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The Big Picture

The right licensing agreement can be the missing piece of the big-business puzzle.
November 1, 2003
URL: http://www.entrepreneur.com/article/65152

The Inventor:Marlene Carlson, 44, of Cokato, Minnesota

Product Description: Carlson's invention, Puzzle Toes, targets parents whose 3- to 6-year-olds have trouble putting their shoes on the correct feet. Puzzle Toes are shoes that feature a picture of a dinosaur-the right shoe has the dinosaur's front half while the left shoe has the dinosaur's back half. When children line up the picture, they know their shoes are on right. Licensed in 2002, the product sells in select Wal-Mart stores nationwide for a suggested retail price of $12.97.

Total Investment: $10,000 to $12,000 between 1994 and 2002

Sales: $1 million projected for 2003

The Challenge: Using a licensing agreement to get your product into a big retail chain store

Many inventors dream of getting their product into Wal-Mart-and Marlene Carlson is no exception. It may have taken her several years to achieve that goal, but she didn't let her lack of experience-or the fact that large retail chains often resist products from outsiders-hold her back. How did she do it?

Steps to Success
1. Obtain a strong patent. According to Mark Milliman, co-founder and COO of Quest Products Inc. in Libertyville, Illinois, the company that owns the Puzzle Toes trademark and licensed the patent from Carlson: "Carlson's patent was important in our decision to market the Puzzle Toes concept. We didn't want to go up against all the shoe companies without a patent, as they are just too big and too strong."

Carlson says her patent "is based on the position of the design [on the shoes] and covers the overlay of the image on the adjacent toe sections." Her utility patent is powerful, as its broad claim-"a method for adapting a child's pair of shoes to indicate to the child which shoe is for the left foot and which is for the right foot"-covers all types of images split on adjacent shoes and makes it hard for another company to introduce a competing shoe.

2. Get help from an industry expert. It pays to hire an industry professional, whether he or she is in R&D, engineering, marketing or sales, to push your product. For one thing, the arrangement cuts the expense of attending trade shows and industry events, since your industry supporter will already be going to the shows. Second, the profes-sional will know who the best contact is at each firm. And finally, an expert's endorsement encourages possible licensees to take a closer look at your product.

Carlson's story is similar to that of many successful inventors. "I had a few discussions with L.A. Gear about licensing my product in my initial marketing push," she says. Those negotiations fell through, but she ended up meeting David Cousin, who worked in product development for L.A. Gear at the time. "[He] thought my idea had potential, and he helped me throughout the process," Carlson says. "He negotiated to get samples made, talked about my product at trade shows, and looked for companies that might license the idea. It was Cousin who located Quest Products for me."

3. Keep your options open. After receiving her patent, Carlson made a big push over two years to get her product licensed. Despite initial interest, no one was ready to move ahead. Instead of giving up, Carlson explored other possibilities. "I looked at different options [for] having the shoes made by looking into a small company in the U.S. [that] could make them, and then buying shoes from overseas and having the dinosaur image silk-screened on the toes." Carlson considered selling the shoes herself to stores or at fairs, but she never was able to sell them in a big way on her own.

It took her a few years to do this research, but it helped: First, it encouraged her industry contact to keep looking for ways Carlson could get her product on the market. And second, it offered Carlson the opportunity to keep learning more about the industry, its costs, and the work involved in launching a product. This knowledge was very helpful when she finally negotiated a contract.

4. Be flexible. When Quest Products took on Puzzle Toes in July 2002, the company made several changes. "Quest changed the product design slightly and then responded to Wal-Mart's requests to add more of a design look," Carlson says. "Quest also changed the packaging, changed the colors, and came up with the packaging slogan 'Get it left and get it right.'"

Luckily, she avoided the common inventor's mistake of trying to control all the product's features as it goes into production. Companies have their own ideas, and they want to be able to change the product to give it the best chance at success. One thing all companies want to avoid is a stubborn inventor. In fact, companies often won't move ahead if they feel the inventor will vie for too much control.

HELP IS ON THE WAY
Log on to The Entrepreneur Network (http://tenonline.org) to find partners, collaborators or vendors that can help get your product to market. You'll find more than 100 individuals and companies to contact. The site includes companies looking for new ideas, contract manufacturers, software engineers, patent attorneys, business development consultants and venture capital firms. The service is free, and it's always smart to get two or three quotes, even if you have a preferred vendor. The site also features articles and other tips for new and experienced inventors.

Lessons Learned

1. Offer value-added features. The dinosaur image on the toes of the shoes adds value to the consumer, as it minimizes the problem of kids putting their shoes on the wrong feet. The best features add perceived value for little cost, increasing the profit per sale.

The right price-value relationship allows for a royalty between 2 and 7 percent (and even more). Since companies rarely make more than a 10 to 15 percent profit on sales, the royalty can add up to a significant percentage of sales. Companies can only afford to pay the royalty if your product can be sold at a high profit- that benefit comes from features that add value.

2. Don't jump to conclusions. There are lots of reasons (aside from the "not invented here" syndrome) why a company might overlook your product. Perhaps the company may already have more good ideas than it can introduce, or perhaps it's focusing on a different market from what the inventor has in mind. A company could also be limited in its ability to expand production, or it might have insufficient margins to pay an inventor a royalty. If a company turns you down, don't assume it doesn't like your product. There could be another reason, so don't let their lack of interest discourage you.

3. Timing is everything. Most companies will license a product under the right circumstances, which typically relate to its market position. For instance, a company might not have a product for a new application, or it may be at a market disadvantage due to a competitive product introduction. Perhaps several of its own new product ideas failed before introduction, and now it needs a new product to introduce. Maybe the company decided its product line was stagnating and needs new life from an outside source. Just because a company tells you "no" today doesn't mean it might not say "yes" in the future. So keep making those contacts, and keep approaching the same companies. Their situation will probably change, and a "no" just might become a "yes."

4. Expect a license to take much longer than you think. Most companies, like Quest Products, don't actively seek out new ideas. So if you want to license an idea, you usually need to find someone inside the company to support you, wait for that person to generate enough interest for a market feasibility study, have the engineering group review your design for safety and manufacturability, and finally negotiate a license. The entire process could take 12 to 18 months- even longer- be patient.

SITE FOR SORE EYES
First-time inventors are often overwhelmed by the complexity of marketing their ideas. One Web site worth checking out is Invention University (www.inventionuniversity.com). The site offers books, audio training and e-classes, and sells two patent software packages, Patent Hunter ($59) and Patent Wizard ($179). Two other sites are the United Inventors Association (www.uiausa.org) and Inventors' Digest magazine (www.inventorsdigest.com).

Don Debelak is author of Entrepreneur magazine's Start-Up Guide #1813, Bringing Your Product to Market. Write to him at dondebelak34@msn.com.