Just because you have a great idea – do you have to be the one to fully develop it? If you’re a keen inventor but prefer not to get too involved in business development, or if you’d rather focus on developing innovative ideas than following through with them, selling your idea or invention to a big company can be the perfect solution.
Selling your idea, also known as licensing, refers to giving another company the rights to your invention to develop it into a full-fledged product or service. With this sale, you’re no longer physically or financially responsible for all of the business-related activities that follow the ideation stage.
Just as starting a new business from the ground up requires a certain process, there are important steps to follow if you want to sell your idea to a big company. Read on for my 10-step recommendation to do just that:
Step 1: Research the Current Positioning of Different Organizations
Before you get too invested in selling your idea, research the marketplace to learn about organizations that could potentially use and benefit from what you’ve come up with. What you’re most interested in at this stage is their current positioning.
Positioning refers to the established brand image and customer perceptions of the brand. Positioning also communicates value to buyers, increases brand awareness, and justifies pricing structures.
To understand a company’s positioning, look for data that supports:
- How customers are viewing that company
- How their average buyer evaluates a product before they purchase
- What motivators their buyers consider
- What features their buyers value most
- Who their strongest competition is
Step 2: Establish Ownership
If you feel there are organizations positioned appropriately in the market to take on your idea and run with it, move along in the process by establishing official ownership of your idea or invention.
There are various forms of legal protection for intellectual property, but here’s a quick reminder:
- Patents: Protect tangible products, harder to get for software unless tied to a machine or process
- Copyright: Protect creative works, including the code that makes up software or an app
- Trademarks: Protect logo, company name, and other commercial communications
- Trade Secrets: Protect proprietary information as long as it remains secret
Not sure which type of protection you need to secure ownership of your idea or invention? Talk with a qualified intellectual property attorney for guidance.
Step 3: Test Your Idea
Once your idea is legally protected, start testing your idea to prove its value before presenting it to any large company.
Testing can be as simple as talking with people you know and trust and getting their opinions on it in a theoretical way. If you already have a prototype, this can make your conversations even more productive.
Another way to test your idea is with a focus group, especially if you can gather a group of people similar to the target audience of your idea. Ask questions and take notes to develop an understanding of how others perceive the idea and what value it may provide them.
Step 4: Identify Targeted Companies
With validation for your idea through testing, move forward by identifying targeted companies from your research. Compile a large list and narrow it down based on factors such as reputation, geography, size, product line, new idea policies, and access to a decision maker.
Putting the time and effort in now will eliminate friction as you start to pitch your idea and allow you to prioritize companies that will be the best fit.
Step 5: Understand the Organization’s Business Model
Select a few companies from your above list that have the most potential, and delve deeper to learn about their business model. A company’s business model should answer the following questions:
- What value are you offering customers?
- How are you offering this value to customers?
- How are you making money?
Some examples of business models include:
- Retailer model
- Manufacturer model
- Subscription (like SaaS)
- Distributor model
Step 6: Identify the Key Weaknesses and Growth Opportunities for the Organization
For each organization you’re considering presenting your idea to, perform a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis to understand what key weaknesses and opportunities may be present.
Weaknesses are detracting internal factors of the company, such as low-performing product lines or a lack of human resources. Places where they may be able to improve internally give you the chance to present a solution.
Growth opportunities, on the other hand, are positive external influences, such as changes in the market or new needs that are arising among customers. Growth opportunities can come from asking questions about which demographics haven’t been targeted yet, what new technology could improve processes or products, and what new audience segments could be tested.
Once you’ve completed the analysis (with a focus on the weaknesses and opportunities), refine your findings to focus on the largest weaknesses (AKA room for improvement) and best opportunities.
Step 7: Determine How You Can Contribute to these Growth Opportunities
Next, brainstorm ways you can contribute to these areas of improvement or growth opportunities. What do you bring to the table that the organization doesn’t? Do you have access to a new audience or potentially new technology that can innovate what they currently offer? Ask questions and dissect these factors to see how you can help.
Step 8: Set Realistic Expectations
Before you present your idea to the companies you feel are best suited for it, set realistic expectations. While the hope may be an offer for millions in exchange for your idea, chances are low that you’ll get that with the first idea you’re selling.
The more you work within this process and the more you improve upon your solutions to real problems, the better you’ll present your ideas and the higher profits you’ll make.
Step 9: Prepare A Professional Presentation
When the time comes, prepare a professional presentation to share your idea with the companies you’re interested in selling it to. Be sure your presentation contains at least these three parts:
- Intro letter: A short letter that introduces you, your intention, and your idea. This is usually emailed and serves as the first outreach.
- Sell sheet: A one-pager that describes the gap your idea fills plus all of its benefits, features, applicable markets, and legal status (patented, trademarked, or copyrighted). You can email this if requested or plan to bring it with you for the formal pitch.
- Formal pitch: This is your formal presentation of your idea. You should prepare a deck or a script to ensure you touch on all important points about your idea and your proposal to sell it.
Step 10: Decide How You Want To Be Paid
While you may not get an offer at your first meeting or even for your first idea, you should still know how you’d prefer to be paid if they should agree to buy it. Thinking this through before your meetings allows you to maintain a professional demeanor.
Potential payment options to consider include:
- Annual minimum (paid a minimum dollar amount each year the idea is used)
- Royalties (paid based on a percentage of the sales of your idea)
- Up-front payment (paid outright upfront for a set dollar amount)
Consider what would benefit you the most, but also what makes the most sense for the company.
For software ideas that will be used as a part of a SaaS offering, for example, you may request royalties to earn more over the years as the company continues to grow and scale its offerings. It would also make sense for the company since they charge customers on a continuous subscription basis and would only be paying you more if they made more money.
Selling Your Idea Made Simple
Selling your idea can feel overwhelming, but it can also be a more simple option vs. developing the product fully and taking it to market on your own.
While you’ll need to put in significant time and effort leading up to your presentations, doing so can make the actual sale much easier to close. Go into your meeting with confidence that you understand their business model, customers, value props, weaknesses, and opportunities. Then, show exactly how your idea can fill a need and take them to the next level.
Take a non-adversarial approach, and make it a simple yes so it’s a win-win for both you and the company you sell your idea to. New ideas are crucial for success, and the right company will see the value in your idea.
If you’ve been working on an idea you believe has the potential to make processes simpler, tasks more efficient, and lives better, I want to hear about it. Reach out to MacDonald Ventures to get started.