Taking License

This story appears in the October 1998 issue of Startups. Subscribe »

Got a great idea??? but don't have the time, energy, experience or resources to manufacture and market it? Don't give up. Another option is to find a manufacturer who will license your idea. This way, you get a royalty without having to do any additional work to promote, manufacture or sell the product. Licensing can be ideal if you're the type who prefers to keep inventing rather than actually run a company.

I'm often asked "How do manufacturers decide what products to license?" There's no one answer to this question; manufacturers license products for a variety of reasons. However, John Lisle, president of Clarinda, Iowa-based Lisle Corp., a manufacturer of specialty automotive products, offers some insights.

Unfortunately, most manufacturers don't actively seek out inventions, nor do they bend over backward to treat inventors fairly. Lisle Corp. takes a different approach: The company actively seeks out inventions, has a formal invention submission program that attracts around 600 to 700 applications per year, and launches six to 10 new licensed products annually. In general, Lisle pays a royalty to inventors on 25 percent to 30 percent of the 300 or so products his company sells.

What They Want

Why do manufacturers like Lisle look for products to license? Often, it's because inventors provide new approaches to common problems that others in the industry can't solve. For example, a frequent problem for mechanics is that the "hood shock," which holds open a car's hood, has pneumatic seals that often fail with use. When that happens, mechanics typically resort to makeshift devices like a steel rod to hold up the hood. Dissatisfied with this solution, mechanic Fred Fink of Huntington, New York, invented a simple clamp with an adjustable screw that attaches to the hood shock and holds it in place. Fink's concept was a new solution to a longtime problem.

Similarly, when I worked with a dental products manufacturer, we kept a list of products on the market that didn't adequately solve our customers' problems. This didn't mean we had better solutions in mind, but it did mean we were willing to listen to inventors who claimed to have innovative solutions to those problems. Manufacturers are also likely to consider product categories in which there's been little change for several years.

Lisle considers several other criteria when evaluating a product for possible licensing:

• How difficult is it to solve the problem?

• How good are competing products on the market?

• Can the product sell at least 3,000 to 4,000 units per year?

• Does the potential sales volume justify the cost of tooling?

• Can the product be made and sold at a reasonable price?

• Will the product operate reliably for consumers?

The first two criteria are the most important for Lisle. The last four can often be worked out if an invention addresses a difficult problem and if competitive products don't provide an effective solution.

How They Want It

Do you need a finished product in hand to approach manufacturers about licensing? That depends. Lisle accepts inventions in most stages of development, from drawings to products that are already on the market. In fact, he actually prefers to get products that aren't yet on the market, since his engineers perform quality and cost engineering on all products prior to manufacturing.

Lisle is willing to accept unfinished products because he has the engineering resources to devote to perfecting each accepted idea. This isn't the case for manufacturing companies that don't have an aggressive licensing strategy. Such companies typically don't have extra engineering time available or won't devote it to an inventor's product. If you're approaching a company of this type, you'll need to finish developing your invention before you show it to them.

Patent Protection

Should you patent your product before approaching manufacturers about licensing? Look at it this way: Since Lisle relies on inventors for much of his product lines, he goes to great lengths to treat them fairly. But not all companies do, and without a patent, you risk losing your idea unless you have the manufacturing company sign a Statement of Confidentiality and Non-Use.

Lisle will look at both patented and nonpatented ideas. If an idea is not patented, Lisle may choose to patent it if the idea is unique and innovative, but he also pays a royalty on ideas neither he nor the inventor has patented.

Typically, Lisle pays royalties of 3 percent of net sales for nonpatented ideas and 5 percent of net sales for patented inventions. Often, he splits the royalty between two or more inventors who have submitted the same idea.

Getting in the door to explain your product idea to manufacturers is a challenge. To improve your odds, take Lisle's advice: Emphasize that your idea is a new approach to a well-known problem. Not all manufacturers will want to work with you, but you'll have greater success setting up appointments with them if you tailor your approach to manufacturers' needs.

Starting Points

Q: I'm a housewife who gets ideas all the time. I've never done anything with my ideas, but now I have one that everyone tells me is just great. Do I have any chance of succeeding?

A: As this month's column points out, companies and markets are open to novel ideas that clearly provide a better solution. If the idea is right for the market, it doesn't matter who the inventor is. To get started, follow these steps:

1. Draw your invention. Don't expect people to fully understand your idea from a verbal description.

2. Produce a rough ad layout. This should clearly explain why people will purchase your invention.

3. Decide who can help you sell your idea. Consider manufacturers' sales representatives, distributors or others involved in the market you want to penetrate.

4. Use your personal network. Ask everyone you know if they have any contacts in that market.

5. Once you find people, ask them to meet with you. If you want to market the idea yourself, ask if they believe your idea will sell and what steps they recommend you take next. If you want to license the product, ask the people who like the idea if they are interested in being partners with you.

If your product is as innovative as you indicate, people will go out of their way to help you. Of course, this all requires hard work on your part. But the fact is, anyone can introduce a product--as long as they keep pushing until they succeed.

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Don Debelak, author of Bringing Your Product to Market (John Wiley & Sons, $19.95, 800-225-5945), is a marketing consultant specializing in bringing new products to market.

Contact Source

Lisle Corp., (712) 542-5101, fax: (712) 542-6591