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Licensing/Solicitation Services for Inventors Here’s my logic on the topic of licensing. In today’s rapidly changing marketplace, the decision to license your product rather than manufacture and market it yourself is a serious consideration. My own reason for strongly recommending this course of action is based on over 30 years of experience in manufacturing, marketing, and licensing plus the current market research that I conduct on a regular basis. The choice to manufacture and market new products is the “Great American Dream” and many powerful and successful companies have started that way. There are, however, some considerations to be looked at before we decide to “do it all ourselves”. Here’s a recap of what this is REALLY all about: 1. Even if you are highly knowledgeable about engineering and manufacturing, building production quantities of products in a start up factory environment can be financially draining. If you already had access to these facilities, it would probably be a viable option. For products like yours, you would almost have to solicit and obtain sub-contract manufacturing in a third world country where the overhead and costs are much lower than in the United States (and where most of the products like yours are manufactured). 2. Sub-contract manufacturing in third world countries, although significantly lower in cost, is not without its pitfalls and expenses. A solid working knowledge of how business is conducted in the selected country is an integral part of the process and having a reliable and trusted associate who speaks the language in lives in the selected country is a mandate. People like me with an extensive background in this area can “set “em up” but the costs are high and the time investment is even higher. 3. Sub-contracting still carries with it the cost of production design, production tooling, and a large investment in inventory in order to keep the unit pricing low. Once the manufacturing is complete, there is the matter of international shipping, customs and duties, freight forwarding and domestic shipping, warehousing, storage, and inventory control before the business of marketing and promotion even begin. 4. There is a large investment of time as well and money involved in starting and running this kind of business, and the return on investment of time may or may not happen rapidly enough to make it worth your while to take time from other activities that are more productive. You can always hire people to perform the work but once again, you are looking at more “front end” capital and the lengthy return on investment involved. 5. The critical factor in a business startup is the matter of the overhead and operating costs as they pertain to overall profits. Small firms with low cost products have a difficult time surviving because of the cost to do business. It takes a considerable amount of investment to sell a $5.00 item that nets you 25 cents profit. If you have hundreds or thousands of items that have this characteristic, you can amortize the daily operating costs throughout the product line. When it has to be carried by one small item, the cost of sales and the overhead costs far outweigh the actual cost of the product and seldom will the end user pay a price that’s high enough to cover your total requirements and still allow you to make a profit. 6. The last, and definitely the most significant factor, is the marketing of the product. Every successful industry has its “Channel Power Chain” where the marketing and distribution channels have already been established and operate effectively and efficiently on a daily basis. The time and money involved in either creating a new chain or breaking into an existing chain are significant and requires a working knowledge of that industry’s marketing, sales, and distribution network. Once again, knowledgeable and experienced personnel can be hired, but the accompanying costs may be far too high to consider plus the time and cost to establish the relationships necessary might be so extensive to exclude the product and the firm from market entry in a timely manner. The direct correlation for this enigma is the publishing industry where everyday, excellent and talented authors create wonderful books that they cannot afford to print, publish, and market. Their choice, for many years, has been to license the rights to an established publishing firm like Bantam Press, Avalon-Hill, or Simon and Schuster, and let them absorb all of the costs and labor headaches of getting the book to market. The author merely waits for a royalty check to arrive each quarter and goes back to what they’re good at doing –writing books. I’ve been involved in the preparation and delivery of licensing programs for many years. In my book, I recommend this procedure to MOST new inventors and start up operations for the reasons I’ve outlined in this letter. I spent many years in the toy industry. This industry, like so many other commercial industries, has changed in the last 20 years and I’ve found that for most new ideas like yours, licensing is a better plan for being profitable than starting your own manufacturing and marketing firm. Commercial manufacturing and distribution industries like toys, electronics, and the accessory items that support them, have become rather polarized with several major manufacturing firms marketing to several major distributors which creates a serious impediment to small manufacturers and distributors who are just now entering the marketplace. Lately, you’ve probably seen the “New Product Invention Contests” sponsored by such firms as Staples®. The first prize is $25,000 and I’m sure there will be a lot of licensing offers made to others who have viable ideas that they can manufacture and market. Our solicitation program is designed to get you and your creative ideas to the firms who are currently manufacturing and marketing related items. This is what the work we supply will include: 1. We’ll select a targeted database for research and solicitation and develop a mailing list based on this research. 2. We’ll create a cover letter for each of the firms on the mailing list and then create a descriptive marketing piece for your products to accompany the cover letter. 3. We’ll create the mailing envelopes for each of the packages including a complete follow-up package including all pertinent information on the firms that were selected. This information will include names, addresses, phone numbers, and complete follow up scripts and instructions. 4. We’ll also include the writing, editing, and negotiation of the licensing agreement when an interested party is found and of course, all of the work we do is subject to your review and approval. If there are no unforeseen problems, we can complete this program and have the packages in your hands, ready for signature and mailing, within three-four weeks of your agreement to proceed. Our fees for this complete service are $4,200 and our terms are 50% ($2,100) in advance and the balance plus any out of pocket expenses when the project is complete. If this sounds like what you’d like to have happen for you, please contact me directly at 1-800-757-7671 and I’ll arrange for a contract and statement of work to be sent to you for your review and approval. Thanks Mike Rounds |
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