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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 $4,600 and our terms are 50%
($2,300) 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 1-310-544-9502 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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