Licensing Your Invention vs. Going Into Business

Have an idea but not sure what to do with it? Our expert explains which money-making option is right for you.



During the invention process you'll encounter an early fork in the road: should you go into business for yourself, or should you try to license your idea to an already established company or manufacturer? There are many factors to consider when making this decision, and this column will help you evaluate the pros and cons of each.

First it's important to understand these two options. When you go into business yourself, you'll handle every step of the process--from creating a working prototype to overseeing the manufacturing to devising a marketing plan to sales to distribution. When you license your invention, most of these steps are taken on by the licensee and you're paid a royalty on net sales of the completed invention. Running your own business demands a greater commitment and tolerance for risk with the promise of greater rewards, while licensing your idea minimizes your risk, and also your financial return.

As you consider your decision to go into to business vs. licensing your idea, there are three main factors to consider:

1. Your goals
2. Your available resources
3. Your tolerance for risk and expectation for rewards


Your goals
When considering your goals, it's important to figure out what, exactly, will suit your lifestyle, your interests and your overall psychology. This will help determine whether owning your own business is right for you--or if the invention process alone is where your interests lie. Ask yourself the following questions:

Do you want to create a full-fledged business or generate a modest supplemental source of income?

Do you want to experience the entire process of taking your idea to market? Or are you happy to hand the creative process and control to someone else?

Do you want to earn a lot of money? Or will you be satisfied with a small, low-effort supplemental income?

Do you have a problem handing over your invention?

What part of the process is enjoyable for you?

Available Resources
Next it's important to consider what resources are available to you. That means evaluating not only your tangible resources, but also your innate resources, like your talents and abilities. Ask yourself:

Do you have access to a telephone and a computer with internet?

Are you able to establish a basic work area to start a business? (This can be as simple as the family kitchen table or a spare bedroom to start with.)

Do you have the organizational skills and discipline to oversee the development of a business?

Do you have the interest and willingness to educate yourself and seek out help when needed?

Do you have the financial resources or current income to cover your basic living needs?

Can you tolerate the complexities and financial needs of a business startup?

Can you envision turning to other sources of support--emotional and financial--in the future when each becomes necessary?

Risk vs. Rewards
Finally, you should evaluate your tolerance for risk and measure your desire for rewards. On one hand, about half of all small businesses fail within the first four years. On the other hand, the potential benefits of a successful business--being your own boss, setting your own hours, and reaping financial rewards--may outweigh the fear of losing your initial investment. Ask yourself:

Can you tolerate the financial pressure of running a business?

Can you face failure if it should occur?

How well will you handle success? Can you grow your business intelligently?

How well will you handle the loneliness an entrepreneur feels before "turning the corner?"

NEXT: Side-by-Side Comparison - Licensing Vs. Going Into Biz >>