How to Sell an Idea to a Company Without Them Stealing it

Selling an idea is stressful enough without the overshadowing thought that someone might steal it right out from under us. We want to perfect our pitch, but would that be at the cost of losing our intellectual property? Below is a collection of information and advice shared directly from our amazing community. Learn first-hand from fellow Founders — their experience and in-depth thoughts around the value of ideas. (edited for proper grammar and the ease of reading)

Here's the deal — ideas are the most common thing on the planet. Ideas are basically worthless until they are proven practical. Take it from me, I'm a crazy inventor who has had to learn this lesson over and over again. (...) All big businesses are in the game of taking other peoples' ideas and profiting from them. But you are wrong in thinking that they want to squash you — they have no time to even think about that. That is your fear of not taking action. Ideas and business models get "stolen" all the time. Big investors will never sign a non-disclosure for the very fact that they might "already" be working on your idea and would want to avoid any legal troubles of signing to hear your "idea." (Nickolas Passig)

The world out there is already a cauldron of ideas, every one possesses one. What differentiates successful and not-so-successful individuals is the courage to speak, share, and execute ideas. It's one of the biggest myths that somebody will steal your idea. Since it's your idea no one else can understand the DNA better than you. The world out there wants a business model to copy, more than just an idea.

Some really good perspectives here. All a great. If you are determined to leverage a large company, you can try this approach. I brought several small companies into IBM with big ideas and a couple leveraged the IBM machine to build sizable companies in a similar way.

First, find people who will pay for your idea. Research all sides of the solution. What other technologies can be incorporated in your idea. If your idea requires other software components, professional services, and hardware, you have more points of leverage. Approach a large company with your idea and back that up with a list of people who will pay for a delivered solution. If you present a solid case with paying customers, most large companies, like IBM, have people who can make an investment and prime a solution. Of course, there are many things for you to worry about here, but it can be done; I lived it. (Denny Adams)

NDAs

Get them to sign an NDA. This will not guarantee that they will not squash you, but it will help. (Michael Von)

If you feel a "Non-Disclosure Agreement" might prove to be the much-needed panacea then you're already on a path to achieving euthanasia. So, rather than focusing on copycats, focus on how you should present it as an opportunity. All the best! (Sushanti Bharti)

Make yourself invaluable

Include from the community answers:

Ideas/concepts are not worth as much as a proven model. Now, if your idea is such that you are the rare talent or have the secure connections required to execute, that's a bit different. Yet, even that is not a guarantee. Is your idea able to be patented? Is it a widget, formula, etc? I would consult a corporate attorney with your idea to see if he or she is able to help. (Kevin McCarthy)

Patents

### How to patent your idea
### Do you need a prototype to patent your idea?

Can you sell an idea without a patent?

What if a business/investor uses your idea without crediting you?

How to successfully pitch an idea to a company

To give it to them and mutually profit, without them just taking the idea and squashing you keep in mind these following steps.

Step 1: Gather Information

Yes, it is the information age which means the more info you are armed with, the better off you will be. Licensing your idea is no exception. Before you even consider approaching prospective companies to sell your idea, be sure you are clear in the following areas:

1. Know your market. This means gathering as much feedback as possible on your own invention idea. Focus group testing, even among friends and family, is one good way. You should also compile data on similar and competing products--info on what is out there, what is selling and who's producing it, for example.
2. Do some legal legwork. Go as far as you can to determine if your invention is patentable or if it can be produced without infringement on other filed patents. A preliminary patent search on www.ustpo.gov will get you on your way. Also, the more information you can gather about regulatory issues or necessary legal steps, the better.
3. Look into production. Learning about the production process can be extremely helpful, particularly if your invention calls for unique materials or unusual manufacturing techniques.

Step 2: Prepare a Professional Presentation

After you have gathered all the relevant information, you will need to present it to potential licensors. Along with your most effective tool — a three-dimensional prototype model — you should develop a simple sell sheet to convey all the information you have gathered.

Your sell sheet should be a one or two page document that clearly states the following:

1. The problem, challenge or need the product meets
2. The product's features and benefits
3. Your product's market
4. The legal status of your invention (i.e.: patent pending, copyright or trademark info)

You should also develop an introductory letter to accompany your sell sheet, which introduces yourself, explains why you are contacting the licensee, and sets a time when you plan to follow up.

Step 3: Pinpoint Your Targets

You've gathered and prepared your information. Now what? Your next step is to determine the most appropriate contacts for this awesome new business opportunity. As a first step, I recommend you create a list of at least 50 prospective targets. As with any type of sales, the more prospects, the better. It is a numbers game, and most companies will turn you down for one reason or another. Also note that a more focused list will bring you more effective results.

So how can you identify companies that might make a good fit? If it is a consumer item, it's as simple as a shopping trip around town. Go to a store where you would expect to see your product sold and jot down the names of manufacturers who produce similar products. You may also be familiar with many of these companies from your prior market research.

Another way to identify prospective manufacturers is to identify the trade association that serves the industry in which your product will fall. Visit their websites and look for member lists. Some trade associations list the manufacturers scheduled to exhibit at their upcoming trade shows. Online databases can also be a great resource. Local public business libraries are often linked to database systems that allow you to search for companies in specific industries. And, from your own computer, you can visit www.hoovers.com, a great online database that provides information about many large-sized companies. The site even enables you to find companies that have specific key words in their description.

Step 4: Qualify Your Targets

Once you've generated your list of 50 or so companies, you'll want to prioritize them--or "qualify" them based on which will make a best fit with you and your product. There are a number of factors to consider when qualifying prospective licensees:

1. Size. Large companies are easy to identify and generally have terrific distribution. However, small companies might stand to benefit more from your invention--and often make better prospects. Small companies generally have less "in house" product development staff and are less burdened by red tape and multiple layers of bureaucracy, which can make them easier to deal with.
2. Geography. While you do not need to limit yourself to local companies, they do offer advantages. Companies in proximity allow you to leverage any contacts you might have locally and set up face-to-face meetings (which is always valuable).
3. Similar product line. The closer your invention matches a company's already existing product line (as long as it isn't directly competing), the more sense it probably makes for them to take it on--especially if it gives them a product that competes with a rival company.
4. Access to a decision maker. The more easily you can identify and directly reach the decision maker, the more efficient your contact with a prospective licensor will be. (Note: if after several calls you cannot determine who the proper contact is--or get in touch with him/her--you are better off focusing on other targets.)
5. Company policy. Some companies' policies for accepting submissions are more inventor-friendly than others.
6. Manufacturer reputation. Find out the company's track record for working with inventors, and if possible, get personal references from those who have gone before you.

Step 5: Make the Sale

You're now armed with information, presentation materials and a hot prospect list. How do you know you are getting a good deal? Understand there are no set rules or terms when it comes to negotiating a licensing agreement. The perfect agreement is one that gives both you and the manufacturer exactly what you want. Therefore, the terms are completely negotiable and can vary dramatically. However, do keep the following points in mind as you are negotiating your deal.

First, set realistic expectations. In other words, do not expect a million-dollar deal--it is doubtful you will retire after licensing your first product. Second, go for the gusto. Most ideal for you, the inventor, is to get as much up-front cash, as high a royalty, and as high an annual minimum payment as possible. Of course, the manufacturer will be gunning for less risk--which means a lower up-front payout, lower minimum payment requirements, and as low a royalty percentage as possible. But what exactly do these terms mean, and how can you get the best deal for your invention idea?

1. Up-front payment. This is the money that the licensee pays the licensor up front, before development or sales even begin, for the assignment of the rights. This can be an outright payment, but most commonly takes the form of an advance against (future) royalties. The amount of up-front payment varies. However, it's not unusual for an inventor to seek an up-front payment that covers the cost of her patent filing. Another way to come to an agreeable sum is to base your payment on projected sales expectations for the first year.
2. Royalties. These are the payments made to the licensor based on a percentage of the licensee's product sales. So, if you make a 2% royalty, that means you'll receive 2% of the wholesale price of each unit sold. The typical royalty range tends to run from 2% to 5%. Again, the further along or more proven the invention, the less risk for the manufacturer and the more likely you will get an up-front payment or higher royalties. From my perspective, the royalty is the most important element of the agreement, because if the market responds to the product, the manufacturer will do well, and the inventor can earn a good revenue
3. Annual minimum. This is the contractual term that requires the licensee to pay the licensor a minimum amount of royalties, irrespective of the actual royalties due from sales. To me, the purpose of annual minimums is to ensure that the manufacturer places sufficient effort and resources behind promoting the product. Therefore, I believe that annual minimums are most important in the initial years of the agreement--when the product is being launched--to ensure that the licensee adequately prioritizes this item when deploying sales resources.
4. Exclusivity. Most manufacturers will want to have exclusive rights to distribute the product globally. However, this is subject to negotiation. Depending on each party's motives, the agreement could divide up the markets in many ways. (Joy Broto)

So this all pretty well comes down to how developed your ideas are:

1. Ready to go and tested
2. A concept with some research
3. Just an idea

So if you're number 1, you can go down the route of a few options but before that, if you're in situation 2 or 3 it's very challenging to sell to a big company just a raw idea.

Now getting focus on situation number 1. You have a few ways you can do this:

1. If the firm is a CVC (corporate venture capital) division or firm this might fall under their mandate meaning they would be way more open to taking your idea on and funding it. The secret to it is are you solving a problem that is of interest to them or their industry.
2. Licensing, is an option. This ranges from basically protecting your idea with an NDA and some other legal clauses for licensing all the way to you obtaining IP to assign rights to them. NOT IP is a great idea but I'm assuming you want to just sell them an idea
3. Collaboration with someone who has a great interest in your ideas within the organization. Now you would need to be very discrete in the start with a clear mandate you want to sell. I do want to point out this might end-up them wanting to hire you which might not be a bad idea. Consider it.

So those are three ways to go about it. (Nader Sarby)

Summary/Conclusion

Is your new startup idea worth pursuing? Let us take it through our battle-tested process to get insights from experts, customers, and available research: Idea Validation