A Quick Guide To Licensing Your Big Ideas

Do you have a lot of great ideas but aren't sure what to do with them? Licensing your ideas is a great way to collaborate with other companies, build relationships and make money at the same time.

Great ideas seduce and mystify, sometimes seeming to appear out of thin air. They bewitch those around them, captivating their audience with the power of their potential. Do you recognize a great idea when you hear one or have one? Entrepreneurs build their success on this very ability and seek out employees who bring unique ideas to the table. But too few innovators and business leaders realize it’s possible to benefit from an idea far beyond its application in their own businesses. In fact, it’s possible to profit from a great idea without ever using it.

That’s because an increasing number of companies understand and respect that great ideas can come from anywhere--and anyone. They believe that the benefits of collaboration outweigh the possible risks. And as a result, they’ve begun to seek out ideas generated outside of their own four walls actively and eagerly.

The most talented creators and innovators can’t all work in the same research and development department, can they?

Do you have an innovative technology you’ve dreamed up and think belongs in the market? Maybe you’re already using it in your business. Either way, licensing ideas can benefit your business in countless ways by providing secondary sources of revenue and establishing mutually beneficial relationships with other industry players.

The shift in corporate culture towards open innovation has made it easier than ever to show your ideas to the most powerful and influential companies in the world. These companies want your ideas--here’s how to license them so everyone benefits.

Harness the Power of Open Innovation
Why wouldn’t companies want your ideas? Licensing allows businesses to lower their internal R&D costs while simultaneously expanding their exposure to potentially valuable new ideas. Proctor & Gamble saus half of its new product initiatives involve “significant collaboration with those outside our walls” on their Connect + Develop homepage, including partnerships with “small companies… and individual inventors.” They’ve joined thousands of other progressive corporations around the world who have begun to rely on open innovation to get ahead.

So, what is licensing? In essence, it’s the renting of an idea. Develop ideas that offer a clear benefit to the consumer, often by improving upon existing products. Then protect those ideas and begin showing them to companies that might be interested. If one of these companies likes an idea, the company will agree to license it under a very specific agreed-upon set of conditions. The company will pay royalties in exchange for the right to use the idea, and the more successful the idea is in the market, the more the company will pay. Some novelty gift ideas I’ve had that sold for just one holiday season earned me as much as $10,000. Other ideas, like the Michael Jordan Wall Ball, continued to generate revenue ten years after my first paycheck.

It doesn’t take much to license an idea. Licensing is an ideal venture for today’s fast-paced economy because any business can start licensing its ideas with little more than a cell phone and a computer. Unlike a traditional startup, you don’t need to raise capital to start licensing ideas. Licensing ideas won’t distract or detract from your business’s primary responsibilities because it’s low-risk and undemanding. And better yet, licensing an idea to another company is an excellent way to establish a relationship with that company--and in turn, increase your business’ visibility and perceived legitimacy.

To license an idea successfully, commitment, drive, and imaginative problem solving are needed.

Cultivate a Culture of Creativity
The more comfortable your business becomes with licensing ideas, the easier the process will be.

Institutionalize procedures to review ideas and develop a set of criteria to determine if a new idea shares qualities with successfully licensed products. Create an avenue for employees to share their ideas. Innovation separates good companies from great ones--we have only to look at Apple for evidence.

The best way to start producing winning product ideas is to look for opportunities in the market. What have dominant industry producers overlooked or missed? Where are the sleeping dinosaurs? Some products haven’t been improved for years, or even decades. That’s why businesses are uniquely posed to be great licensors. They have an intimate perspective about how and what other business’ can benefit from. Inventing in the dark doesn’t work. However, avoid markets that are saturated with new product ideas.

Establish Ownership
Protect your ideas before showing them to potential licensees by filing a provisional patent application. Unlike filing for a patent, you can file for a PPA for $125. A PPA protects your idea for twelve months, a period during which you can legally label your product as “patent pending.” There are great software programs available to help you, such as PatentWizard or PatentEase. Use your year to determine if there’s legitimate interest in your idea, and to decide if the idea is worth patenting--or better yet, you might be able to get a licensor to agree to pay for your future patents.

Pick Up The Phone
Start calling companies. There’s no better way to learn about what sells and what doesn’t. Too many innovators become paralyzed by fear and indecision, and fail to even begin contacting potential licensors. I need more time to prepare, they think. You really don’t. What you do need is to determine the most effective and efficient way of describing the problem your product idea solves, and how it solves it. This can often be accomplished with nothing more than a simple sell sheet. The key is focusing on selling the benefit of ideas in creative and unique--but not expensive or elaborate--ways. Create a YouTube video, conduct a small initial product, or have CAD drawings rendered.

Get Them To Say Yes
Successful ideas take away as much risk as possible for the licensee, making the decision to license the idea easy. Companies do not want to license ideas they consider risky. But some ideas are just too new or too innovative to be licensed. That doesn’t mean you should automatically walk away from them. Some of the most lucrative ideas have to be fought for.

Years ago, I had an idea for a rotating labeling technology after reading a newspaper article that described the problematic lack of packaging space on medicine bottles. The technology I invented added 75% more space to each label. I knew it was a good idea, and other companies agreed with me, but ultimately it was too expensive to manufacture at the time. Even though hundreds of millions of labels were sold, the price was too high and my licensing agreements were canceled.

A decade later, I’ve been able to reduce costs with different label constructions, and Spinformation is now being applied to a product called Accudial. It won an Edison Award in 2011, and is hitting pharmacies across the country soon.

If you’ve ever thought, “I’ve got a great idea,” or “I could improve that product,” consider licensing it.

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[Image: Flickr user Josh Kenzer]

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18 Comments

  • Stephen M Key

    Renee,
    Yes, i believe the provisional patent application is one of the greatest tools the little guy has to compete with the big guys. It helps to level the playing field.

    Angel,
    Your welcome!

    Eric,
    Yes, you have a lot to offer to companies and it's not hard to get a hold of people that you can show your ideas to. It may not be a piece of cake to close a deal, however it's not nearly as hard to get in front of companies as people think.

    Gene,
    Thanks

    Steve G,
    Sounds like you are making an effort to move forward. Just make sure you follow through with all your potential licensees and get feedback. Feedback can be like gold. Find the problems.. "if any" and fix them.

    Griffin,
    You can patent some novelty products, but the question is ... is it worth spending the money if the idea is going to sell a limited number of units as many novelties do? Novelty companies depend on your ideas. Many don't have people inside the companies dreaming up new ideas. So they love it when you come to them with new ideas and they only have to pay you if they want to use them. You are their free R&D department! Why would they want to rip you off? The word may get out and people won't want to present them any new ideas.

  • Renee C Quinn

    Great article Stephen.  I think what is scary to many is that a lot of companies seeking new innovations have disclaimers on their websites that they do not accept confidential submissions of ideas and innovations.  Companies such as 3M, Apple, P & G, to name a few.  Suggesting that inventors at least file a provisional patent application is a great way to help eleviate some of those fears.  Thanks for the great article!

  • Eric

    Thanks Stephen! Great article as always. The biggest takeaway I get is that it's easier than you think to get a hold of a company. 

    A thing I struggled with was "why would these brands want to hear from me?" But once I understood the value that independent developers offer brands, it made approaching them MUCH easier.

  • Gene Quinn

    Stephen-

    Great article. I particularly like the part about how important it is to take risk away from licensees. The quickest way to get to "yes" in a deal is to remove worry that the product won't sell. Keep up the great work.

  • Steve Grealy

    Hi Stephen, Great article. It seems to make it idea of licensing a great deal simpler than I imagined.
    I have shopped my patented idea around to all the companies i have been able to find.
    But, alas, to no joy yet.
    Thanks for keeping me optimistic.
    Indiegogo will be my next foray into gaining some exposure.

    cheers
    Steve Grealy

  • Griffin

    I remember Stephen Key saying that novelty products usually cannot be patented.  If this is the case, how can one get a novelty item licensed? If I contact a company about my idea with no provisional patent, what stops them from taking my idea without paying me? I know Stephen, you have licensed novelty products before so if you read this, I would appreciate a response.  Thanks!

  • Stephen Key

    It's really simple. The toy and novelty industry is a fashion industry. Items go in and out so quickly. You basically don't need any patent protection. These industries have been working with independent inventors/product developers for many year. The best approach is to establish a relationship with a company, find out their policy for submitting ideas to them. Every situation is different so find out their requirements. I have licensed more ideas without patents than with.

  • JosephRatliff

    A great book written by Stephen Key on this very subject... One Simple Idea.  It talks about everything he's written about here, and a LOT more.

    Great article... and an even more impressive book.

  • Tim Bickers

    Really interesting content. I'd like to see more on this? Are you going to do a series or something? Give me more!

  • Stephen M Key

    Tim,

    Thanks for the positive feedback.

    I'll write as much as the folks at Fast Company ask me to.