10 Reasons to NOT License to the Biggest Company
When looking to license an invention to a company, the inventor’s first instinct is usually to go after the market leader, with the idea that the biggest company is going to deliver the best royalty stream. However, in my experience, the biggest company is usually not the best target. I have licensed products to companies with annual revenues ranging from $10 Million to $35 Billion. Here are ten reasons why I prefer the smaller end of the scale:
1. The market leader is less hungry for a new innovation to help them gain market share. They already have market share and typically are playing defensively and will resist innovations that endanger the status quo. Smaller companies will see a new innovation as more important strategically, as it may help them gain on the leader. They are hungrier and faster.
2. Big corporations are a royal pain to deal with. They have protocols for how they conduct business, most of which are very unfriendly to the individual inventor, or any human for that matter. The people working in them are often not trying that hard and just want to get their job done. Something new just creates more work for them with no reward.
3. Big corporations are greedy. They don’t want you to make money and don’t care if they are unfair. They will do whatever they can to reduce their royalty payment to you, pay late, and cheat if they can. They will also avoid paying you anything if they can.
4. Big companies make you sign disclosure documents. As an inventor, you want to get the companies you are presenting to to sign non-disclosure agreements, which protect your rights and obligate the other party to not steal your idea. The disclosure agreements from big companies (which are often found on their websites. Here’s a link to one from Black & Decker) are very draconian and heavily favor the corporation. I would never sign one of these documents unless I had exhausted all other possibilities.
5. Big companies are hard to negotiate with. Instead of negotiating with the president of the company who is concerned with driving the business, you’ll be negotiating with either a lawyer, who is definitely not going to take it easy on you, or a mid-level manager with no decision making power. This leads to dramatically drawn out timeframes and frustrations, as well as less generous deals.
6. Big companies often lack focus. A smaller company with fewer products will be able to focus on your invention in order to drive business. A really big company might have thousands of products, and yours will be just another item in the line, given no special attention. Therefore it won’t necessarily enjoy the benefits of the big company’s wide distribution or PR efforts. People in the company may not even be aware of your product after several years!
7. Small companies usually have more passion. Big companies rarely have the kind of entrepreneurial spirit that generates the kind of breakthrough results that the inventor would like to see. Small companies are much more likely to be staffed by people truly excited about their industry and the products they are selling.
8. Big companies have lots of internal friction. There can be competing individuals and factions inside a company, and your invention could be the victim of circumstances having nothing to do with your product. It could be cancelled even if it’s doing well, because much of what happens in large corporations has nothing to do with the common interest or rational decision-making, and everything to do with self-interest.
9. Small companies have more fun. Corporations are driven by the bottom line almost exclusively, and therefore it is harder to create and nurture relationships, which make doing business much more pleasurable. In small companies, you can make friends with the people you work with and have much more satisfying interactions, which is important to your quality of life.
10. Small companies are more likely to treat you as a partner. A big company doesn’t see you as an equal, whereas the president of a smaller comapny may see you as a partner and resource for future inventions, and treat you like they care if you’ll want to do business with them in the future.
Obviously, all these points are not true for all companies, big or small, but for the independent inventor, it is usually going to be much easier to deal with a smaller company. Of course, if the company is too small, that’s no good either. They need to be large enough to have the resources to develop, market and finance your product. It’s always important to remember that a license is a long-term relationship, and there are things equally important to financial considerations to take into account, things that will affect your quality of life and long-term satisfaction with your licensee.