Written by Craig Whitcomb
Before starting the inventing process, it’s important to think about which option is best for you: license your invention or create a business startup. Both options have pros and cons, to consider and Remarkable Venture can help you with either choice.
Licensing Your Invention: Licensing your invention means that you grant another company the right to use, manufacture, and sell your product or technology in exchange for a royalty or other compensation. Here are some things to consider if you are thinking about licensing.
Lower Risk
Licensing can be a lower risk option as you don’t need to invest the same time, effort and money that’s needed to start and run a new business. You can focus on perfecting your invention and leave the commercialization to the licensee.
Limited Control
Licensing means that you are giving control of your invention to someone else, so you may not have as much say in how it is marketed or produced. If you can separate yourself from the invention when the time comes, licensing may be right for you.
Less Profit Potential
Lower risk, expense and time investment means you will likely receive less profit per unit sold through licensing, as the licensee will take a portion of the sales revenue. To put this in perspective an example target profit margin for retail can be around 20% to 30% while licensing may be as low as 3% to 5%.
Leveraging Established Companies
Licensing to established companies means they have distribution channels and marketing strategies in place for your invention. This can be an advantage over a start-up due to the volume of sales they can provide up front.
Creating a Business Startup: Starting your own business involves creating a company to manufacture and sell your product or technology. Here are some things to consider if you are thinking about starting a business.
Higher Risk
A business startup can be a high-risk option as you will need to invest significant time, effort and money in the business. You will need to create a business plan, secure funding, and manage the day-to-day operations for the life of your business.
More Control
Starting your own business gives you complete control over your invention, from how it is marketed to how it is produced and distributed.
Higher Profit Potential
You have the potential to make more profit per unit sold if you start your own business, as you will receive all the revenue from sales.
Factors to Consider: When deciding whether to license your invention or start a business, you should consider the following factors.
Your resources
Starting a business can require significant financial resources and time commitment. If you don’t have the resources to start a business, licensing may be the best option.
Your goals
What are your long-term goals for your invention? Do you want to see it widely distributed or do you want to maintain a level of control? Your goals can help guide your decision.
The market
Is there a market for your invention? If so, can you enter it and compete? Conducting market research can help make this determination and understand if you can gain enough of the market to be successful.
Your expertise
Do you have experience running a business? If not, licensing may be the best option as it allows you to focus on what you do best: inventing.
Progressive Strategy: When considering a career in innovation, a good strategy to consider is to use the licensing process as preparation for a business venture later on. There is much to be learned from licensing that directly relates to a business startup with minimized risk, time, resources and expense. Good advice for any future founder or CEO might be to start by learning and perfecting the licensing process in preparation for a future business startup.
Summary
Deciding whether to license your invention or create a business startup can be a difficult decision. Ultimately, the decision will depend on your goals, resources, and expertise. If you are unsure which option is best for you, it may be helpful to consult with a business advisor to help guide you in the right direction. Whatever decision you make, congratulations on taking the first step in bringing your invention to the world!
To continue the Remarkable Venture Inventing series, read: 11 Steps of Remarkable Venture Inventing next.
Please help the community by adding your expertise relating to this article or asking/answering questions in the group discussion below. Remarkable Venture does not offer legal advice. Consult with a qualified Attorney for decisions concerning your particular needs.
