don’t disclose more detail than is needed to convey its key commercial benefits. Your aim at this stage is to whet their appetite, not overload them with information that in its sheer quantity tells them you’re unbusinesslike. Use plain English and plain facts, arranged as bullet-points for clarity and brevity. Use the language of business, not of advertising. (For example, instead of: ‘It’ll make you millions!’ say: ‘It may have the potential to increase your sales significantly’.) End with your name and contact details. If you have a finished product and a photo of it will save a lot of written description, attach one. Otherwise, don’t bother.
If you’ve filed a patent application you can mention that fact, but don’t disclose any detail unless your application is already published. Until then it’s privileged information that you should only discuss (protected by NDA) with a potential stakeholder if they show serious interest.
Send a copy of the summary to each company on your list, with a short covering letter along these lines:
I attach brief details of a novel mousetrap which is available to license and may be of interest to your company. A working prototype is available which I shall be delighted to demonstrate subject to suitable mutual arrangements regarding confidentiality. To this end I enclose a non disclosure agreement which I hope you may be able to sign.
I can attend a meeting at fairly short notice. Should you require any further information, please contact me. I look forward to hearing from you.
Don’t forget to enclose the NDA!
If you get invited in, confirm the date and time in writing. To recap briefly on points made in Project 4:
The following checklist is partly an action planner and partly a reminder of what matters. If you’re tempted to think ‘I don’t need to do all this stuff’, it may help to point out that we’ve modeled the checklist on questions professionals are very likely to ask if you want their advice, support or money. We therefore have to be stern and say that if you aim to be a respected and successful inventor, you can’t afford to duck any of it.