Welcome to Real Fast Results! This is Daniel Hall, and I’m very excited about this particular episode because I’m bringing on a guest who is going to be covering a topic that I am intensely interested in. His name is Stephen Key, and he is going to be going over the idea of licensing your ideas for passive income. That means selling your ideas to companies and making a royalty income from that.
I have searched high and low for an expert to come on who is both very accomplished and willing to share their secrets. So, I am very appreciative that Stephen decided to join us today. Stephen, welcome to the show.
Hopefully, the people reviewing this material will understand that they can take action as soon as today or tomorrow. What I will do is show you how to come up with simple ideas, show them to companies, and let them pay you for your creativity. You don’t have to build a business or spend a lot of money to do this.
I believe that we are all creative, but a lot of us don’t want to start businesses. I admit that I’m not the business sort, but I’m very creative. So, what should I do with all of my ideas? Should I let them just sit in a corner? I feel I let them sit, sooner or later I’m going to see them out there on TV or on store shelves. The game has changed. You don’t have to start a company, or raise money, or quit your job. You don’t have to do anything that’s scary or dangerous.
You can take some of your ideas, show them to the “right” companies, and you don’t even have to own it. That’s what surprises everyone. Everybody thinks that you have to have a patent. You don’t have to own anything; it’s all about speed to market. So, you just have to have the right idea and show it to a company.
The big idea is that you can take intellectual property that you have developed, without having a patent for it, and bring it out to the marketplace and actually sell it so that you end up with money in your bank account. It doesn’t matter if you have a business or not. You’re not actually selling an idea but renting it. You’re just going to let these companies rent your idea for a while, and every quarter, you’re going to collect royalties from it.
If you can make this work for you, this opportunity will allow you to live anywhere you want to, and you won’t have to work a 9-5 job. However, once you start doing this, you’re going to want to work on this all of the time. You can work anytime you want, live anywhere you want, and let the big companies do all of the work for you.
Steps To Licence Your Ideas For Passive Income
The first step is to see if you have a marketable idea. You need to find out fairly quickly, and the best way to do that is to just study the marketplace. What’s out there? I recommend doing a Google Image search. If you’ve got a new hammer, look at all the hammers in the world. You can do this at home. Spend a little time just playing around with the idea, and be an expert in a micro-category. Just sit, search, and see if you can find your “idea”.
If you find that there’s something unique about your idea, move to the next step, which is to do a Google Patents search. That sounds very difficult, but all you do is go to Google Patents and type in a few words that hold similarities to your idea. Then just scour through what other people have done in that space. In order to create for the future, you must know what’s been done in the past. By looking at past patents, it gives you a glimpse of the past.
If you’ve taken these first two steps, and you still think that your idea is unique, you’ll want to continue moving forward with it. Now, this doesn’t mean that you need to reinvent the wheel. You just need to be able to propose a small improvement, but one that no one else has seen. The smaller an idea, the better. Simple ideas is where it’s at, and for a few different reasons. First, if you make a bit of an improvement on an existing idea, then you know there’s a market for it already. Also, it’s likely that the manufacturing can be done because it’s already being done, but you’re making a small improvement.
The third step in this process is to show a company your idea. It really is that simple. You do this with a one-page sell sheet. It’s basically just an advertisement. You know how you drive down a freeway, and when you see a billboard, you get it instantly? That’s all your sell sheet needs to be. It should have a big benefit on the top that tells the company what your idea does and why they should care, a picture pertaining to your idea, and then your contact information down at the bottom.
Here’s how easy this is. Let’s say that you just have a sketch on a napkin. You can find a freelance designer on the Internet that does 3D computer generated graphics. This person would be able to take a simple sketch of yours and make it beautiful. They can make your idea come to life. It may not be real yet, but they can make it look real, and you can have that done for under $100.
It’s important that you understand that the benefit statement that you use should let people know, at a glance, how your idea will make the buyer’s life better. It’s essentially just a benefit-driven headline. Once you have a sell sheet, you need to make a list of companies that could benefit from your idea. I call it follow the money. Who could benefit from my idea? Just go down to a retail store that you think it might sell in, and look at where it’s going to be on that isle. Those are the companies that you’re going to submit your idea to.
The next step that you’ll need to take is to file a PPA (Provisional Patent Application). You can file it anywhere in the world and in the United States for $65. It gives you one year to shop around and show it to companies and put “patent pending” on it. Now, that $65 just gives you one year, but during this time, you can shop it around and see if anyone wants it. After you have that, then you can move forward and contact the company.
To reiterate, here are your steps:
- Step 1: Check to make sure your brilliant idea is marketable.
- Step 2: Make a sell sheet to present to companies
- Benefit-driven headline
- Image that makes idea come to life
- Contact information
- Step 3: Make a list of companies to submit your idea to.
- Step 4: File a PPA
- Step 5: Submit Your Idea
Submitting Your Idea
To submit your idea, I recommend that you go to LinkedIn and find a company that you want to send it to. Find someone in sales or someone in marketing. Tell them that you’re a product developer. Never tell people you are an inventor. Anyway, let them know that you would like to submit an idea to their company for them to review, and ask them what their process is. That’s all it takes to get up and running.
This person is going to tell you what you need to do, and they may just respond with an email address, which is great because you can just send your sell sheet in electronically. If the company takes an interest in it, they will bring all of the right people in the room to look at it. Hopefully, at that point, they will pick up the phone or send you an email saying, “We want to know more.” Now you’re in the game. That’ when the magic happens. Either they will like it or they won’t. You’ll know very, very quickly whether you hit it big or not. If it’s a great idea, the company that you submitted it to would respond very fast in most situations.
It’s when they call that things get a little trickier. It’s time to cut a deal. I recommend that you get someone with a little more experience to help you. If you’ve never done this before, find someone that’s done it, or find someone with a bit of legal expertise. You’re going to need some guidance at this point. Now they want it, and they are going to want to cut a deal. You want this deal to be cut in a way that you benefit best for your idea.
This is so simple that anyone can do this at any age. I have been teaching people that are 18 and still in high school to do this and people in their 80’s to do this. Anyone can do this.
Cutting A Deal
Exactly how you can go about cutting a deal with a company is beyond the scope of this particular discussion. However, here is a little insight. There will be a licensing agreement, and they are going to pay you a royalty on every one (use of your idea/product) that they sell. So, basically, you’re going to rent it to them. At this point, you can also get them to pay for the patent too. There are all sorts of things that you could potentially negotiate, but on the whole, they are going to rent it, they are going to sell it, they are going to pay you.
Royalties – Example
Let me give you an example of one of the ideas I had. It was a little Nerf basketball goal. But, the backboard depicted a picture of Michael Jordan, and it was in the shape of Jordan’s head and shoulders. This sold for 10 years, and I collected royalties on a prototype that probably cost maybe $10. The first year was $100,000 in royalties, and it continued to sell for 9 years after that.
I sent the Michael Jordan basketball goal idea in on April 9, 1999, and had a contract on the 12th. So, I had a contract 3 days later. That’s how fast it went. They were already selling the square ones with a little picture of Michael Jordan on them. It was a split royalty. They paid Michael Jordan and they paid Stephen. In this case, Stephen’s cut was 2.5%. That’s not a very high royalty, even for a small idea. Usually, the average is 5-6% off of the wholesale price of the product.
Every time the product was shipped for $4.99, I would get 2.5%. They made bigger ones and smaller ones, and they even made them with different basketball players. Another product of mine also sold for 10 years. The last check i got was for $0.55 and I kept it.
More Tips On Licensing Products
The most important thing to understand is that you can do this. You don’t need to have a degree in product development or even a business of your own. All you need to do is have a love for products. Find a category that you’re fascinated with. If you like golf, stick with that. Look at golf products, study them, and think about what problems there are. That’s really the first step. It’s not hard.
I like to teach people that they should try to be an expert in a micro-category. It may be something that you’re already in the business of. It’s even better if it’s related to something you’re already doing. One of my students was in the restaurant business, and he noticed that it was really hard to get the tomato paste out of the big cans that they used. He created a tool that allowed them to pull it all out at one time. You see? He knew the problem personally because he was in the business. He discovered there was a problem, created a mechanism to solve that problem, and then licensed the mechanism.
Most people don’t even know that you can license ideas in the hospitality industry. This is a huge industry. Here are more industries that are on fire at the moment:
- The Pet Industry
- The Kitchen Industry
- “As Seen on TV”*
- The Fitness Industry
- The Home Improvement Industry
The money that you can make in the “As Seen on TV” industry comes so quickly that you have to be a little careful.
All of these industries want ideas. If you want to take action right away, call a company that you have no idea that you want to submit an idea to. Just call them up and ask them about their process. Tell them that you’re a product developer and you would like to start submitting ideas to their company. Then, ask them what their process is and take notice of how they treat you. They are likely going to treat you with great respect, tell you about their process, and endearingly wait to see what you have. That’s when you’ll realize that there are no barriers to this. You don’t have to have experience, and you’re only as good as the ideas you are sharing with them today.
So many people are surprised because once you take that fear away, they can see that they can do this. On the other hand, some people just expect companies to just take their idea. I’ve been teaching this for 15 years, and I haven’t seen a problem yet. If you act professionally, read as much as you can on the topic, and be reasonable, you won’t have much trouble. You do have to do your homework, however. Search for the company, and look up complaints people have had about that company. Also, understand that if they treat you great going into it, they will treat you great throughout the process. Kick the tires, but be professional about it.
Companies don’t take ideas because you might have some intellectual property, and social media is a nightmare. They want the doors to be open, but people don’t submit ideas anymore that make sense. There are industries that have been doing this successfully for years. For instance, the toy industry has been welcoming outside people for 50 or 60 years. Imagine having 10,000 people submitting ideas. This would increase any chances that you have of finding a winner, and then they could cherry-pick the very best. Most companies would love to pay you royalties for a winning idea.
Do I Have to Have a Brilliant Idea to Do This?
You do not have to reinvent the wheel. Big ideas take a lot of money and time because you have to educate, and most likely, spend a lot of money to get it going. When you make simple improvements on existing ideas, the product is already selling and has already been proven. You’re just bringing the next addition out. They already have the marketplace established, so it’s speed to market.
Here is an example of how simple this can be. I’ve got a water bottle with a label on it, and you could spin the label on the bottle and it would reveal more information from a little window on the back. In other words, the label is in two layers. When you spin the bottom of the bottle, new information would be shown through a little window on the top label. This could be used as a marketing device.
This particular water bottle has a college team’s logo on it, and it was being used as a recruiting device. Imagine yourself at a football game, and you happen to spin the bottom of your bottle of water and realize that it does that, so you begin reading. Then you find out all sorts of things about what the university you were at offers.
This is a sort of cool and clever idea, but all it really involves is an extra layer of the label on a water bottle. The best part is that this piggybacks on products that are already on the market. All I did was add a little value by making some use of, or a simple improvement to, the label that would have existed already. It delivers more content. You could use this for contests and all sorts of things. In fact, you basically double the label size this way, and a company can add more promotional materials, which makes the label all the more valuable to the company at hand. For this project, my one-line benefit statement was, “This label adds 75% more space.”
If you had an idea like mine, you might begin by doing a Google Image search for, “Labels that add more information.” Then, I would just look at all of the images. I’ve seen labels that pull out like an accordion book. I might even go into someone’s website. I’d just search around for everything having to do with labels. I’d look up “expanded content labels”, and “labels that add more information”, and “labels that function”. I just start to become an expert in one little area. In this case, I looked at this and found retailers that sold different types of labels. Those would be the companies that I submitted it to. In other words, you could go to those who have something substantially similar, and that could be the first step in who to contact.
Everybody thinks that you’re going after the competition. No, it’s your potential licensee. As you are researching the market, you’re also looking for potential licensees. The next thing that you would do is perform a search on Google Patents. I would type in the same thing as I did before, which would be things like “Labels that add more information”. Various patents involving these types of labels would come up, and I would search through them to make sure that I’m not copying anyone else’s patented idea. Then I would search through the manufacturers that came up in this search as well.
Again, when you do this for a day or so, you begin to become sort of an expert in a very narrow category. If you do this and you start to think that you have a marketable idea that would work, that’s when you begin to make plans to put together your sell sheet. You might even decide to make a YouTube video about your ideas. YouTube videos are very powerful, and one that you make for something like this shouldn’t be more than about one minute long.
All you need to do is demonstrate a problem and how your idea could be the solution. For example, if you wanted to sell the label idea spoken about before, you could show a person that was frustrated because there wasn’t enough information about something on his label. Then, you could show that person happy because he found a bottle that gave him all the information he was looking for.
If you made a YouTube video and a sell sheet, you could add a URL to your sales sheet that people could click on to see a demo of your idea. Since you studied the marketplace and made a list of companies, you have done all of the work. You have a video, a sell sheet, and a list of companies to send the sheet out to. That’s when you’ll want to file your PPA (Provisional Patent Application). At that point, you’ll have one year to shop it around before you have to file a non-provisional, which would be a patent. You can file a PPA anywhere in the world, yourself, for basically $65. If you are in a higher income bracket, it might cost $120. Either way, it’s very affordable.
The sell sheet that you make would need a good image. A 3D, computer-generated graphic might run you $50-$70. That, along with the cost of your PPA shouldn’t exceed more than about $200, and yet, you’ve created a package that could potentially be worth hundreds of thousands of dollars.
I’m amazed at how many ideas I have seen that were truly remarkable, but they take forever because they aren’t simple. People try to reinvent the wheel and have to educate people about their idea. On the other hand, I’ve seen small improvements on products get licensed all of the time. In fact, I see licensing agreements almost every other week. The people that are getting these contracts are using my 10-step system, and five of these steps you learned about today.
It’s really quite easy to put together the marketing material, create a list, make a sales sheet, and reach out to a company. These are all steps that people can follow and complete both quickly and inexpensively. I have even taught people in other countries how to do this, and they end up feeding ideas to United States companies. You can do this from just about anywhere.
Speaking of doing this inexpensively, there are people offering to do 3D renderings on Fiverr each and every day at a very low cost. It’s incredible how much skill people have today and what little they charge for them. There was a time that something like this would have cost thousands of dollars, and now you can have this sort of thing done for as little as $10. It’s just incredible.
One of the points that I want to get across is that you need to reach out to everyone that you can, and if you get a “no”, don’t let it deter you. Keep trying. I recommend contacting at least 25 different companies, and all at the same time. Don’t wait to hear back from one. Right now, you might be thinking, “Well, what if there are two different companies that want it?” I usually respond to this question with, “What a great problem to have!” This could potentially cause a bidding war for your idea.
By the way, there’s one industry that you would not want to contact more than one person at a time with, and that’s DRTV (Direct Response TV, otherwise known as “As Seen on TV”). It’s a very small community, so contact them one at a time. There are only five or six players in that community anyway, and you’ll want to contact each of them one at a time. When it comes to everyone else, however, you’ll want to contact as many people as possible. Keep good notes, and even if you get a “no”, you might get a “yes” next time.
Act professionally and ask for feedback. Maybe you can resubmit it, or maybe you can tweak the idea a bit before submitting it to the next company. Everything is based on relationships, and if you submit another one before you know it, they’ll start to tell you what they are looking for. That’s golden because if you know what people want, you’re in a much better position to provide it. This definitely gives you an advantage, and they realize that you are working for free for them; that is, until they take it and rent it from you. You’re an asset. They want these calls, and they are really going to love you.
When they finally say, “We want to talk more,” you’re going to fall out of your chair. This gives me goose bumps to this day. That’s when you’ll know that you’re really in the game. Again, anyone can do this. The steps are easy, and you’ve been given all of the advice that you need to get started today. The only thing that hasn’t been discussed much at this point is the contract. I can talk all day about how to cut these deals, but there note enough time during this interview. However, here are ways to cut deals that you get it every time.
How To Get A Deal
There’s one way to get a deal every single time. It’s all about taking away fear. When a company sees your idea, they want to license your PPA. They want to license that number. They want to license your concept. It comes down to what you are granting and what they are licensing. In their mind, they need something tangible. I always tells these companies, “We’re going to make improvements.” That’s because they are; they always do. That sounds really simple, but they always say yes. It’s good business. The company will tell me, “You’re right Steve; you’re going to make improvements. We’re going to make improvements, and we need to add it to the contract.” Now, what happens when they do that?
When your idea is patent-pending, you’re going to ask for a certain royalty. That may be 5%, for example. Then you make the agreement that when your idea goes to patent, you’ll be paid 7%. At the same time, make the agreement that if it doesn’t issue at all, they pay you at least 1% for your efforts. Doing it this way takes away all of the fear from that company. They are always worried about owning something. I don’t believe that you own anything, ever. Products go in and out of the market so quickly today that your product might go through its life cycle before a patent can even get issued. It’s not about patents. It’s about selling. So, the way you do these deals is you just take away the risk for these companies.
During your negotiations, you tell the companies that you speak with, “If it issues pay me [this], and pay me [this] if it doesn’t.” Since you opened up the grant of license, you can always file another PPA to get paid the 5%. That may seem a little complex. I have written a book on this topic alone. These are the deals that I see happening every day because you take away the risk and you give the companies three different opportunities, and all along, you play the patent game. Even more importantly, the patent game doesn’t play you this way. This is something that’s a bit hard for many people to grasp, but it’s not that complicated if you sit down and think about it for a while.
What happens is when your product lands on a company’s desk, the CEO may look at it and say, “Hey, I like this, but let me bring my team in.” He shows it to the sales guy, and the sales guy goes, “Hey, I can sell this.” Then, they go to the marketing person, and he says, “I can market this product because it has a great benefit.” They bring the manufacturing guy in, and he goes, “This is an improvement on our existing ideas, so we can make this.” Finally, they bring the legal guy in, and he asks, “Well, does he own anything?” This makes everyone in the room start to think, and they say, “We don’t know. Take a look at his Provisional Patent Application.” That’s when the legal guy asks, “Well, will he get a patent,” and everyone goes, “I don’t know”. You see, no one knows; this is the gray area.
You’re playing the unknowns. This opens the doors for you to say, “I know it is speed to market, and I know it’s not about protection. It’s about selling. So, let’s just go sell it now.” Why wait for a patent to issue when it might not even issue? Even if it does issue, by then it may be too late. So, you play that game of the unknown, and that way, when you work the contract, you can keep that gray area open and a little vague by adding new intellectual properties that keeps that patent pending as long as you like. At the same time, you are minimizing their risk because you’re telling them that if it doesn’t go to patent, my royalties will be basically nothing. It makes them very happy, in fact, because you’ve countered everything that could possibly happen.
Again, it’s really about selling. It’s not about protection. I have seen tons of licensing agreements in my lifetime, in 99% of them, no one owns anything. A lot of the time, people don’t like to hear that. Patent attorneys don’t want to hear that, for example, because they want to sell you the patent. They want to sell you that process of filing a patent. I want everyone to know, that’s not what I’m seeing. I see these agreements probably every other week, and I’ve been seeing this for 15 years. It’s not about fear, or being an expert, or anything like that. It’s really about getting into the game today. If you’re creative, you don’t need to have a background. All you need is one simple idea.
It’s always a numbers game in anything you do in life. You can start one business and pour all of your money and energy into it. In four or five years, you may have become a substantial success, and you may not have. With this, you may have 20 or 30 ideas in a year, and you can just put all of those bowls out there. Essentially, you’ll have all of these companies working for you and you’ve increased your chances tenfold. On top of that, you were not the one to take the risk.
Licensing Your Products Vs. Selling Products Through Amazon FBA
I have a lot of students that do both. Personally, I don’t want to have any skin in the game, at least not financially. Plus, I know that I don’t have the time to manage something like this, and have no interest in doing so anyway. At the same time, I do like to have multiple products out in the marketplace, and I like to have several different balls up in the air at any given time. I like that what I’m doing carries no risk at all. This is something that’s very easy to do, and I have done the other.
I have managed a company before, and have had my own employees. It’s complicated because you have to watch all of the time and stay aware of the market swings. All of that stuff is someone else’s problem when you’re just licensing your ideas. It’s not that this is any better than any other business model, really. It’s just another way to play the game. I personally think you should play the game in all sorts of different ways. So, it’s not a matter of one being better than the other; it comes down to how you want to spend your time.
If you’re a really creative person, and you want to find something that can build great wealth, then you need to find something that has a multiplying effect. Licensing your ideas does this.
Connecting With Stephen
The 10 steps that were partly outlined are completely outlined in a book called One Simple Idea. You can find it on Amazon, and it’s been selling there for over five years. It has also been translated into five different languages (learn more about selling foreign language rights to your books). I call this book your “road map” for pursuing this type of business. I also have a YouTube channel called “inventRightTV”. My partner Andrew Krauss and I produce two YouTube videos every week, and each one is on the 10-step process that you’ve been introduced to today. Last but not least, I also write for three online magazines, on a weekly basis. They are:
Daniel’s Real Fast Result Tip: Passive Income
I agree with all that Stephen has discussed today. I firmly believe that we should all seek out a business model that supports our lifestyle and gives us the kind of time freedom that we need. This particular model is right in the cross-hairs of that goal. That’s one of the reasons why I just love the idea of all of this. So, go out and make it happen!
Stephen’s Book – One Simple Idea
Google Image Search – https://images.google.com/
Google Patents – https://patents.google.com/
Finding 3D Artists – https://www.fiverr.com/
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