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Licensing Is the Longest Shot Strategy for Consumer Product Deals That Are Not Fully Vetted

by: Geoff Ficke

Licensing Is the Longest Shot Strategy for Consumer Product Deals That Are Not Fully Vetted

My firm receives more project submissions seeking a hoped for licensing deal than any other strategy consideration. The prospective entrepreneur invariably is hoping that his idea, concept or self-built prototype will entice established licensee targets to invest in the product and successfully fill retail channels with a perfected product. This path invariably fails.

Recently we reviewed a very interesting Sun Tanning related product. The product was actually well conceived, much better than most we review. The developer even had a perfected prototype. Her preferred goal was a licensing deal. However, the Cost of Goods and thus her Sales Model made the product unmarketable. Every unit that could be sold would lose money. The market research revealed a price limit that the consumer would pay for this type of item and the unit that this ambitious young lady was offering was well beyond that price point ceiling.

Where had she gone wrong? The product was a bit over-engineered. She had not completed a thorough round of due diligence on manufacturing and logistics costs. The lady had little experience in the backroom areas of the Consumer Product Development process. She simply found a local source of supply and went with them.

At least in the case of the Sun Tanning product she had tried to perfect a product and a Sales Model. Most people seeking to License products do not even do that much. They dream that a bag of money and expertise will fall into their laps and enrich them while they sit and observe the process from a beach or poolside while consuming an adult beverage with little umbrellas floating in the glass.

Many of the projects we review would, or could actually be commercially viable if the owner would commit the time, effort and resources that are vital for the attainment of success. Our experience is that the vast majority of those seeking a License for their project do so because they do not possess the fortitude to push the ball over the goal line.

Companies that seek to License products and inventions have a vast field of opportunities from which to choose. Like any entity dealing from a position of great strength, they can afford to be choosy and exceptionally thorough in conducting their search for viable Licensing partners. They will only deal with the most polished offerings.

I am often asked, what is the best advice I can give to an aspiring entrepreneur seeking to partner, joint venture or license their product? The short answer is to be able to show a basic level of Sales Traction. Purchase orders, even if you cannot yet fill them, speak volumes to investors. There are many ways and strategies to accomplish this hurdle. We prefer to use a Pre-Sell strategy that mitigates costly inventory build out risk while confirming a Proof of Concept from target clientele. This has worked time and again. However, this path does require toil, research, some level of resource commitment and courage.

Those seeking to take shortcuts waste their time and the time of marketplace participants. Companies simply will not review projects that are not professionally constructed and presented. No experienced firm will act as arbitrageur for products that are not perfected. For this reason, only about 1% of projects we review have any possibility of achieving Licensing success as submitted.