Printable Version

Commercialization Basics

It is estimated that only one or two of every 100 patented innovations will reach the marketplace. These odds aren't very good, but there are a number of things you can do to improve your chances.

First, recognize that there are essentially just three ways for making money from your technology:

1. By selling outright all your ownership in the technology.
2. By licensing certain rights to your technology to others.
3. By building a business around the technology, often called "venturing."

Sell it All

Selling the total ownership of your technology generally means getting paid and then walking away from it, forever. There can be some exceptions, such as if the buyer negotiates with you to stay on in a consulting arrangement. The advantages of selling your ownership, however, are (1) that you get paid for your innovation and (2) you now get to move on to pursue other technologies.

License It

Licensing is a popular commercialization strategy, because it allows you to retain some level of influence in the commercialization of the technology. Licensing should be perceived as a partnership—you bring the technology, the licensee brings the money, experience, contacts, and other resources, and the everything is pooled to successfully commercialize the technology.

The partnership should be guided by a written agreement between you and the licensee. It is through the terms of this agreement—i.e., regarding payments; timeframes; sales expectations; etc.—that you are able to influence the commercialization process. The agreement should include some kind of escape clause that allows you to end the relationship and take back full control of the technology if those terms are not met.

Licensing involves a legal contract that grants some other entity the right to manufacture, sell, and/or use your technology in return for compensation, usually in the form of royalties. Licensing contracts—like most contracts—are all about negotiation. Yes, there are very often industry norms and expectations, and you should do the research needed to become familiar with them. But in the end, your ability to negotiate the terms of your licensing agreement will dictate the strength of that agreement. As with the patenting process, working with a licensing professional experienced in your field will usually give you the best chance of protecting your interests.

Many independent innovators refuse to enter into licensing agreements, because they are perceived as "giving away the farm." You certainly have the right to choose what terms you will accept, but remember—if the technology is never commercialized because the licensing terms are too stringent for would-be licensees, then no money comes in the door. In contrast, if you realize a smaller percentage of something is better than 100 percent of nothing, then the solution is to soften your licensing requirements to a point that is acceptable to a licensee. Again, this is what the negotiations are all about.

Build a Business

"Venturing" your technology—that is, working to build a business around it—is the third commercialization strategy. Venturing can take many different forms:

• you can plan your business to manufacture, sell, and distribute the finished product;
• you can contract out the manufacturing and build your business around selling and distributing the finished product;
• you can plan to manufacture the product in-house and contract out the sales and distribution functions;
• you can contract out a portion of the manufacturing and then assemble the finished product in-house, followed by sales and distribution.

The venturing experience can run from one extreme to the other—at one end, it can be an exciting, profitable, and highly satisfying experience. But at the other end, it can be personally and financially disastrous. Venturing should be pursued only if you have good reason to believe you will have access to the substantial resources this commercialization strategy requires.

Venturing is often a poor choice for independent innovators because of a shortage of resources and business knowledge and experience. Also, independent innovators often lack the objectivity to honestly assess the commercial potential of their technology and make hard decisions based on that assessment. In general, venturing too often takes the innovator away from their strength—technology innovation.

All of those factors aside, history is full of examples of independent innovators having successfully commercialized their technologies via venturing. Sometimes luck is the key; other times, it's hard work; and very often, business partners are involved. In every case, though, venturing requires the innovator's commitment and dedication.

10 Points to Remember

1. Understand your strengths, weaknesses, and resources—objectively!
2. Don't expect to do everything—find and pay attention to experienced advisors.
3. Make sure there is a market for your idea—objectively!
4. Protect your idea well.
5. Watch out for scams—they play on everyone's desire to get rich quick. If it sounds too good to be true, it probably is.
6. Understand and be able to briefly describe your innovation's competitive advantages—know what technology(s) your innovation will replace in the market; know the strengths, weaknesses, manufacturer(s), and price of each; and understand what makes your innovation superior.
7. Understand the process by which technologies like your own reach the marketplace and build this knowledge into your commercialization strategy.
8. Remember that potential investors care little or nothing about the technology itself—they want to know about the market potential and your ability to convert that potential into profitable sales.
9. Be realistic about expectations, but persistent in pursuing them.
10. Owning even a small percentage of something is better than owning 100 percent of nothing!