Deciding to License, Manufacture or Both

You’ve come up with an idea that’s great, will solve a problem for a lot of people and– you believe– will make you rich. Now, it’s time to bring that idea to life; but, how do you do it? You’ve got a few options to consider. First, you can start your own company, manufacture yourself and sell the product. Your other option is to find a business that already has the ability to manufacture and distribute and license your idea to them. Your final option is to do both.

Why You Should Manufacture

The financial reward that comes with manufacturing is much greater than when you license. You can certainly stand to make more by manufacturing the product yourself, rather than licensing the idea to someone else. You’ll also have greater control over the product, how it’s produced, where it’s produced, packaging details and more.

Why You Shouldn’t Manufacture

Starting your own business can sound great– you don’t have to take orders from anyone but yourself, you’re in charge of what goes on and you can make the final decision. While it sounds fun, starting your own business can be difficult, time-consuming and take a very large investment that you might not be prepared to make yet. Most start-ups, especially those headed by someone new to owning a company, statistically will fail; the chances for success are incredibly low.

Why You Should License

For many people, licensing is a very attractive prospect that offers the best balance of characteristics. People who license can see a desirable ROI, or return on investment, in more ways than just monetary– you can see it in time and other resources, as well.

Getting into a retail store, the ultimate dream for many inventors and entrepreneurs, can be a difficult feat to accomplish. Larger retailers, like Walmart or Target, don’t often buy from individuals. Walmart’s supplier checklist is three pages long with no guarantee for acceptance. Target has a similar process in their own portal. For some, they spend so much time on the application process just to be denied.

Even if you are accepted, managing the logistics and technicalities of selling in one of these big box stores isn’t for the faint of heart. It can be difficult to meet the corporations demand. However, if you license with a company already selling in a retail store, it might be easier for your product to make it in front of the mass consumer.

Why You Shouldn’t License

While licensing may seem attractive, it’s important to consider the downsides as well. Some may not be able to license their product; there can be a lot of luck involved in a product getting the green light to license. Some perseverance is necessary to find the right licensing partner.

For those who like to be in control, licensing a product means you lose most, sometimes all, of the control of your invention. Your licensing partner is in charge, and if you don’t agree with their decisions, they don’t have to take your opinion into account. You don’t get to decide where your product is produced, how it’s packaged, where it’s distributed, the pricing, or the marketing.

Other concerns when licensing is your partner becoming your competitor. Sometimes, a licensee may start producing a similar product for a new market and end up being an unexpected competitor.

While licensing can save time and money, the deal can be complicated. To navigate licensing deals, you should invest in a good licensing attorney who knows the industry to make sure you don’t fall into any traps before you start contacting licensing partners.

When to Consider Doing Both

Some inventors will both manufacture and license their product, by switching strategies at appropriate points. You can manufacture a limited run of your product, generate some sales and prove the marketability of your product before approaching someone to license it. This is known as developing market traction and it’s a great strategy to have when negotiating the value with a potential licensing partner.

Weighing the Factors

Ultimately, your decision to license, manufacture or both depends on a few factors:

  • Your ability to tolerate risk- licensing is less risky than manufacturing, though the reward is not as high. How much of your personal funds are you willing to risk in your invention?
  • Your ability to generate capital from outside investors- chances are, the money you’re investing won’t be enough to completely fund your product. It will take outside investors, as well.
  • Your ability to set up a company- setting up a company is difficult and it takes a lot of commitment to be successful. Sometimes, even the most committed of entrepreneurs still fail.
  • Your personal goals- for some, licensing is right because they want their product out in the world but aren’t necessarily willing to start their own business. For others, working for themselves has been a lifelong goal they can now achieve.

To determine the best option for you, it’s best to take into account who you are, what your skills are and what you’re looking to get out of your product.

At Alotech, we partner with you to find creative ways to help you navigate the manufacturing world. Because we work with inventors with a range of products and needs, we have the resources and knowledge to help you be successful. Contact us today by calling 919-842-3599, or visit our contact page and fill out the form.