Licensing Your Idea

Developing a product or engineering concept is a complex process. Licensing it to someone else is not straightforward or accomplished easily. For a licensee to see any value in your invention, you must first see that value yourself. Then use that information to convince your target organization to license it from you. Below are a list of steps to take to prepare to pursue that path.

  • Describe the problem to solve or the "job to be done."
    • What is the problem that the customer is experiencing? Talk about the canyon, not your bridge across it.
  • Quantify the approximate size of the market.
    • How many products of your category are sold in the market each year?
    • What is the average sale price?
      • Multiply the two numbers. That is your market size.
      • Consider what percentage of that market your concept is likely to garner.
      • Is it a game-changer that causes every player to rethink their product lines, or is it a niche product?
      • Estimate how much of the market your licensee is likely to get.
  • Identify the direct and indirect competitors.
    • No product or service is without competition for your customer’s time and money. Some compete indirectly, but both direct and indirect competition will still affect how many people buy your product. Understand the competitor's strengths and weaknesses. Be ready to show a prospective licensee that you understand the market.
  • Write a value proposition.
    • FOR (target customer), WHO HAS (need statement), (product/brand name) IS A (market category) THAT (key benefit statement/compelling reason to buy). UNLIKE (primary competitor alternatives), THE PRODUCT (unique differentiation statement).
      • This is the basis of your elevator pitch.
  • Test the idea with 10–30 people who have the problem you are solving.
    • Ask the stakeholder what solving the problem is worth to them.
    • If you are comfortable, show them a sketch of what it might look like.
    • Are they enthused or are they indifferent?
    • When you mention a price does their body language change?
  • Understand the patents that may apply to your concept.
    • Perform searches to explore the patents that relate to your concept.
    • Establish how you will not infringe on the patents that relate to your concept.
  • Develop a presentation that is convincing to a potential licensee.
    • A napkin sketch is worth very little. A fully developed concept that shows how it works, how it looks and how the customer uses it is worth far more. If possible, show how it is assembled.
  • Find out if licensing is something your target industry does.
    • Figure out if the industry has a history of licensing.
      • Heavy equipment manufacturing? Extremely unlikely.
      • Toys? All the time.
      • Hand tools? Sometimes.
    • Find out the likely royalty payments and the usual terms.
  • Know the industry well enough to understand how customers make buying decisions.
    • Target those factors in the development of your concept.
  • Figure out your likely annual payments.
    • ​​​​​​​Multiply the royalties in use in that industry by the range of possible sales volumes from earlier in this list.
    • Consider the concept development cost as investments toward these returns.
    • Are you still motivated?

If you wish to pursue licensing once you have completed these steps, reach out to the decision makers in your target industry. These people are frequently targeted by many people who are also trying to have their invention licensed. A simple phone call or email is unlikely to succeed in getting their attention. A comprehensive marketing campaign is usually required that emphasizes building a relationship with that person.

Bear in mind that your chief competitor for usage of your idea is the internal R&D team for that target company. In many cases teams have considered and rejected a similar concept. Another challenge is that the internal team may be considering something similar, so looking at your idea may expose them to risk of liability if they were to bring their concept to market.

We recommend that you deeply understand the market and the competition before you approach any target company. You will be much more able to make your argument and that case you make will be more powerful than simply focusing on the technology. This study of the competition will also help you estimate what revenue the company is likely to derive from selling a product that incorporates your idea.

The biggest single way to demonstrate the viability of your idea is to build a working version of it.