This is a follow up to the last post:
In that post, I mentioned that the rewards of successfully licensing your product can be significant – a lucrative passive income and the freedom to use your time as you choose.
Let’s compare and contrast the options available to a successful employee versus a successful licensed inventor.
Risk Versus Reward
While there are rewards to being a successful employee and climbing the corporate ladder; as an employee you are paid for your presence, not your products/services. With the exception of sick leave and vacation days (typically less than 30 days each year for most employees) you are only paid for the hours you actually work – your presence. So, for a typical worker who works 2,080 hours per year, the only way to make more money is to increase your current salary ($/hour) or find a higher paying job. To use a sporting analogy, you are very much impacted by a maximum salary cap! It is unlikely you have many options to double or triple your income.
Overall an employee does have a degree of stability that a self-employed inventor does not: predictable salary, benefits and (hopefully) healthcare insurance.
Greater stability = less volatility = less risk for an employee versus an inventor.
Unfortunately, that stability may be ephemeral and evanescent: quickly disappearing with the next layoff. Then your salary and income goes to zero!
A successful licensed inventor has low risk and high potential reward.
In a typical licensing agreement the inventor grants the licensee company broad rights to manufacture, produce, package, distribute and sell his or her patented product throughout the US, Canada and sometimes other countries in exchange for being paid a royalty: a small percentage of all sales. Typically for an independent inventor, the license will be an exclusive one, meaning, excepting the licensee company, the inventor is restricted from licensing to any other company.
The licensee takes on the considerable expense and risk of manufacturing, producing, distributing and selling the product. The licensee will have to ensure shipping schedules, must meet customer needs, will have to accept returns and deal with many glitches and headaches and maintain a reasonable profit margin for themselves and partners.
The inventor, as described in the previous post, may sip Mai Tai’s in Maui – as she has no capital risk. She does not have to tend to the 24/7 aspects of running a business, the licensee does that. The reward for the inventor may be excellent. Assuming the licensee company successfully distributes and sells the product throughout their system, millions of consumers may buy the product. Even a small royalty percentage may yield a lucrative quarterly royalty check for the inventor. The inventor is paid not for his time, but rather for his product – the more product that sells 24/7, the more he makes – so no salary cap!
An inventor may spend considerable time, energy, and money to develop and patent her invention with no guarantee she will ink a licensing agreement with anyone. But, all of this effort can be done part-time while she keeps her job to pay the bills.
If, however, she is able to license her product successfully – it could be a game changer and transform her life. She could exchange a corporate suit for a bathing suit; exchange an endless tide of meetings for meeting the incoming tide on a Maui beach.
Maybe it is worth working on that little idea in the back of your mind.