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Licensing an invention - Q & A

Tina from Boston calls in wondering what to do with her invention -- the Belly Bed. Should she license it to a company or build her own business around it?

Rich Sloan:  Okay.  We're going to Boston, Massachusetts.  And that would be Tina.  Welcome to our show.

Tina:  Hi, Jeff and Rich.

Rich Sloan:  Hello.

Tina:  It's great to talk to you both.

Rich Sloan:  All right, well, you haven't heard us respond to you yet, so you might want to withhold such --

Tina:  I know.  Okay, um, I am working with my sister on her invention, and it's called the Belly Bed.

Jeff Sloan: Well, that's your first mistake, working with your sister.  Take it from me.  Wait, wait, Tina, are you oldest?

Tina:  Tell me about it.

Jeff Sloan: Wait, wait, are you the --

Rich Sloan:  How many years have you been doing this?

Jeff Sloan:  Tina, are you older sister or the younger?

Tina:  The younger.                         

Jeff Sloan: You're the younger, Oh, well, then, working with your sister's a brilliant move.

Tina:  All right.  Actually, I -- we briefly met you two last summer at the Impacts Trade Show in Pittsburgh.

Jeff Sloan: And that's a show for inventors, okay.

Tina:  Yes, and actually our product, the Belly Bed, won a gold medal while we were there, so it was great.

Jeff Sloan:  I remember walking down the aisle ways and seeing that product and thinking how clever it was.  I mean, you know, it's one of those that's hard to miss.

Rich Sloan:  I think we actually mentioned it on our show that we did right after that.

Tina:  You did.

Rich Sloan:  And we talked about how this is a bed for pregnant women so that they can lay on their bellies and their bellies can kind of extend into the bed without kind of that uncomfortable --

Jeff Sloan: And there was a cute commercial on TV, having nothing to do with your product, but do you remember the commercial where the little boy digs a hole in the sand?

Tina:  Yes.

Jeff Sloan: And his mother rolls over to suntan her back, and her belly fit perfectly into the hole. 

Tina:  Exactly.

Jeff Sloan: So, there you go. 

Tina:  Yeah.  And see, that's the great thing about the Belly Bed 'cause you can use it not only for sleeping at home, but you can use it at the beach so you don't have to stand with your back to the sun or dig a hole.  And you can also use it in the pool as a float and use it for massage therapy.

Jeff Sloan: All right.  So I think we're in agreement.  It sounds like a very cool product.  What can we do to help you make a mint? 

Tina:    All right.  We are total rookies in the business world.  And we've been receiving a lot of great responses from people when our product's been in the public eye, but we're not sure whether to stay on our own, sell them from our website, try to go with a venture capitalist, or license it to a company.

Rich Sloan:  Do you have a patent? 

Tina:   Yes.

Rich Sloan:  It's a -- is it a design patent or a utility patent? 

Tina:   I believe it's a utility patent.  I think.

Rich Sloan:  Yeah. 

Tina:    It's -- my sister always handles the patent stuff, so -- sorry.

Rich Sloan:  Okay.  You know, first of all let's clarify a couple things.  When you talk about going with a venture capitalist.  First of all, venture capitalists don't typically invest in products. 

Tina:   Okay. 

Rich Sloan:  They typically invest in companies, so that brings in the question, you know, your qualifications, the business plan, your capability of running a big company, et cetera, et cetera.

Tina:   Uh-huh.

Rich Sloan:  My -- and they typically don't invest in start-ups.  My guess is that you'd have a hard time finding venture capital for something like this as good as the product idea might be.  You might be able to access angel financing into a company, into a business plan.  And I'll bet that will be relatively -- relatively speaking, easy to get because angels will like the idea.  They'll get it.  They'll find it catchy just like we have. And as long as you've got a good solid business plan and good management team and good vision for the company you should be able to interest to angels.  Now, that's if you want to do it on your own.  The other way to do it is to license it.  And if you've got a patent, there is an opportunity to license out this as a product idea to a company who would be in this line of business and maybe already have distribution in place. And that's a viable option as well.  I think you really break it on down on two levels.  The first and most important thing is, what do -- what kind of lifestyle do you want to lead?  Do you want to be taking on -- what kind of risk profile do you want with this?  In licensing, the -- you tend to give up more of the profits, but you also don't take near the amount of risk.  The company that you license it to does all that.  If you start a company of your own, you know, you have an opportunity not only to make more on the sale of the product but to build equity into a company that might be valuable in and of itself down the road. But you, again -- you take more risk; you gotta to put all the time and energy and effort into a building a company. So you first have to ask yourself, you know, what kind of lifestyle do you want to lead as you approach this business opportunity?  And we think that life plan comes before business plan, so you need to consider that first. 

Tina:  Right.  We do love, like -- we've been getting -- like I said, we've been getting a lot of orders.  Like, it was internationally on NBC and CBS News and we were getting a lot of orders.  And we loved dealing with the customers.  We loved watching it grow.  You know what I mean?  And that's what we've been having a hard time trying to figure out, what we want to do.  And the fact -- we don't have money.  And the fact that we want to improve our product 'cause we listen to our customers and we definitely want to use their suggestions on redesigning it; not major changes, but, you know, there's definitely some better ways to design this product.  Yeah, that's why we were, like, first license to a company, but we hate to give up, you know -- we'd like to still have a say in the matter.

Rich Sloan:  Who's manufacturing the product? 

Tina:  Sorry?  Oh, um, well, actually, we are in the process of trying to get another one.

Rich Sloan:  Another contract manufacturer? 

Tina:  Yeah.

Rich Sloan:  Yeah, you know, Jeff, I -- here's what I'm hearing Tina say.  She loves the part of the business -- she and her sister love the part of the business that puts them in the marketplace with the customers.  And so what I -- what I'm feeling here is that this is probably not a licensing route but more of a business -- a business route, operate the business.

Jeff Sloan: It could be or, if you recall, Rich, when we licensed the Battery Buddy to the company that we did, we actually cut a consulting deal on top of it where they paid us for representing the product, going out into the marketplace and helping represent the product, getting customer feed back, et cetera.  It's being interfaced between the big company and the marketplace. 

Tina:  That is totally, totally up our alley.  That's what we would -- that would be ideal.

Jeff Sloan: Well, I'll tell you --

Rich Sloan:   And I -- and I -- and I believe that the cases where you'll be able to achieve that are very rare. 

Tina:  Okay.

Rich Sloan:  And the reason -- the reason why is because the biggest the companies out there that have the best brands and have the distribution and have the advertising budgets and have, blah, blah, blah - the strongest companies, in other words, don't need you to do that. 

Jeff Sloan: Well --

Rich Sloan:  And in fact, it might get in the way of --

Jeff Sloan: Well, they might think they don't need you do to that, but they -- you could be very additive if you make the right pitch for it.  I mean, our product is with a big very company.  And I do think it takes, you know, it -- it's not gonna be easy to make that kind of deal happen, but it can happen.  And if you make the case properly, and if you show them how valuable you'll be in addition to their sales team.  I'm -- I'm not speaking of you representing the company as a sales position. And I'm not speaking of you taking the place of anyone else who may be on staff.  But in an additive way, you know, being an interface between the company and the customers, bringing information back to the company, you know, speaking to the customers on behalf of the product and the company. I think that might be able to work out really, really well.  That's a shot.  The other way to go as Rich just mentioned, is to establish a contract manufacturing relationship with the right manufacturer, and then -- and then you guys going out.  And as far as getting money by the way, check out an SBA bank loan as well.  Since you've got product in the marketplace, you might be able to get yourself a bank loan that'll give you some funds to to take this to market. 

Tina:   Okay.  And could I just ask one more thing?  I'm sorry.

Jeff Sloan:  No, no, you can ask.

Rich Sloan:  Go ahead.

Jeff Sloan:  You can ask just one more thing, Tina.  And we're cutting you off after that. 

Tina:  Okay.  We've been getting e-mails from people from abroad like Australia, the Netherlands, Israel, and people from inside the US that want to sell these for us on their website 'cause they -- they loved it.  And we just -- like I said, we're total rookies.  We just don't know if that would be a good idea while we're selling them on our own from our website.  You know what I mean?  I didn't know --

Jeff Sloan: Yeah, you need to -- the trick is, Tina -- and first of all, quickly, 'cause we have such limited time.  You need to make sure you protect your pricing.  So if you're gonna offer it on your website, let's just say for a hundred bucks to pick an easy number, you need to make sure they're selling it and around -- now you can't control their pricing.  But you can have what's called an MSRP, manufacturer's suggested retail price.  And the key to making that work is you also can control the price at which you sell to them. So you can have various pricing levels.  If you're a wholesaler, you pay this price.  If you're a retailer, you pay this price.  And if you're a consumer, you pay another price.  You just need to make sure you try to have pricing parity as much as possible when the pricing hits the consumer level.  Otherwise you're gonna have chaos in the marketplace. And to the general concept of having the product sold through other websites, I believe that you're gonna sell a lot more Belly Beds by selling it not only in other countries but in the US of A through other people's websites, because they have so much more traffic than you have.

Tina:  Exactly.

Jeff Sloan:  Exactly.  And volume is the key.  You know, I'd much rather have a lot of volume and a smaller piece per unit as long as the bottom line gets bigger.

Rich Sloan:   Wholesale it.

Jeff Sloan:  And I -- and I'll -- and I'll tell you one last thing -- one last thing.  You might even be able to get financing by getting orders in advance and taking those and factoring those orders, getting revenue in advance from a company that provides revenues against those purchase orders.  Check that out.