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Licensing Your Product

If you've got a fab product but need help selling it, look into licensing.
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This story appears in the October 2006 issue of Startups. Subscribe »

If you have a brilliant business idea that you want to launch quickly and profitably, consider licensing your idea to an established company. But don't take it lightly--licensing can be complex.

First, make sure your creation is proprietary. "If you have a patent [or are in the patenting process], or you have some other way of making it exclusive, then your course [toward] licensing will look a little better," says Richard Stim, author of Profit From Your Idea: How to Make Smart Licensing Deals, and an attorney specializing in licensing and intellectual property. Check out the U.S. Patent and Trademark Office and PatentCafe for information on patenting your idea.

Ask an attorney for help with nondisclosure agreements and getting attorneys fees and other provisions in the contract, so you have recourse if the deal sours. "Educate yourself as much as possible," says Stim, "and whenever you have questions, take those questions to an attorney you trust."

Before you seek out licensing partners, though, learn your industry standards--and what percentages you can expect from the final product sales. Research potential licensing partners, and have your radar on for anything fishy.

Tim Kehoe, 36, a born inventor with tons of toy ideas, brought Zubbles, a colored bubble-making formula, to trusted and established companies. With a background in creating products for large toy manufacturers like Hasbro and Mattel, he knew his colored bubbles would be a hit--and in 2004, he convinced his former employers Guy Haddleton and Sue Strother, both 51, to launch Ascadia Inc. with him. Kehoe used his network of toy-industry contacts to reach potential licensees.

So far, St. Paul, Minnesota-based Ascadia has licensed to toy companies and consumer product and industrial companies, pushing 2006 sales projections into the seven figures. "Carving out the specific areas, territories and rights that [each licensee has] so you don't step on future licensing deals was tricky," says Kehoe. He cautions other entrepreneurs to be patient, as many licensing deals take longer than anticipated. Just settle in with lots of research and a good lawyer to make your licensing deal as sweet as possible.

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