Choosing Whether to License or Manufacture Your Invention

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

Every inventor must consider the financial impact of licensing an invention compared to manufacturing it oneself. Generally speaking, licensing usually requires far less capital than the alternative of manufacturing yourself. When you license your invention to another company, that company needs to worry about the costs of renting a factory, hiring employees, and incurring all of the necessary transactional costs to bring the product to consumers (advertising, shipping, and so forth).

What Will It Cost You to License Your Invention?

Licensing your invention will not be free. While the exact figure will depend on the type of invention, you will still need some capital to ensure that you have an enticing product and a well-negotiated agreement with the licensee. Usually, you will at least need money to:

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

Note that the solicitation and negotiation with potential licensees may involve the legal costs of retaining counsel to help draft and review the agreements. While no one enjoys paying legal fees, licensing deals can be complex, and bringing in a smart lawyer to serve as a guide can be money well spent.

A successful licensing deal will free up an inventor to pursue further 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.

What Will It Cost You to Manufacture and Market 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
  • hiring employees for manufacturing
  • 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 for Purposes of Marketing and Manufacturing

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 that person 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 wear many hats, and all of them require management skills. If you can't delegate tasks well or you 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 do not. Every entrepreneur, whether it's 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 are not a risk-taker, then pursuing manufacturing and marketing is a poor decision.

Which Choice 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 are 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.

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