Apply now to be an Entrepreneur 360™ company. Let us tell the world your success story. Get Started »
Not everyone has the courage to take their idea to market all by themselves. The reason could be lack of capital, timing, deficiency in a needed skill, or simply not having the kind of personality to take on such a challenge. Whatever the reason, there is still a way to realize the fruits of your great idea: Sell it to someone who can make it a reality.
There are pros and cons to selling your idea. On the pro side, selling your idea means someone else will be using his or her resources to make your idea a success. An experienced licensee can see the strengths and weaknesses of your idea that you may not be aware of, such as a market or distribution issue you may not have considered. You might also see faster monetary rewards--the right purchaser can get your idea to market more quickly than you can.
On the con side, your control over your idea is reduced, if not eliminated altogether. You will need to work harder to protect your interests (by hiring attorneys and consultants, for instance). You may become frustrated if qualified buyers turn you down for what seems like no good reason. This rejection can be paralyzing. And finally, you may sell your idea only to find the buyer does not effectively develop or market it.
An important point to remember is that the value you place on your great idea (even after taking into consideration all the things you learned in last month's column about building an idea's value) will probably be higher than the value any third party puts on it. The reason is clear: A buyer wants to get your idea at the least possible cost. Hence, he or she will look more skeptically at the sales prospects, the profit potential and the benefits associated with your idea.
Your best offense is to be prepared. Know the facts, and have backup materials, such as research, surveys and consultants' reports, to support your position.
In selecting potential licensees or buyers for your idea, look for people with knowledge of your product's market and the companies that serve it. It makes the most sense to approach people who have experience and resources in the appropriate industry. At the very least, these buyers will have a shorter learning curve than others and will have valuable contacts.
Don't overlook approaching the competition; they may know more than you about the market you're trying to enter. Competitors have the expertise to get the product manufactured and sold, and they're familiar with the best distribution channels.
The downside to approaching the competition is that they could use the information you give them against you. It is imperative that your idea have strong protection, such as a patent, and that you have a keen sense of how your competitors conduct business before approaching them.
Choose Your Target
There are a number of ways to find potential buyers. Industry trade shows, inventor exhibits and inventor organizations can be of great help. The most underutilized resource, however, is the public library.
Most libraries have databases, reference materials, articles and listings of companies in your state as well as nationwide. Many libraries also keep on file the annual reports of publicly held companies. An annual report gives you all kinds of insight into the company. For example, many times it will list product lines, state a growth strategy including new products and markets, and identify markets to be abandoned.
The following publications can be found in most major libraries and offer all kinds of statistics on companies that could be potential buyers of your idea:
- Thomas Register of American Manufacturers
- Dun & Bradstreet: Million Dollar Directory
- Standard & Poor's Register of Corporations, Directors and Executives
- Moody's Industrial Manual
- Hendrick's Commercial Register of the United States
- Bacon's Magazine Directory
- Bacon's Newspaper Directory
- Business Periodicals Index
- Applied Science & Technology Index
- Standard Directory of Advertisers
Once you have identified those companies likely to have the expertise to get your product manufactured, the next step is to determine their receptiveness to purchasing ideas from individuals. You need answers to these questions:
Does the company have a history of buying or licensing new products from individuals?
Does the company have a history of stealing ideas from inventors?
Does the company have existing products your idea can complement?
Does your idea fit with the company's product lines?
Has this company recently introduced a new product similar to yours, which it needs to protect?
Does the company have the necessary tools and work force to efficiently design, build and sell your idea?
You will have gotten the answers to some of these questions through the research you've already gathered. If a company is publicly traded, information on license agreements and litigation can be obtained through the company's required financial filings and annual reports. Additional information can be obtained through the Better Business Bureau, a Dun & Bradstreet Business Information Report or by having an attorney conduct a litigation search on the company.
Find out as much as you can about the financial condition of the prospective company. You need to know if it's going to be around to market the product and pay you what you're owed. This is a difficult task, especially if it's privately owned. Search the Web or visit the library to research articles about the company. Talk to the company's sales representatives, suppliers or customers to get a feel for the company.
If you discover something negative about the company's financial situation, this isn't necessarily a bad thing. A company in a financial crunch can still be a good licensee if it sees your idea as a way to save the company.
Like any sales call, approaching a target company can be intimidating. You must, however, take this step if you are ever to sell your idea. There are a couple of ways to do it. You can send a letter or proposal to a high-ranking executive to introduce yourself and your idea. You can call the company and try to set up a meeting with an executive directly. You can use contacts your friends, family and business associates might have. Or, you can have your attorney act as your agent and contact the company on your behalf.
There is no one right way to contact a company. Creativity and persistence definitely pay off. However you choose to do it, be prepared to describe your idea in a way that grabs the prospect's interest, without telling him or her exactly what you have. (You don't want to give too much away prior to the in-person meeting.)
If you have a patent on your idea, you can feel a lot more comfortable divulging information about it to a prospect. Prior research on the company should give you some level of assurance that the company will not rip you off. Remember, if you're afraid the company will steal your idea, you probably shouldn't contact it.
When you do get through to the company, try a classic sales hook to get the prospect's attention. If, for example, your idea can reduce the company's manufacturing costs, say something like this: "Are you interested in reducing your manufacturing costs by XX percent? I have developed a process that will do just that, and I would like to offer it to you and your company. . . ."
Many companies will not sign con-fidentiality, nondisclosure or noncompete agreements before reviewing an invention. I don't, for the simple reason that I don't want to back myself into a corner. Many people contact me with ideas for hair accessories. I may have already thought of the same idea and be in the process of bringing it to market. If I signed their agreement, I would be unable to continue with my plans.
This position is not uncommon. Many companies have research and development departments with full-time employees thinking up new ideas. They would not sign such an agreement for fear of losing their investment. It's best to have patents filed or some kind of protection for your idea before sharing it with companies that have such a policy.
Some companies have a policy of refusing to look at ideas from individuals, whether you call, write or visit. To get through to these companies, you'll probably have to use your network of contacts to find someone who has an "in" with a company executive. Other companies simply do not want to be approached by individual inventors. You'll soon recognize who they are, and if you choose to approach them anyway, know when you've outworn your welcome.
I suggest contacting more than one company at a time. That way, you have several poles in the water, so to speak. If you're lucky, you may be able to choose between two or more attractive offers.
Think of this process as you would any sale. You may not receive any positive responses at first, but don't get discouraged. Be persistent, and your efforts will pay off.
Tomima Edmark is the inventor of the TopsyTail, the Kissing Machine and several other products, and is author of The American Dream Fact Pack ($49.95), available by calling (800) 558-6779. Write to her with any questions you may have regarding inventions and patents in care of "Bright Ideas," Entrepreneur, 2392 Morse Ave., Irvine, CA 92614.