There’s a lot of confusion about licensing in the laymen’s world. Many individuals believe they can come up with a sketch and sell the idea to someone else. In return, they believe they’re entitled to royalties for the use of their idea or concept. Licensing is much more than selling manufacturing rights to a manufacturer for a fee or royalties. Licensing can be better described as a marketing agreement, not a manufacturing agreement.
Most of the confusion over licensing is due to widespread national advertising that targets the budding entrepreneur. Many product designers are misled, and believe their concepts and ideas can be easily licensed to manufacturers for profit. It’s not that advertisers are irresponsible at marketing their services; it’s that the originator has an emotional attachment to his or her idea and wants or needs to believe that licensing is a possibility.
For the record, licensing a new product idea or design by an unknown designer is so extremely rare that I’d encourage anyone reading this to drop this myth from his or her repertoire of income possibilities. Your efforts would be better spent in other ways.
Unless you’re famous, the only sure way to make a living at licensing is to be an attorney. Despite mass-market advertising about licensing, the real profits are legal fees attorneys earn from prospective licensees. Nationally advertised legal firms don’t work for a percentage or contingency. Their hourly fees are billed directly to you. If licensing were as easy to get as advertising leads you to believe, attorneys would work for a percentage of the licensing fees.
Licensing is a marketing arrangement, not a manufacturing agreement. A manufacturer is not buying a product idea or concept; the manufacturer is purchasing limited rights to use your name. They’re buying the rights to borrow your name for a product they already manufacture, or one similar to it.
For example, Martha Stewart licenses her name to sell house paint. Does this make her a paint manufacturer? It’s doubtful that she invented a great new paint chemical formula and looked for someone to buy it. At best, Martha Stewart selected or designed colors and specified the product quality standards that were appropriate to her image in the marketplace.
Now, if my real goal were to sell a lot of books in the short term, I’d tell you exactly what you wanted to hear. I’d validate the national advertising and explain ways to affect your licensing agreement. If you are determined to pursue licensing, you can read many books on the topic at the public library. My input is for people who want information on which to base their business full time. Unfortunately, pursuit of licensing is not a full time job for any person or company (other than attorneys). There are several reasons why licensing is not an option for entrepreneurs:
- A great design doesn’t mean success. Unfortunately, even great ideas fail. Everyone in the industry has experienced this problem many times. Personally, it’s very discouraging when a neat idea or design is dropped because the buyers didn’t buy it at market.
- Value of the design. Many ideas are just not that great (see ‘good design’ definition). It’s usually impossible to convince the originator of that because they’re convinced that their concept is the most progressive innovation since plumbing.
- Expecting others to assume financial risks. A designer is expecting someone else to assume all of the considerable costs and risks to develop, sell, and produce a product of unknown demand and pay a fee for the privilege. That’s adding insult to injury.
- Difficult working relationships. New product designers are infamously difficult to work with because they are driven by paranoia. Professionals feel that the potential gains are rarely worth the effort of developing a relationship with someone who’s developed paranoia into an art form.
- Inventor’s Syndrome. This is characterized by irrational fears of design theft. People who are fearful make poor business decisions. Professionals won’t form partnerships with people who show poor judgment.
Unfortunately, many entrepreneurs remain convinced that licensing is an option because they have already made inquires of nationally advertised firms who have convinced them their product idea can be easily licensed. This type of entrepreneur will then go price shopping between agencies. Be advised that legitimate agencies will be selective of the clients and any products they represent. An entrepreneur would be wiser, if they’d consider using the services of an agency that is honest enough to cite the problematic factors of an entrepreneur’s product idea.
If you have (or are working with someone who has) a great idea, your best option is to hire others to produce the item and assume the risk yourself. Once the item has proven itself with demonstrated sales, then you can approach someone about licensing.
If you aren’t willing to give up the idea of licensing, your only option is to find someone on your same level who is too inexperienced to know the realities of market and get them to license it from you. I’ve seen this happen, but it usually ends poorly because businesses of this caliber are inexperienced and unprofessional in many ways. Poor quality could be the least of your problems.
So unless you are a famous person and a household name, licensing and royalties really aren’t an option. If you are not famous or a household name, you must be a recognized leader to people in your field of expertise.
The only designers who earn royalties are designers who became famous by starting their own companies. They can sell licensing rights to other companies in exchange for use of their name and/or logo.
Options to Licensing
Now that I’ve written the lecture series designed to win the hearts and minds of professional business advisors nationwide, I have to be honest. I have known too many people with amazing talent, foresight, and vision who refused to give up on a great idea. Societies have benefited throughout history from the vision and talent of the famous and not-so-famous innovators.
If you have a great idea or a concept that you know is going to be a winner, you can make it happen! But it’s totally up to you. You have to be so committed that you won’t let anyone stand in your way. That doesn’t mean running roughshod over others who impede your progress, but you must take responsibility for making it happen.
In other words, if no one is willing to finance the development and manufacture of your product idea, you must be willing to assume all of the risks yourself. After all, a financial backer won’t think your project has much merit if you’re not willing to risk a considerable amount on your own product development. They know less about the product than you do and they’ll reason that the product is too risky if you are unwilling to invest in it yourself.
This book is a good example of commitment to a concept. I couldn’t find a publisher, but that didn’t slow me down. All of the experts said this was the worst time to publish a book on how to start your own company because it was written during the worst crisis of the garment industry. Record numbers of large manufacturers were going bankrupt.
While it’s true that large companies were going under, I noticed a huge groundswell of start-up companies. DE companies were growing despite all the dire predictions. It’s a perfect example of ignorant bliss. DEs were just too uninformed to know that it was impossible to succeed, so they just did it anyway. I wrote this book to help people with talent, commitment, and vision. It’s intended for the obstinate souls who refuse to accept failure.
After all, everything I’m telling you was lectured to me. But to make it happen, I had to do everything myself. I had no graphic artists, editors, publishers, distributors and most of all, I had to pay for it.
If you are willing to make this level of commitment to your project, the question is not if you’ll succeed, but when. My goal is to keep your company going long enough until you do succeed.