Being a business owner — a business that provides enough funds without needing constant oversight — takes ideas. By licensing ideas and bringing them to market, creators can generate passive income that can carry them through to living the life of their dreams. Most of the products on the market today are things anyone could think of — so what’s stopping everyone from doing so? This book summary of One Simple Idea provides valuable information on turning ideas from idle thoughts into products that will make money.
How to go from idea to income by learning the ins and outs of product licensing.
READ THIS BOOK SUMMARY IF YOU:
- Want to generate a passive income from your own ideas
- Are looking for the best way to license your ideas and bring them to market
- Need a process for determining which of your ideas are worth pursuing as products
Licensing an idea is essentially renting it to other companies. While they do all the work of production and marketing, the person who came up with the idea gets to collect income. Whether you’re bustling with creative energy, sitting unemployed, or just want less of a grind to make rent, licensing ideas is an effective way of making money while others put in the hard work. It’s not necessary to own a company or secure a patent — or leave a day job — to start coming up with innovative and profitable ideas.
Licensing ideas to companies of any size has become much easier over the past few decades. This is largely thanks to the process of “open innovation.” Rather than locking away all development in closed research and development departments, more and more companies are willing, and even eager, to pay for outside ideas to speed up innovation and development.
Products can be simple, and the most successful ones often are. Dwight Deveraux, for example, came up with a locking screw for guitars that not only kept the bridge from coming off when strings were changed but also improved the guitar’s sound. He worried that such a simple product could never be profitable, but after he licensed it in 1998, the screws began appearing on guitars all over the world.
Finding Your Million-Dollar Idea
Most people approach the innovation process backward — they come up with something they think is useful without considering the broader intended market. The key to successful innovation is to find out what is missing in the current market and come up with something that fills that void. Revolutionary ideas are truly rare, and evolutionary ones are easy to come up with. Ideas can strike at any time, so it’s crucial to carry a phone or notepad at all times to record your inspirations.
Before pursuing an idea, inventors study the marketplace. Smart innovation means not spending time developing ideas for which there are no markets. Doing market research means keeping an eye on developing trends by keeping up with influential people on social media or simply going shopping, in person or online, to see what is popular. It means learning about the demographics and products already offered in a specific market — and studying the specs of those products. It also requires understanding the manufacturing side of the market to determine a manufacturing and retail price point for an idea.
One trick to innovation is to find a “sleeping dinosaur,” a classic product that can be updated in some way. For example, toy inventor Paul Rago, at Worlds of Wonder, contemplated whether the game of tag could be updated and how it could be done. His consideration of the sleeping dinosaur of tag led him to develop laser tag, which went on to become a huge success.
The key to picking a winning idea is to find something that satisfies four criteria:
- It must solve a common problem.
- It needs a “wow factor” — something that makes it exciting and sets it apart from the competition.
- It must have a large market.
- It must be made with common production materials and methods.
Consider laser tag. This invention solved the problem of an outdated children’s game by incorporating new technology, giving children a new and innovative way to play tag. Laser tag also had a wow factor in its use of infrared technology and its futuristic space theme. Children are certainly a large market, and laser tag also had crossover appeal to young adults. Finally, the components to make a laser tag set were already commonly used to manufacture other toy guns and laser products. Paul Rago could see that laser tag had the potential to be a moneymaker.
Prove Your Idea
Before spending time and money making a prototype of an idea, it’s essential to make sure the idea will sell. Even after conducting initial market research, it’s always good to check back in. Markets change quickly, and an idea might not be as great a fit now as when it was first conceived. For example, the market for a luxury product might decrease during a recession. A change in the price of a key component might make planned price points impossible. Test marketing and crowdfunding can help gauge interest in an idea.
Knowledge of the manufacturing world is necessary to determine if an idea is viable. Sales representatives from contract manufacturers can roughly assess how much it will cost to make your product in various quantities. (Make sure to include a nondisclosure agreement and patent-pending notifications with any information you share.) Overseas production can bring costs down, but it introduces a higher risk of intellectual property theft.
Prototypes can be expensive to produce and are often unnecessary for simple ideas, so it’s important to discern whether a company is genuinely interested in your idea before spending time and effort developing a fully working prototype. Often, manufacturing information, a digital model, a 3D-printed version, or even detailed sketches can convey sufficient information for a fraction of the cost.
Protect Your Idea
A common misconception among would-be inventors is that a patent is the only or best way to protect an idea. In reality, patents are expensive and take time to acquire: Patenting a single invention can cost between $10,000 and $20,000 when legal fees are included, and the process takes at least 24 months. So you’ll need significant startup capital and certainty that the market for the idea will still be around in two years. The best way to protect your idea is through a provisional patent. This lasts for one year, at which point you can file for a traditional patent. Provisional patents are cheaper and faster to obtain than traditional patents, allow inventors to mark their ideas as patent pending, and lower the cost of incorporating and patenting design changes. Most attorneys recommend against provisional patents, but they can be an effective way to protect ideas before they are licensed to investors.
Getting a patent means choosing the right attorney and getting a quote that includes office fees. Inventors should also familiarize themselves with everything there is to know about the patent process. By looking at prior patents via Google or the US Patent Office, you can determine whether a previous patent for your idea already exists or whether your design is too similar to something already in the system.
To be successful in the patent process, inventors must be prepared to fight for their ideas — it’s not uncommon for patent applications to be returned with claims rejected. With an attorney’s help, it’s entirely possible to regroup and get an idea protected.
Prepare to Pitch Your Idea
The research is done, the provisional patent is in place, and the idea is ready to be pitched. Will it get any bites from investors? A good pitch includes three important components: a benefit statement, a one-page sell sheet, and a video sell sheet. All three of these are quick and cheap to create and can get you a foot in the door to license a product.
A benefit statement includes a list of all the benefits of an idea and ranks them in order of importance. Good benefit statements are clear and make the benefits of your idea evident to investors. For example, a benefit statement might say that an invention increases space on a product label by 75%. Another might claim that a product offers an escape from anxiety.
A one-page sell sheet includes the benefit statement and a link to the video sell sheet. It also includes a visual representation of the idea, contact information, additional benefits of the idea, and a patent number or patent-pending notification. The video sell sheet should be shot horizontally, focus on the idea itself, and showcase the idea in a dynamic setting.
Submit Your Idea to Potential Licensees
The process of submitting an idea to people who have the ability to license it is where a lot of people falter. They might be afraid of getting ripped off or failing, or they might feel overwhelmed by the process of getting a foot in the door. But kicking those fears to the curb can bring inventors one step closer to getting their ideas licensed and making money.
The key to getting an idea licensed is to find as many potential licensees as possible. Cast a wide net instead of fixating on getting in at a specific company. Finding places to license ideas starts by revisiting market research. Where are products in the idea’s market sold? The internet, and Wikipedia in particular, can be an invaluable resource for tracking down companies within a given industry. The goal is to come up with at least 30 companies that might be interested in licensing the idea and then try to figure out the best bets from that list.
When pitching ideas, it’s better to speak to sales, marketing, and product managers than to people in engineering or research and development. The people in sales and marketing are more likely to see the potential and marketability of an idea. To get to these people, locate a company’s general phone number and work your way through various gatekeepers. It’s important to have a script ready for each step on the path. Identify yourself as a product developer and ask to be connected to someone in marketing or sales. After getting in touch with the right person, ask how to submit an idea to them. Do not pitch over the phone and never identify yourself as an inventor. It may be necessary to call multiple people within a company or even multiple companies to reach the right people. Industry trade shows and networking can also be a way in. The important qualities to have are persistence, enthusiasm, and knowledge about the market and the companies being pitched to.
Bring Your Ideas to Market
Negotiating the licensing contract doesn’t have to be handled entirely by a lawyer. While legal advice is crucial, it’s entirely possible to act as the point person in negotiations. Come to the table with an idea of what the company wants and what the market is like. Approaching the situation like a win-win scenario rather than a standoff also helps. Information on a company’s sales and business operations can be found via the company’s website, trade publications, industry sales reps, industry experts, and business directories. Some sales information might not be available, but you can gain enough information to properly understand the company’s products and business practices.
Licensers should aim to get the highest royalties possible. A royalty is a percentage of wholesale sales, paid out 30 days after the end of the fiscal quarter. Royalties vary widely by product and industry, but generally a fair royalty rate is between 5 and 7%. Novelties, big and revolutionary ideas, and seasonal products can bring in higher royalties; ideas that are not covered by intellectual property protection will fetch low or no royalties. Asking for a lump sum of money upfront can signal trouble to the company and kill a deal, but a small upfront payment is fairly normal. The company may be willing to pay patent costs for the idea or to provide a small advance deducted from future royalties.
Minimum guarantees also play an important role in getting an idea out on the market. These set out a minimum amount the company must pay in the first year, the second, and so on, regardless of how much they sell. Locking the company into paying a certain amount incentivizes it to actually produce and sell your product. Companies are generally not fond of minimum guarantees, so it’s prudent to handle them delicately. If a company will not agree to one, another option is to secure an inside/outside date: If the company does not bring an idea into production within a certain time frame, the rights revert to the inventor.
Then the process begins all over again — but it should be simpler this time around. Possessing knowledge of certain markets makes identifying unfilled needs easier, and the whole process is less daunting after navigating it a first time.
Identifying valuable ideas, developing and licensing them, and getting them into production can be a great way to turn ideas into income. Successfully licensing a profitable idea is not as difficult as it seems. The key is to start with market research and develop an idea to suit a market, rather than searching for a market after the fact. Knowing the ins and outs of the market strengthens your ability to come up with a product that solves a common problem, has a wow factor and a large market, and is made with common production materials and techniques. This ensures that the product will be both profitable and workable.
Proving that an idea is good requires knowing about the manufacturing, production, and retail aspects of its market. Once the idea is ready to be pitched, it’s time to protect it. A provisional patent and a nondisclosure agreement are cheaper and faster to acquire than a full patent, and they provide protection for ideas in the preproduction stages. When it comes to the actual pitch, a benefit statement, a onepage sell sheet, and a video sell sheet can help you get one foot in the door. Finding several companies to pitch an idea to will increase your chances of meeting someone who will be interested. When negotiating the licensing agreement, make sure that the exclusivity, royalty, and minimum guarantee terms are fair. After all this is completed, the process begins again with a new idea.
About the author
Stephen Key is an inventor, author, and public speaker. He has been a successful entrepreneur and product developer for more than 30 years. As a co-founder of inventRight, he has been educating new inventors for the past 15 years.
Small Business and Entrepreneurs, Motivation, Inspiration, Entrepreneurship, Nonfiction, Self Help, Economics, Productivity, New Businesses, Management, Marketing and Sales, Leadership, Starting a Business
Table of Contents
Preface: The Ferriss Effect
Introduction: How One Simple Idea Led to the Life of My Dreams
PART ONE The Power of One Simple Idea
1 How You Can Create the Life of Your Dreams
2 The Beauty—and Opportunity—of Open Innovation
3 CEO or CIO—Which Hat Fits You Best?
PART TWO Find Your Million-Dollar Idea
4 Look for Marketable Ideas
5 Get Creative!
6 How to Pick Winners
PART THREE Prove Your Idea
7 Will It Sell?
8 Is It Doable?
9 To Prototype or Not to Prototype
PART FOUR Protect Your Idea
10 The Smart Way to Safeguard Your Idea
11 Control Every Step of the Process
PART FIVE Prepare to Pitch Your Idea
12 Create Sales Tools That Sell Benefits
13 Get in the Game Without Quitting Your Job
PART SIX Submit Your Idea to Potential Licensees
14 Kick Fear to the Curb
15 Find the Right Doors to Knock On
16 The Call That Gets You in the Door
PART SEVEN Bring Your Ideas to Market
17 Cut a Great Deal
18 Living the Dream
19 The New Opportunities for Inventors
20 If I Were to Do It All Over Again: The Need for Product Scouts
About the Authors
With must-have updates, a new edition of the bestselling method that shows how anyone can turn their one simple idea into millions – without lifting a finger!
Stephen Key is an award-winning inventor who has licensed more than 20 product ideas. In 2011, he shared the secrets to his success in the bestselling book One Simple Idea. Since that time, many changes have occurred in the entrepreneurial world.
One Simple Idea, Revised and Expanded Edition has been revised and updated to reflect current trends and practices in the industry. In addition to teaching readers how to turn their ideas into marketable products that companies will want to license, Key expands upon his cutting-edge product development, sales, and negotiation strategies, making note of the new opportunities and technologies available to creative people today. The book also features real-life success stories from people who have used the author’s strategies.
* * * * *
For as long as you can remember, you’ve had a dream. You’ve longed to see your product idea come to fruition so you never have to work for anyone else again.
Stephen Key has been living this dream for 30 years. The developer of such lucrative products as Michael Jordan’s WallBall®, the Spinformation® rotating label, and HotPicks® guitar picks, he knows better than anyone how to make a great living as an entrepreneur. Key develops ideas for new products, licenses them out, collects royalty checks, and doesn’t look back. You can do it, too. All you need is One Simple Idea.
In this book, Key reveals the secrets that helped him and thousands of his students―including bestselling author Tim Ferriss―turn their creativity into a passive income generator by “renting” an idea to a company, which takes care of R&D, production, marketing, sales, accounting, distribution, and everything else you don’t want to do.
You’ll be amazed at how simple the process of licensing an idea for profit actually is. Key explains how to:
- Keep your ideas safe―without spending time and money on a patent
- Be your own boss―without formally opening a business
- See your product go to market―without footing a dime in expenses
- Make potentially big money―without quitting your day job
The age-old business assumption that ideas must come from within organizations has been shattered. From global corporations to small businesses, companies have become so confident in outside entrepreneurs that licensing is now a $500 billion industry. Businesses need “freelancers” like Key―and you―to provide creative, marketable ideas for new offerings.
With One Simple Idea, there’s no prototyping, no patents, and, best of all, no risk. You can make the system work for you―rather than the other way around.
“Ever heard of Teddy Ruxpin or Lazer Tag? Both have Stephen Key’s mark on them. He is the Yoda or ‘renting’ ideas for serious passive income. From how-to to war stories, this is a great book.” ―Tim Ferriss, author of The 4-Hour Workweek
“Mr. Key’s brilliance, wisdom, and insight will make you rich. Buy this book!” ―Mark Victor Hansen, bestselling author and co-creator of the Chicken Soup for the Soul® series
“Stephen Key has written a book overflowing with the all-important information that inventors need: a step-by-step guide through everything that goes into a successful product introduction.” ―Gary Dahl, Pet Rock® inventor
“A terrific guide for anyone who wants to be a successful entrepreneur.” ―John Osher, innovation guru who created SpinBrush®, Stretch Armstrong®, Spin Pop®, and Quattro® Titanium Trimmer Razor
“Tired of working for corporate America? Tired of living paycheck to paycheck? One Simple Idea can teach you how to add a few zeros to your income. Buy this book and live your dreams now!” ―Kevin Harrington, infomercial king and featured investor on Mark Burnett’s Shark Tank
“Stephen Key turns conventional inventing ‘wisdom’ on its head and clearly outlines how anyone can earn a meaningful income with One Simple Idea.” ―Tamara Monosoff, founder of Mom Invented® and author of The Mom Inventors Handbook and Your Million Dollar Dream
“Whether you are a creator or a connector, this book will help you turn your ideas into a fulfilling, profitable career. Read it and WIN!” ―Patrick Lonergan, former vice president and general manager, Johnson & Johnson, and president/partner of NUMARK Laboratories, Inc.