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Product Licensing

A Big Picture Overview of Product Licensing Strategy

Simplicity, market study and testing your ideas

By Stephen Key - May 31, 2016

Companies are increasingly willing to look for new product ideas beyond their four walls. And why wouldn't they? Embracing open innovation is fiscally sound, not to mention rational: Creative people want to work for themselves. In the U.S. alone, contingent workers are predicted to exceed 40 percent of the workplace by 2020. When companies invite the brightest minds to submit their concepts to them, they simultaneously reduce their research and development costs. In that way — as well as countless others — the licensing model dovetails ever more neatly with current trends.

But what are companies that embrace open innovation really looking for? What kinds of ideas are they willing to take a chance on? Broadly speaking, companies are risk-averse. So your objective is to make it as easy as possible for a potential licensee to say yes. In practice, that means focusing on designing simple improvements to existing products — ideally, their own. Simple ideas win. Put another way: You don't have to reinvent the wheel to license an idea. Products that are too new are painful to bring to market. They require storytelling, and having to educate consumers is expensive and tedious.

In Makers Who Made It: 100 Stories of Starting a Business — the nearly 800-page e-book published last year by product launch platform The Grommet — cofounder Joanne Domeniconi writes, "The more innovative a product, the less likely it is to succeed. Why? Because most people can't imagine or relate to ideas that they don't expect or they don't understand." That's exactly it, and especially true of licensing. Category-creating product ideas are risky, and therefore much more difficult to license. That's not to say they're never licensed, but certainly not often nor reliably.

When you focus on refining and enhancing products that are already on the market, you set yourself up for success. Potential licensees know demand for these products exists. They can count on it. There's also the fact that there's a better chance they'll be able to manufacture what you present them without having to invest in new technology. Inventions that cannot be brought to market at a competitive price point do not see the light of day.

When you focus on refining and enhancing products that are already on the market, you set yourself up for success.

Most inventors encounter a problem, try to solve it, and then go looking for interest. That is not the best way of coming up with marketable new product ideas. Start out by familiarizing yourself with an industry, then categories that interest you within it, and finally, specific product lines themselves instead. If you're an industrial designer, this research should come easily to you. What conclusions can you draw? Look for holes, for missed opportunities, for products that haven't changed in many years. (What I like to call 'sleeping dinosaurs.') Amazon product reviews offer a veritable treasure trove of insight. What do consumers wish were different? What do existing products lack? How could the category be reinvigorated? What could be altered?

If you've studied product design, you've been taught to focus on the details. From observing how consumers interact with a product, to prototyping, market analysis, and even pitching — that it's all about the details. At this, classically trained product developers do a truly fantastic job.

To become successful at licensing, you need to think differently.

Details? Those take time and money, and licensing is a numbers game. For many reasons, the more designs you submit, the more likely you are to license one. Remember, you're not on salary, nor being paid on commission. You can't afford to devote your energy to a project that ultimately goes nowhere. You need to test your ideas quickly, to get feedback before moving forward. Is your idea marketable? Is it worth developing further? It sounds crude, but why waste your time if not.

Submitting an idea for licensing consideration is actually a way of testing the market in and of itself — an incredibly, wonderfully low risk one. (Especially if you rely on the tools I'm going to detail later on, like a one-page sell sheet.) If you continue submitting your ideas for new products to the same companies, you'll end up developing a rapport. They'll tell you what they're looking for. In time, you'll get better at identifying meaningful benefits, not to mention opportunities for innovation.

When it comes to licensing, you need to focus first and foremost on identifying and presenting the big benefit of your design instead. Most often the benefit is to the end-user. Benefits are compelling. They answer the question, "What's it do for me?" They are not synonymous with nor the same as features. Features change; benefits don't. The more straightforward and easily understood a benefit is, the easier it is to license. I know a lot of product developers are confused about what they're actually selling, because they do things like show me their patent or drawings when I ask, "What's your idea?" Those are important, but they don't tell me why I should care.

If the big benefit of your design isn't very clear, relevant, or engaging to a potential licensee, the company is not going to ask you for more information. It's that simple. Stay tuned for what to do after studying a market.

Stephen Key

Stephen Key is a lifelong product artist who has licensed dozens of his ideas. His bestselling book "One Simple Idea: Turn Your Dreams Into a Licensing Goldmine" has been translated into five other languages. He speaks, writes, and vlogs extensively about licensing, entrepreneurship, and intellectual property strategy.

14 Comments

Nick Vintila

2 years ago

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Stephen, would your approach work for domain specific/niche products? Product targeted to a specific group of specialized users, like software engineers, data scientists, digital nomands, etc.
How to locate and target such an niche audience, as opposed to targeting the general public with products only requiring public domain knowledge to assess value.

Please provide thoughts and references for deeper research.

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- Stephen Key
  
  Nick Vintila
  
  2 years ago
  
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  You could license an idea to a niche group/small audience of users, but look at the number of units you could possibly sell. Once you calculate the estimated wholesale price and the standard royalty rate it might not be worth your effort. I always say do the math first. Please note licensing is not to users, but mainly to manufacturers that sell to the general public, as well as some big industries (hospitality). You could license an idea that only businesses use but again, I'd say do the calculation first.
  
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Jason Pokines

2 years ago

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Great article, and I can't wait for more. I tried following the two links (at least they looked like links) but they didn't seem to have a URL attached to them. Obviously Google exists, and I can probably find the content that way, but I wanted to let you know.

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- Stephen Key
  
  Jason Pokines
  
  2 years ago
  
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  Thank you for alerting me!
  Stats on contignent workforce: http://http-download.intuit.com/http.intuit/CMO/intuit/futureofsmallbusiness/intuit_2020_report.pdf
  Ebook: https://www.thegrommet.com/press/makers-who-made-it-ebook
  
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John Grant

2 years ago

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Good article on the merits of evolutionary innovation (price / feature innovation). However what are the challenges to licensing and what is the best approach?

I understand some producers are adverse to licensing design pitches as it can expose them to legal risks if the pitch relates to R&D they already have in development. For designers this may also be a risk.

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- Stephen Key
  
  John Grant
  
  2 years ago
  
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  Re: NDAs, no. The strategy I've developed and relied on uses the filing of provisional patent applications to establish perceived ownership. NDAs can be useful, but I would not rely on them solely.
  
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  - John Grant
    
    Stephen Key
    
    2 years ago
    
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    Thanks, After doing a lot more research as well as checking out your youtube channel. I have answered a lot of my questions.
    
    I understand the numbers game strategy. However I do still feel there would be merit in taking things a little bit further than a sell sheet in order to minimise all of the risks for your potential partner. Eg. maybe a market summary specific to the product, a price strategy, an educated estimate of further dev required, or perhaps packaging/display concepts to sell the vision at the point of purchase? These things don't have to be very time intensive (particularly for a designer) and I imaging there is a balance here to maximise your success to work ratio.
    
    In licensing I wonder If there are opportunities to strike a deal to oversee the next steps? Either offering design development, packaging, Branding and POS nogotiated for a sweeter deal or just to minimise the risks asscociated with new product development?
    
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- Stephen Key
  
  John Grant
  
  2 years ago
  
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  Re: partnering. Typically brands, but contract manufacturers sometimes also license. Mid-sized companies that are hungry for market share and looking to grow/differentiate themselves are usually best bets for partnership.
  
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- Tim Brennan
  
  John Grant
  
  2 years ago
  
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  The challenges are 1. getting the strategy right. Most industrial designers would have a tendency to get into too much detail before showing an idea to a company. That can and up wasting huge amounts of time. 2. Believing it can be done. There aren't too many people doing this right now so you have to really go off the beaten path and believe that a successful outcome is ahead of you. 3. Experience is everything when it comes to licensing. making mistakes and learning from them takes a great deal of humility and patience
  
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  - Stephen Key
    
    Tim Brennan
    
    2 years ago
    
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    Absolutely. Different ideas require a different strategy, especially when it comes to IP.
    
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  - John Grant
    
    Tim Brennan
    
    2 years ago
    
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    Thanks great advice! What do you mean by too much detail? I imagine it would be good to get it looking finished to a marketable level. However I don't think it would be sensible to refine for manufacture when the potential licensees would each have their preferred manufacturing technologies.
    
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- Stephen Key
  
  John Grant
  
  2 years ago
  
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  I'm going to be detailing the challenges at length here. Licensing is really finding a partner, and partnerships take trust. Knowing who to trust, how to establish it, discerning well-meaning actors from bad, how to keep a relationship from derailing — those are challenges. You're right, some companies are wary of OI for that reason. What if they already have a similar idea in development? That is one of the main reasons some companies don't open their doors and why many others won't sign a non-disclosure agreement (and for you to have protection on your own). So yes there’s risk. Alex Lee, OXO President, told me re: this subject, that despite the risk, “We still remain open-minded, we want people to feel comfortable with us. We have to track carefully what receive because we don’t want to shut off that conversation.”
  
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  - John Grant
    
    Stephen Key
    
    2 years ago
    
    Z
    
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    Thanks for your reply. When searching for a partner, is it more about finding the best brand match for your product (where it would likely be a once off addition to there small range) or to find a sourcing manufacturer with good retail connections who is looking for anything good to pitch (building a long term relationship with multiple products licenses)?
    
    Looking forward to more posts on this topic
    
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  - John Grant
    
    Stephen Key
    
    2 years ago
    
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    1Z
    
    Is a NDA the primary IP protection at the point of pitching?
    
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