Follow these steps to sell your business idea!
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So you’ve got a great business idea but you’re not ready to launch a business (no money or no time). What can you do? You can sell your business idea to big companies or investors that will pay you upfront and then take the item to market.
This form of business model is called licensing. It involves you receiving licensing fees and being paid royalties on product sales because you are allowing others to profit from your intellectual property, i.e., your business idea.
This article will explain the two most important parts of this business model. The first being how to sell a business idea to either big companies, small businesses, or investors. And secondly how to protect your idea and defend it from being stolen while you pitch and present your proposals.
We will discuss in depth how to protect your business idea with and without a patent if you have a small amount of money or no money. These are all practical suggestions based on industry standards.
If your business is already launched and operational and you desire to sell your company without a business broker yourself – check out our expert step by step plan here.
The first order of business while pitching your product idea to investors or companies is to make sure it does not get stolen!
Here are our top three recommendations to protect your business idea from dishonest investors:
Check out my in-depth post on how to protect your business idea from getting stolen – without a patent
Here, we will break down the three steps on how to sell your business idea whether it is an invention, a product board game, or manufacturing process.
By licensing your invention or business idea, you are selling the rights to a company to develop it into a saleable commodity. The buyer is performing all the necessary actions to take it to market by using their financial and human resources.
Licensing or selling your business idea can be an excellent way for cash-strapped entrepreneurs to get started making money from their inventions.
You need to be equipped with data about your market to demonstrate the commercial value of your invention. Do this before you begin preparing your proposals and presenting to investors.
Note on Product Prototypes
While creating a product prototype can be a powerful persuader to potential investors, it is NOT required to sell your invention. What IS critical is the research on how a product will be manufactured.
Sure, professionally crafted 3D prototypes are cool but they are also expensive and take a long time to create. Effective product prototypes can take many forms.
Now that you’ve gathered all the research information, including market research, focus groups, and production processes, it is time to prepare a professional presentation for companies and investors.
While a product prototype, functioning or not, can be an asset, a professional presentation is the most important factor.
I recommend a short, succinct document of up to two pages that clearly states the necessary information detailed below.
Make the document easy to scan and understand for non-technical readers who are unfamiliar with your invention. Make liberal use of charts, diagrams, and images to visually communicate important points.
Your product’s features and benefits
There is a distinct difference between a feature and a benefit. A feature is something that is intrinsic about the idea, i.e., that it is blue, made of plastic, or six inches tall.
A benefit is a more important value proposition of what the idea or service gives to the end-user, such as comfort or convenience.
Solution your product provides
This is a critically important point that many people forget. You must discuss the exact problem that your product or service solves which will allow your investors to understand the need for your product to come to market.
Detail the market demographics of your target customer, age, gender, location, lifestyle, buying habits, and hobbies to create a customer persona.
Legal status of your idea
Add details about the current legal status of your product. What patent and trademark searches have been conducted either by yourself or professionals. What were the results of those findings? Do you have a patent-pending or provisional patent?
Write a cover letter to introduce your proposal and yourself and your professional qualifications to investors.
Now that you’ve done your research and prepared your presentation, you are ready to start contacting prospective buyers. But first, you will need to find them! Here is how to create a list of prospective investors or licensees (buyers of your product invention license rights).
Of course, just like all sales processes, this is a numbers game. The more contacts you put in your database, the more success you are likely to achieve.
We suggest that you begin with at least 100 prospective targets. Don’t just come up with two or three companies you think will be perfect and contact only them. You are very likely to be disappointed. Successful entrepreneurs cast a wide net to get more investor fishies.
Now that you’ve got at least 100 possible buyers, using the techniques listed above, let’s start to refine your list. Prioritize your list into the best prospects to start your campaign. Start contacting companies in the order below:
These firms have excellent distribution channels and the needed capital to consider outside product submissions. Many of them also have formalized submission processes.
Small companies can often be excellent targets because they do not have in-house inventors and are often looking for ways to expand their market.
You have the advantage of proximity plus possible contacts through friends, family, or neighbors, which will allow you to set up in person meetings. These can prove extremely profitable.
Companies with similar products to your invention are a good bet because they may be interested in expanding their line. Your invention could be their perfect next product launch.
You now have everything in place to get busy selling your business idea!
Next learn about industry standards for licensing agreements and payments.
Begin by negotiating a deal that is a win-win for both you and the manufacturer. In many cases, this could be the beginning of a long-term partnership. You will continue to develop new inventions and this manufacturer may continue to purchase them.
This is the assignment of rights payment that is paid at the beginning of the contract. In most cases, it is an outright payment, but also could take the form of an advance against future royalties. Most upfront payments cover the cost of patent searches and filing.
These are ongoing payments that are made to the product inventor or business idea generator based on a percentage of the product sales. The average royalty ranges from 2% to 5%. This means that you will be paid 5% of the wholesale price of each unit sold. Note that we said the wholesale price, not the retail price. If a product is sold for $100 in a retail store, the wholesale price is likely $50, and that is the amount that will be used to calculate your royalty payment.
Royalty payments are absolutely the most important part of your licensing negotiation. This is because they are ongoing and directly relate to product sales. You get the advantage of ongoing income and the manufacturer has the advantage of paying you only when the products sell.
This is a part of the contract that requires the buyer to pay the inventor a minimum amount of royalties annually, regardless of the amount of product sales generated.
This is an important element in your contract because it incentivizes the manufacturer to promote the product adequately, ensuring strong sales.
Most manufacturers will request exclusive rights to your product internationally. You can negotiate this country-by-country, as you deem appropriate.
An expert in board game licensing, Scott Morris, is the President of Passport Game Studios, a board game publisher based in the United States. Morris recommends that creators create a video of their game in action.
A short, action-packed video showing how to play your game, what is in the box, and player experiences will impress and excite investors and retailers about your cool new board game idea.
Contact the top board game distributors in the USA: