Licensing Your Invention vs. Going Into Business

A Comparison

It can also help to do a side-by-side comparison of the steps involved for each option: running your own business vs. licensing your idea. It's useful to understand exactly how much work defines each option in order to conclude if they're tasks you're willing (and eager) to take. Below is a partial list of steps you'll need to take when pursuing each path.

Administrative Going into business:

  • Set up corporate structure
  • Set up accounting/books
  • Business tax preparation
  • Get general and product liability insurance
  • UCC registration (barcode)

Licensing your invention:

  • Set up corporate structure (optional)
  • Keep records of expenses

Product Development
Going into business:

  • Develop:
    • Product design and engineering drawings
    • Presentation prototype
    • Working prototype
    • Injection mold or pattern
  • Manufacture product
  • Customs and shipping

Licensing your invention:

  • Develop:
    • Basic design
    • Descriptive drawing
    • Presentation prototype

Going into business:

  • Packaging design
  • Advertising
  • Public relations
  • Sales brochures
  • Website creation and maintenance
  • Product pricing
  • Modify packaging and product presentation

Licensing your invention:

  • Develop sell sheet

Going into business:

  • Sales planning
  • Sell to end customers
  • Sales calls to retailers (hundreds to thousands)
  • Recruit and support sales representatives

Licensing your invention:

  • Research and identify potential licensors
  • Write introduction letter
  • Contact potential licensors (10 to 50)

Going into business:

  • Warehousing
  • Inventory management
  • Shipping

Licensing your invention:

Going into business:

  • Get patent, copyright, trademark
  • Handle contracts
  • Resolve disputes

Licensing your invention:

  • Get patent, copyright, trademark (optional but advisable)

Financial Risk
Going into business:

  • High cost
  • About $20,000 to $250,000 over time
  • Risk of business failure

Licensing your invention:

  • Low cost
  • About $200 to $15,000 (depending on patenting and prototyping decisions)
  • No interested partners

Financial Gain
oing into business:

  • 40 percent to 100+ percent on sales

Licensing your invention:

  • 2 percent to 5 percent on sales

Time Horizon
Going into business:

  • Two to five years to reach profitable market

Licensing your invention:

  • One month to possibly no profitable market

Ask the Experts
After evaluating each possible path yourself, I recommend getting some expert support to help make your decision. Consult a trusted friend or relative who has analytic and business experience, or take advantage of free resources such as the local Small Business Development Center of the U.S. Small Business Administration ( ), your local SCORE (Service Corps of Retired Executives) chapter ( ), or another professional business support group. These groups offer free consulting sessions with experienced business advisors. Another valuable tool that can help is the One Page Business Plan workbook by Jim Horan (download a free template at ). Or check out Entrepreneur's "How to Build a Business Plan " guide.

Taking a product from concept to market is an enormous commitment of time, energy and money. Of course, if successful, the financial rewards and personal gratification can be well worth the effort.

On the other hand, you may not have the time, financial resources or personal interest for setting up a full-fledged business. Perhaps you love developing ideas--but not the prospect of all the sales, marketing and administrative work that goes with it. If so, the licensing route may be the best direction for your invention. Ultimately, only you can decide--with the help of experts in your field. Consider and analyze each option carefully, and best of luck!

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Your Million Dollar Dream: Regain Control & Be Your Own Boss Tamara Monosoff is the author of Your Million Dollar Dream: Regain Control & Be Your Own Boss and The Mom Inventors Handbook, Secrets of Millionaire Moms, and co-author of The One Page Business Plan for Women in Business. She is also the and CEO of Connect on Twitter: @mominventors and on Facebook:

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