Brand Funding And Licensing Timing Issues with David Lieberstein

Protect your brand, product or invention from the hazards of consumer product launching and go from idea to product to big brand with guidance from retail product design and development experts Tracy and Tom Hazard. Get the insider secrets to put the right things in the right order with the right resources so you can out design, outsource and out profit your way to retail success.

Hey there product launchers. I have a great office hours for you from David Lieberstein and David has an amazing background in licensing. So he's our resident licensing expert from both sides of the table, the licensee and the licensor. Plus he brings just this broad range and view of strategy and product development and funding and all of these things that might help you be successful in your product journey.

So here's David I'm David Lieberstein, dream product guru and I'm here to talk to you about licensing. A lot of inventors have great ideas and would like to find the perfect manufacturer to license your product, sit back and make a ton of money. So I'm going to talk about the pros and cons of that. Let me first tell you a little bit about my background. I've had my own companies for a number of years in the housewares and gift industry. My first company was back in the early 1970s when I was 17, had a greeting card company for 10 years and actually was involved in quite a bit of licensing for photographers to use and artists to use on our greeting cards, but also two of our artists. We ended up becoming the licensing agent for those artists and did tens of millions of dollars in licensed goods in the states and over in Japan with cute little animals and children. And then my last company had for 25 years was called Wine Things Unlimited Wine Accessories of bottle stoppers and glassware and ceramics. And I work with both artists for designs but also did a lot of licensing for the designs to put on our three dimensional sculptures and stoppers and glassware with Collegiate. So I had all the major colleges and we did Betty Boop, Star Trek, Cirque du Soleil, Looney Tunes. So we did a lot of licensing. I have a lot of experience on both sides of the fence. About five years ago I became a consultant to work with inventors to both help them launch their own companies to move into the whole pre production phase, find sourcing and go through the whole steps of starting a business and also work with inventors to help consult them to take those next steps to find the right manufacturer to license the products. And as a matter of fact I had a couple of clients in the last couple of years to help them license their inventions to various companies and got to experience the pros and the cons and the pitfalls of all that's entailed in doing so. So the first thing I want to talk about is so you have a great invention and you want to license it rather than spending the time and money to do it yourself. Well, first of all, you need to have a great idea that has a unique niche and is differentiated from everything else out there in your product category. So it's important you do some research of your marketplace to look at what else is out there that does what your invention does and really determine how unique it is. Often inventors will take that next step and see if they can patent their idea and their invention. And there's lots of good attorneys out there. And you can also file for a provisional patent, which gives you a year to figure out how viable it is. And you can do that yourself for like 160 bucks and go online and find some places to do that, or you can hire an attorney for two to five grand to do it for you. And again, you don't want to waste your time and money on a patent if there's a lot of things out there similar. So do the research online. Secondly, you need to determine who is the appropriate company that your invention will sell with their product line. So again, do research in your field to find out who are the largest companies and the smallest companies that have products that your invention will complement. Because nobody's going to pick up your product and put it in their product line if it doesn't complement what they're already doing and offer their customers something unique that they don't currently have. So it's going to add value to their company and to their product line. So let's say you find a half a dozen companies that you feel that your invention, your product would be a great fit for them. You need to then do some research, probably by calling the company or emailing them to see do they have a licensing program in place and if so, what is the procedure for you to propose your invention to them. Because the worst thing that could happen is that you send off a picture of your invention and the idea to a company that does not do any licensing and you've just given away your idea. Whether you have a provisional patent or not. Companies that are unscrupulous, and there's plenty of them, unfortunately, that are out there will take your idea, work around the patent if they need to, and get it out there way before you'll ever have a chance to license it or produce it yourself. So it's important to keep your ideas close into the chest, as they say, and just be smart about it. Some companies will be willing to sign a non disclosure agreement in NDA that says that if they don't have anything similar in the works, they're not going to knock you off. That gives you a little bit of additional protection. So I don't want you to be fearful of your idea of being stolen, but I want you to be smart about it. That means do your homework to make sure the company has a licensing program in place to work with inventors and find out who you submit that idea to and what the procedure is. And do not send your idea or talk about your idea to anybody in any company where they don't have a proper program in place.

So those are the two main portions. So you've determined the proper company that is complementary to your product, where your convention will add value to their company. You determine if they have a licensing program and how to submit your idea and then you submit it. Now I've talked with clients where they say, david, I submitted it to them, they never got back to me or I called and they just don't return my calls. What do I do? You have to be patient and you have to realize that the new product development vice president or person that's in charge of looking for new products and reviewing potential inventions to license, they have a lot on their plate. That's not all they do. They have new products that they're developing. They're all across the board. They're usually working 12 to 18 months ahead of time. So they're very busy people. As important as your product and invention is, of course to you, and it may be to them as well, they don't always get back to us quickly. So be patient, don't bug them too often. But it's also appropriate to send an email or a voicemail every week or two. If you don't hear back from them in a month or six weeks and you've done three or four follow up calls or emails to say, hey, did you get my idea? What do you think? They don't get back to you, they're not interested, you let it go and move on. Okay? Now the next thing to know is what is your invention worth to a company and what will they pay? Now, the standard royalty rate these days for inventions particular for a product that does not have a proven track record that you've had it out there and you can show them sales. And it's already been the stores. Assuming that you're an inventor, you've got a great idea, you may have a provisional patent on it. They don't know if it's going to sell or not. They're going to have to put a lot of time and money to develop it, produce it and market it. So most companies these days are only willing to pay a 3% royalty on total sales that they make, whether it's retail or wholesale. That means that your idea needs to be a big hit. Very few ideas or products are a big enough hit to where you're going to make a lot of money. So, for example, if the product does really well the first year and they do a million dollars of sales, your 3% royalty is worth $30,000 to you, which is nice money, but you can't really live on that for most folks. So a lot of very creative inventors will have a number of ideas of developing all year long, and they may have a half a dozen or a dozen licenses going with different inventions with different companies. Some don't do well, some do really well, and they make a living that way. So just know going into it that as much as you'd like to get an advance royalty of 10 or $25,000 and hope that you're going to make 50 to $100,000 a year, that product has to do really, really well. There are some inventors that have done great and their products do five or ten million dollars a year, and the company takes it and does the TV commercials and online and gets into the retail stores and seen on TV and all that kind of thing. And the ones that do great, those guys make a ton of money, but just have appropriate, realistic expectations. You're not going to know until it gets out there. So the next step is that let's say the company is interested in your idea and they want to discuss a licensing deal. If you don't have any experience negotiating a licensing deal, do research online. I'm going to post something online after our talk here today. They'll give you some overviews. As I'm talking about, just a recap of what I'm talking about, some other ideas about licensing. But as far as negotiating a contract, if you don't have experience in that, you might want to get an expert to help you, whether it's your license, whether it's your patent attorney or a consultant like myself and other folks that have had the experience of doing that. Because what you want to do is you want to negotiate the royalty rate. Of course, you'd like to try to get more than 3% if possible. We would try to get 5% or more. But generally speaking, most companies are not willing to pay more than that. Some will only offer 1% or 1.5%. These days they don't want to take much risk. We want to try to negotiate to get an advance royalty. That means you're going to get money up front that goes and applies against future royalties. So the company has some skin in the game with you, as well as their developmental costs and tooling and production and marketing costs. That advance, generally speaking, is going to be just good faith money. If you're lucky, you'll get 5,000, maybe 10,000, sometimes just one or $2,000. But it's important to get a little money in the game from your licensee. Secondly, you want to look at annual guarantee. So if possible, we get a three to five year contract and we try to negotiate a conservative number that the licensee feels that they can accomplish and that we feel the product can accomplish with realistic expectations. So for example, I had a product I was negotiating for an inventor, and with the company doing 15 or 20 million a year, they told me they thought that if the product does well, they, they would do one to two million dollars a year on it. So we developed the staged guarantees of starting around 10,000 a year and going up to 25,000 a year by year five. That basically the company, if they sign the contract, they're guaranteeing you that amount of royalty per year based on their projected sales. If they do more sales than that, of course you're going to get more money than that, but that's how it works. And then generally speaking, you're going to get paid quarterly, sometimes monthly. If the company is doing a lot of volume for you. There's reporting details and such, pretty much standard licensing agreements that most attorneys will have that are familiar with licensing. So those are the basics. The other thing to consider, I've had a couple clients where they had a great idea. I found the right, very large company in the housewares industry for retractable drying rack or clothing. And at the end of the day, the VP of marketing said, we love your product. It fits within our company really well. But they didn't have a working prototype, they didn't have it fully engineered, they didn't have proper pricing yet from a factory. And the manufacturer said, we don't have the time or the resources to spend on your one product. And they had just acquired Three other companies with dozens of products to integrate into their company. So I went back to my client and said, you know, I've talked to most of the companies that are in your field at the Houseware show and people like the idea, but I don't think it's licensable at this stage. And bottom line is they decided to keep their own destiny in their own hands and they decided to venture themselves. So I helped them find a factory source and we got the prototype, we pre launched it at the Houseware show last year, got some great interest from Home Depot and some other dangers, had some production issues and delays, had to go to a different factory. And we're now looking to relaunch it next March at the Houseware show. And one of the key clients is still interested. So doing it yourself, you have a much greater potential of making a lot more money in a lot shorter time and also not making a lot of money if the product doesn't do well. You have that risk of your own money and friends and family in there, of capital and a lot of time and a lead time of anywhere from six to 12 months, up to two years or more to actually launch the product into the marketplace, depending on how easy or difficult it is to engineer the product, how much tooling is involved, how much money will it cost to get the tooling made, the minimum order to produce it from the factory, usually overseas, sometimes domestically, and your time and availability to set up a business and do all the marketing. We have some great resources here at tracy@productlaunchhazard.com I'm of course an expert on licensing and also on the whole portion of looking at the adventure yourself, of helping you sort of handhold every week, talking to you and helping you focus in on what needs to be done next for product design and sourcing and working with the factory and getting all the details up for business and marketing. And there's a lot of other great consultants within the product launch companies that can help you as well, and other people of course, you can find online. So it's important to get a good team behind. You know what your risk aversion is if you want to do it yourself. And you know, people think you need hundreds of thousands of dollars to launch a company, and quite often that's not the case. If it's a simple product, maybe the tooling is only $5,000 or $25,000 and the production run may be 5 or $10,000 up to $40,000, but it's still not a huge amount of money. You've got your website to do, you've got consultants, trade shows and such. But I've seen a number of companies launch for under 100,000 and quite often under 50,000. So that may be a big number for a lot of you. And other folks go, well, gosh, maybe that makes more sense. So I'll be posting online ideas about this and there's lots of other resources on our website from other providers and presenters to give you ideas. So I'm going to wrap up now. I think I've said everything I have to say for today. You can contact me, look up my name on the Product Launch Hazards website and you can drop me an email. I'm happy to set up an initial 30 minute introductory consultation, talk about what you're doing and how I can maybe support you in that or give you other resources to look towards. I appreciate your spending the time listening and I hope that I was of help to you. So I'm David Lieberstein, the dream product guru, signing off for today. Thank you so much.

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