July 12th, 2022 | By: Sarah Humphreys
For many, coming up with an innovative idea leads to a desire to do something with it — and in the absence of knowing how to commercialize a great idea, many people jump to the conclusion that it can simply be sold to a big company. Then they worry that the big company will simply take their idea, and leave them in the dust. It’s a great story — it just tends to be a tale of fiction, on many levels.
I talk to thousands of startup founders, inventors, creatives, engineers, and other ideating and innovating types every year.
At least 100 times a year I'm asked "Ryan, I've got this great idea, how can I sell it to
The honest truth is — if it's still just an idea, you probably can't. It's not impossible, but it's highly improbable. And, probabilities matter.
But, let's play it out a bit and talk about why it's unlikely, and follow that with some advice for what we'd do in the dubious event we find ourselves with an opportunity to sell an idea. Cool?
Innovative ideas are quite frankly: a dime a dozen. They are rarely worth the time spent creating them, the paper they are written on, or the attention of the people who hear about them unsolicited by the eager creator of said idea.
Execution, by contrast, is rare, and valuable. You need both, certainly, but execution is in far shorter supply than are ideas.
You might be shaking your head at me now and saying "no, you just don't get it, this idea is the next big thing." Well, you're wrong. Execution of that idea might be the next big thing — but the idea in a vacuum doesn't stand much of a chance.
The internet, and search engines in general, have proven a great help in enlightening people to the fact that very few ideas are novel… give that idea of yours a quick google… I'd hazard a guess there were dozens of pretty relevant results.
That doesn't mean it’s not a good idea, in fact, I'd argue if there were no results it would be a worse indication of the quality of the idea. What it does mean — is that having the idea, which other people certainly have already had, isn't the thing that makes it valuable. It's doing something with it that makes it valuable.
Sure, but let's use a specific example that's close to home as we're all entrepreneurs here: Entrepreneurs in Residence. Yes, EIR's are getting paid to work on ideas. BUT… (I wish I had a bigger font here) they didn't get hired for their ideas, they got hired because they had already executed on ideas in the past.
What they do need, are solutions. And solutions are — you guessed it — ideas that are being executed. The idea that someone from the outside is going to come up with an idea that just happens to suit the problem big companies face, and aligns with the resources they have to commit to the solution…super long odds. Turns out - they probably have their own idea how to solve that problem, and with a lot more context than you’re armed with.
No, seriously, you don't. Even if you managed to sell an idea — you'd be giving away most of the value. If you really think you have an idea that can fundamentally change a business, why would you want to sell it to just one business instead of the entire industry, or beyond?
You will exponentially increase the likelihood that your idea will ever bring you any value by following the startup process and working to bring it to life as a product or service versus trying to sell it as an idea. You will also exponentially increase the value you get from it should that happen.
Imagine if Steve Jobs had decided to sell the iPhone idea to Nokia. You wouldn't be reading this article right now. Apple likely would have faded into obscurity. The Macbook Pro I'm writing this on wouldn't exist.
That's okay, but that isn't the reason someone will buy your idea. If you don't have the desire to build a business or project around the idea, then it will by vast likelihood just stay an idea. That's okay. Most ideas are just that - a passing thought. I said it before, I’ll say it again - execution is the determining factor here. Thinking without action is just about as bad as action without thinking.
Okay look, we've heard this question often enough, and we have seen the rare outlier where an idea was bought. We also talked to a bunch of the other brilliant founders in the Startups.com network about the notion of a company buying your idea - they had a lot to say about the concept of selling an idea.
Keep reading to learn more about what that process looks like, what the pitfalls are, and some of the ways to protect yourself as you engage with potential buyers.
And listen, I'm not trying to discourage you — my aim here is just to ENCOURAGE you to take the path and develop the mindset that has the highest likelihood of giving you the best possible outcome. Sometimes that means some tough love.
Before we dive into the details of how to sell an idea to an existing company, allow us to share various perspectives on the value of an idea alone from multiple Founders within our community. They’ve all “been there, done that” and are weighing in on this topic as a means of assisting other entrepreneurs navigating the murky waters of what is an isn’t worth the effort of pursuance.
Nickolas Passig gives it to us straight: “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.”
While Sushanti Bharti shares a little more insight on the topic: “The world out there is already a cauldron of ideas… What differentiates successful and not-so-successful individuals is courage to speak, share, and execute ideas. It's one of the biggest myths that somebody will steal your idea. The world out there wants a business model to copy more than an idea.”
If you aren’t completely disheartened by now (and we hope you aren’t!), this next quote dives into further process on what to do with an idea. Again, we aren’t trying to discourage anyone, it’s more about giving as much advice as possible from every angle to make sure those reading this feel fully informed by the end of this article. Take in this advice from Denny Adams, for instance: “If you are determined to leverage a large company, you can try 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.”
NDAs are legally binding contracts that can have serious consequences when violated. They give entrepreneurs added protection of all confidential information, including intellectual property such as ideas for other companies.
If you find yourself in a situation where a NDA is necessary and the other party is willing to sign to hear your idea out, Michael Von from our community shares “Get a them to sign a NDA. This will not guarantee that they will not squash you, but it will help.”
Inventor Nickolas Passig also chimed in to share: “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 for 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.”
It is worth mentioning that although NDAs are binding documents, many entrepreneurs miss out on key clauses that should be included, leaving loopholes for big corporations to jump through. Not only that, but getting scaling companies to even consider signing an agreement is more a matter of what is in it for them, and proving your idea is worth the weight in time is another obstacle altogether.
Just be warned — a lot of companies, and nearly all investors, will refuse to sign NDAs because the conflict of interest checks alone would be nearly impossible to satisfy in a reasonable timeframe.
Many times, investors and large corporations will not sign NDAs just to hear someone’s business idea, so getting someone to sign one before you share your trade secrets — or market-disrupting product add-on — you may want to consider saving time and effort of putting together a NDA with alternative protective routes by giving you and your idea value they “cannot refuse.”
Keven McCarthy from our Founder community has further input on creating value prior to creating a NDA document: “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.”
A patent is a legal grant or license that protects an invention and gives an inventor exclusive ownership and control over making, using, offering for sale, and selling the patented item or idea in the U.S.
Patents cost anywhere from $900 for a DIY application to $5,000 - $10,000+ with assistance from patent lawyers. The cost of the process to get the patent will depend on the type of patent, and the complexity of the idea/invention. We recommend consulting a patent attorney with any questions regarding this process.
While ideas alone cannot be patented, you can obtain a patent on an invention that was developed from an idea. Note this: if you pursue a patent, an invention must be actually produced, or at minimum, a detailed description of the invention has to be included with the patent application.
Technically, yes, you can sell an idea to a company without a patent. However, this is where we circle back to entering into an NDA contract before sharing said idea, as mentioned previously. This would be your last line of defense to protect your idea, though, unfortunately, many companies won’t enter into an NDA.
We’ve all heard this before, and unfortunately, there isn’t much you can do about this unless you have concrete documentation and/or legally binding agreements set up before it occurs.
It’s important to note that an idea alone is not protectable. However, depending on how you document it before sharing it with a company, your idea/invention may be protectable under copyright laws, intellectual property laws, patent laws, and/or trademark laws. We would encourage you to become familiar with each of those types of laws in your state of residence and move forward with the proper steps to protect your information prior to sharing your ideas or inventions with anyone.
If your idea isn’t protected by the laws mentioned above and they did not sign an NDA, it will be extremely difficult to establish ownership of your intellectual property. However, it is still possible to argue that a confidential agreement was insinuated if:
The company prompted the idea from you — meaning the information was sent in response to a request.
It was stipulated when shared that the invention was a business proposition (you hoped for payment for it)
The information has commercial value and is a “trade secret”
When it comes down to the nitty-gritty of it all, without a NDA or IPP (intellectual property protection), the chances of obtaining a claim for damages from the company are slim to none.
Okay, so you’ve made it this far. That means you really believe in your idea, you are familiar with all the right protective laws, and you’re ready to get a pitch together. Our community flooded in responses with their first-hand insight on how to pitch an idea to a company. Below are two of the most informative responses for your reference.
Joy Broto dug deep in this response: “To give it to them and mutually profit, without them just taking the idea and squashing you keep in mind these following steps.
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:
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.
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.
Look into production. Learning about the production process can be extremely helpful, particularly if your invention calls for unique materials or unusual manufacturing techniques.
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:
The problem, challenge or need the product meets
The product's features and benefits
Your product's market
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.
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 keywords in their description.
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 the best fit for you and your product. There are a number of factors to consider when qualifying prospective licensees:
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.
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).
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.
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.)
Company policy. Some companies' policies for accepting submissions are more inventor-friendly than others.
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.
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?
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.
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
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.
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.
If that wasn’t enough, here’s more input from community member, Nader Sarby:
So this all pretty well comes down to how developed your ideas are:
Ready to go and tested
A concept with some research
Just an idea
So if your 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:
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.
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
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.
Those are three ways to go about it.
We hope this article has been helpful in guiding you on how to sell an idea to a company without them stealing it, with various routes to take given your particular circumstance.
To sum things up: an idea alone has the potential to be something great, but think of it more like a seed — it demands a lot of effort to grow into something valuable enough to compete in the marketplace (and even more if you want it to actually bloom year over year).
It requires a multitude of resources and execution for it to be successful, and without the possibility of success, an idea isn’t worth anything. And if it isn’t worth anything, no one is going to steal it.
But, if you have an idea you are fully confident in pitching to a company, make sure you take all the necessary steps to protect that idea before sharing it anywhere.
A long time ago, someone told Sarah that she was going to do great things. And even though that person was her own reflection looking in the mirror, those words have carried her through the thick of it all. You may find her singing in her car, cleaning things as stress relief, or using humor in uncomfortable situations. Sarah is a professional photographer, expert-level copy editor, copywriter, digital creator, and a nice lady to boot!