How to Make Money From Your Invention (Chapter 4) – Exploiting Your Invention

How to Make Money From Your Invention (Chapter 4) - Exploiting Your Invention

ChoicesNow that you have made a valuable discovery and are in the process of, or have already obtained protection of it, a decision must be made on how to exploit the invention.

There are several choices available to you, including:

• starting a new company or expanding the current one;
• finding a joint development partner; or
• licensing or selling the invention.

1. Start a New Company or Expand an Existing One?

If you are an independent inventor and decide to profit from your technology by setting up a new company, there are many things to consider. Probably the major one is the financing of the venture.

If you are independently wealthy, you’re in a great position to begin the startup. Lacking that, financial support can come from professional financiers, like venture capitalists or banks or from private sources, such as family and friends.

Business Plan1a. Strategic Business Plan

What is required to interest a lender in backing your startup? The simple answer is a strategic business plan that shows the potential for your discovery. This is a critical item for financing and, perhaps more importantly, improves the odds that you will be successful.

As we pointed out in the discussion on innovation, without a plan, it is difficult, if not impossible, to successfully find your way from development of the product through making and selling it profitably.

The business plan should cover the:

• technology
• markets
• intellectual capital (knowledge and skills)
• personnel
• costs, pricing and profitability
• sales projections

The plan should be thorough and realistic since the lenders will undertake a thorough due diligence process to determine if they want to risk their money. The value of the intellectual assets (patents, trade secrets and intellectual capital) should not be underestimated in this process.

HelpHelp in putting together a business plan is broadly available from the internet. Some of the help requires that you purchase software while others are free. The following free sites provide an explanation and approach to building the business plan. The Wall Street Journal (wsj) web site provides sample plans from different business areas.

Starting and running a new company is a major undertaking requiring knowledgeable people with proven experience. The pressures to produce are high and only those with the strongest commitment should undertake this approach.

If you are associated with a small business already and want to exploit a new invention, the approach is similar to that described above. The business plan outlines the incentive to invest in the new venture. The discovery can be an extension of the business that you are in or it can be a step-out where all new resources are required to get it going. In both cases, there has to be justification, which can only be obtained by doing your homework.

Overseas Manufacturing1b. Manufacturing Overseas

If you decide to start your own business or take on a new product line based on your invention, production can be a very expensive undertaking. Many companies look to foreign manufacturing as a way to reduce costs. Countries and regions that have been active in this type of outsourcing include China, India, Pakistan, Mexico, Latin American, Asia and Eastern Europe. Finding a reliable, quality producer can be a time consuming and difficult undertaking. Below are several approaches to getting information and finding potential suppliers.

• Contact the Embassy or consulate of the country of interest.

• Contact societies and trade groups that are involved in your technology area and determine if there are chapters in the countries of interest.

• Search the internet for outsourcing, by country. Examples of sites that can be useful are:

Joint Development Partner2. Find a Joint Development Partner

An approach to sharing in the burden of developing your invention is to find an interested partner. Finding a partner that can complement the skills you have will take a determined effort. As an independent inventor or small business, you will likely look for a larger entity with adequate resources to fully participate in the development and commercialization of the invention.

The disparity between the cultures of a large organization and a small or independent one can be large. This can be a major obstacle in the success of the joint venture. To avoid this problem, there has to be an understanding how the process will operate and that the partners respect each other’s capability. Ultimately, success depends on teamwork between the parties. Successful teamwork depends on mutual respect and the ability to build a positive relationship with the other partner.

Good FitDetermining that there is a fit between you, the inventor and a potential partner is not always easy. Important questions for you to consider are indicated below.

• Is the partner strongly involved in the technology area of your invention?
• Does the partner have the resources to carry the project to completion?
• Does the partner have a strong interest in the opportunity, i.e., will a high level of management be involved?
• Do you respect the people that you will be working with?
• Does the company have some successful experiences with partnering?
• Will there be some flexibility in the relationship?

Finding a joint venture partner does not mean that you can forget the “homework” part of the innovation process. It is just as important in partnering as any other exploitation approach. Doing your homework will help you find the best partner and will allow you to make a positive contribution to the partnership. The more knowledge you have about the area and the potential benefit of the invention, the more respect and interest the potential partner will have in working with you.

The last remaining hurdle will be to determine the percent ownership of each partner. This is always daunting since both parties would like to have at least 51%.

Selling3. License or Sell?

The last approach to exploiting your invention that we will consider is licensing, i.e., the granting to another party the right to practice your protected invention or, perhaps, outright selling of the invention and associated patents.

At first glance it seems like the simplest of the approaches we have described. The burden of commercialization is shifted to the shoulders of another entity, hopefully one that has more resources and experience in the area than you.

Licensing can be more complex than any of the other approaches we have discussed. It is a favorite approach of many small businesses and independent inventors for various reasons. This subject is the heart of this monograph and we shall discuss this alternative in more detail in the pages that follows. There are similarities between selling and licensing your invention and we shall point them out where appropriate.

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This information is presented for the general education of independent inventors by the Invention Patenting Group. The Invention Patenting Group makes no warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed herein, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer or otherwise, does not necessarily constitute or imply its endorsement, recommendation, or favoring by the Invention Patenting group.

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