Business Plan for Licensing My Invention

A business plan describes the strategy required to achieve profitable results.

Creating a new concept forms the first step of an enriching journey toward impacting society with a solution that brings comfort, convenience or problem-solving options. The second step of the adventure focuses on developing a business plan to license your invention.This plan defines your product, details why people would buy it given the current state of the industry, indicates to whom you plan to license the product and predicts whether you will gain some profits from licensing the invention.

Product

The original novel idea often stems from a frustration you have experienced and in turn addressed by developing a solution. Although the idea perfectly matches your expectation, it may not align well with others' needs. Hence, the product typically presented in a business plan represents a solution that a majority of customers would appreciate. The product definition results from interviewing potential customers and follows their guidance to optimize the solution.

Value

The business plan explains how the value of the product differentiates it from the competition. The value surfaces from a set of features or advantages that makes customers buy your product as opposed to acquiring a competitive solution or using a substitute approach. Sometimes, price may be the perceived best benefit. However, differentiation on a price basis becomes a dangerous and at times a financially disastrous approach in price-beating combat with competitors. A true added value will carry its own price premium and weather the market better.

Customers

The customer base of your novel idea frequently represents different interests. The business plan needs to articulate the profile of the companies who would want to license your invention (tier one), then the distributors who would promote your promote your products (tier two), then the end users of the product (tier three). Unless all layers of the customer infrastructure benefit from selling or passing the product, the business strategy won't succeed. Some industries have additional tiers, such as medical insurance companies preferring solutions with lower medical fees for the treatment of patients.

Licensee

Companies interested in licensing product ideas approach their licensing strategy in the context of a portfolio of solutions that will advance their market share. Hence, the business plan needs to position the licensing offer in the context of their vision. The most logical approach to understand whether your product will appeal to a company starts with reading its annual financial reports or by interviewing someone from its business development group. By mapping your product idea along the company's road map, you can better construct the story as to why it should license your product idea.

Revenues

Typically, revenues you gain from a licensing deal take the form of royalty payments off the gross or net revenues from the manufacturer's sales. Other compensation structures include some stocks or a fraction of ownership in the company. The business plan shows the expected manufacturer's sales and the licensing payout to you from the company's revenues.

Costs

In the context of licensing your idea to a manufacturer, you benefit from not having to carry the burden of the product manufacturing cost that resides on the shoulder of the manufacturer. You may be burdened with some expenses. Intellectual property expenses may remain with you and may become significant pending the number of countries that fit under your patent protection. Insurance coverage against risks of litigation adds to the annual expenses. Federal and state taxes will take a bite of your revenues. Finally, you may elect to hire legal representation in your licensing negotiations.

Profit

Your business plan needs to conclude with evidence that you will come ahead financially from licensing your product idea. Financial return on investment computation calculates your up-front investment and the recurring costs you will experience against the expected annual revenues. Results compound with expected interest rate. If you can demonstrate that your effort will bring you back enough revenues to justify your investment, your business plan supports a winning product idea.

References

• Small Business Administration: Essential Elements of a Good Business Plan
• Stanford University: ecorner: The New Business Model (video)
• MIT Libraries: Market Research: Do-It-Yourself
• The Small Business Buzz: How to Write a Business Plan

Resources

• "Writing a Convincing Business Plan"; Arthur DeThomas; 2008