Differences in Financing Your Invention

(Page 2 of 2 of Should You License or Manufacture Your Invention? )

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In terms of financing your invention, licensing usually requires much less capital than the alternative of manufacturing and marketing your invention yourself.

Money needed for licensing. When licensing your invention, usually you need money to:

  • create a prototype (or other suitable presentation to potential licensees)
  • market the invention, and, perhaps,
  • solicit and negotiate with potential licensees.

A successful licensing deal will free up an inventor to pursue inventing while still profiting from the last great idea. On the negative side, a bad licensing deal may tie up an innovation or, worse, result in legal battles over royalties.

Financing your business to market and manufacture your invention. You will usually need far more financing if you start your own business and manufacture and market your invention. Money is required for:

  • producing a prototype
  • creating tooling or molds
  • mass-producing the product
  • finding distribution
  • collecting payments, and
  • enforcing patent rights.

In addition, entrepreneurial inventors often require more complex financing. For example, you may need to form a corporation and sell shares of stock (or other interests) in the business and the invention.

Analyzing Your Personality

Before you jump into marketing and manufacturing your own invention, take an honest look at your personality. Do you have a strong entrepreneurial drive? To find out, answer the following questions:

  • Are you a gifted salesperson? An entrepreneur must sell, sell, and sell to every person in the food chain, whether it is an investor, banker, distributor, or customer. If you lack this skill, you're probably not suited for entrepreneurial endeavors.
  • Are you a talented manager? An entrepreneur must juggle many hats, and all of them require management skills. If you can't delegate tasks well or find it hard to organize your desk or keep track of complex tasks, do yourself a favor and avoid marketing and manufacturing.
  • Are you a business innovator? If you can invent only in the lab and not in the business world, then you may be better suited for licensing.
  • Are you a risk-taker? Some of us like to bungee jump from the Golden Gate Bridge, and some of us don't. Every entrepreneur, whether it's Donald Trump, Richard Branson, Ron Popeil, or Ray Kroc, is willing to face down creditors or bankruptcy for a chance to come back for another round. If you're not a risk-taker, then pursuing manufacturing and marketing is a poor decision.

Which Is Right for You?

If business is your real game, and creating an invention is just your means of acquiring something to sell, then marketing and manufacturing could be the right choice for you. Same goes if you live for the deal, you're not afraid of risks, you love to innovate in commerce, and you have the discipline to fight for market share. But if none of the above sound like you, licensing is probably the correct course for you.

To learn more about the ins and outs of licensing or marketing and manufacturing your invention, get What Every Inventor Needs to Know About Business & Taxes, by Stephen Fishman (Nolo).

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