The Oracle of Omaha, the world’s richest man. (Photo: Stephanie Kuykenal/Bloomberg News/Landov)
It’s 1:33am in Omaha and I can’t sleep.
Much like pre-Santa jitters as a 7-year old, I’m so excited to potentially meet Warren Buffett tomorrow for the 1st time that my little reptile brain won’t turn off. Ridiculous? Perhaps, but he (Warren, not Santa) is perhaps the greatest investor the US has ever produced.
So what do you say to the world’s richest man if you, by some miracle, end up standing at the urinal next to him? You better know in advance or you’ll sound like a Hannah Montana fan.
This is why learning to elevator pitch — how to deliver your message is 60 seconds or less — is one of the most important skills to develop if you ever plan on interacting with real players and demi-gods like the Oracle of Omaha… Read More
This fireside chat at Google in London was also simulcast to their offices in Ireland, Sweden, and Moscow. It was a blast.
It covered tons of topics never discussed on the blog before: proposed improvements to Gmail (please!), the real original book title, using telephone vs. e-mail, principles and case studies, metrics (including exercise), analysis vs. intuition, the declining dollar and personal outsourcing & geoarbitrage, and much more.
If you’re bored at work, you can listen to the audio while you browse Facebook :) My collection of 55 odd videos on YouTube can be found here if you want more semi-productive distraction before 5pm.
The 4-Hour Workweek launches in the UK next week on April 3rd, and I’ll be in London to bring it to the Motherland with a bang.
For all you readers and friends in Europe, come have a pint with me!
From the UK publisher: order before April 3rd with “ESCAPE” as a promo code at checkout and you get 30% off and free shipping in the UK (maybe Europe?). This is cheaper than in the US. Learn more here.
Party and Reader Meetup in London on April 2nd at 6pm:
I invite all blog readers, book readers, and friends to come to London on Wednesday, April 2nd from 6pm - 9pm GST to have a drink with me at the reserved room at the Pitcher and Piano in Trafalgar Square.
Pitcher and Piano (reserved room)
40-42 William IV St, Trafalgar Square, WC2N 4D
Colette Bacalhau / Andy Seach
T: 020 7240 6180
It’s a good idea to follow me on Twitter for any last-minute changes or other parties and mischief.
The location might change, so please refer back to this post before heading over, but there will be a get together in London with lots of laughs and joie de vivre… and no little amount of alcohol. If you have recommendations for a cooler place that can hold 100+ people, please let me know in the comments. This is a BYOB (buy your own beer) event, but I’ll sponsor the next one when we’re dealing with pesos :)
See you all in the land of funny cars, funnier policemen, and ridiculously expensive sandwiches!
I’d like to invite you to leave your personal mark on The 4-Hour Workweek. After 31 printings (!) and more than 25 languages, you can put your signature on a global phenomenon… and travel the world for free… Read More
I first met Stephen Key in 2001. Two months later, I used a few recommendations of his — shared over the customary gin tonic — to help a friend double overseas sales in less than two weeks in New Zealand and Australia.
How? Licensing. It can be a beautifully elegant model.
Stephen is somewhat famous in inventing circles for two reasons. First, he consistently earns millions of dollars licensing his ideas to companies like Disney, Nestle, and Coca-Cola. Second, he is fast. It seldom takes him more than three weeks to go from idea to a signed deal.
He is not high-tech. There are no multi-year product development cycles. He specializes is creating simple products or improving upon existing products, often using nothing more than a single-sided drawing or photograph. Coupled with refined cold-calling skills, Stephen meets with some of the most influential marketing executives in the world. In this interview, we’ll explore how this advisor to American Inventor rents his ideas to Fortune 500 companies.
1- What exactly is licensing, and why is it a good option for people with ideas but little time or patience?
I think licensing is a bit of mystery to many people. It really doesn’t have to be.
Licensing is renting your idea to a manufacturer. The manufacturer handles the marketing, manufacturing, distribution and basically everything else required to bring the product to market.
Usually quarterly (four times a year), the manufacturer pays you a royalty on every unit they sell. This royalty—generally a percentage of the total wholesale price—is your payment for bringing them a new product idea that they can sell to their customers.
It’s an attractive low-risk alternative to manufacturing products and taking them to market yourself.
Using licensing, I can spend my time coming up with new product ideas instead of worrying about balance sheets, cash flow, employees and all the other hassles of running a company. I might pitch three ideas one month and no ideas for the next two months. You can have total flexibility with your work schedule.
Here’s one tip on how to make sure you get paid a certain amount four times a year.
Minimum Guarantees - So here’s why I use the term “renting” when describing licensing your idea to a manufacturer. It’s very important to make sure the manufacturer performs. You need a performance clause in the licensing contract. Without a performance clause, the manufacturer could just sit on the idea and do nothing with it. I’ve seen it happen.
Ensure you have a “Minimum Guarantee” clause in the contract. A minimum guarantee clause basically says the manufacturer needs to perform and sell a specified number of units every quarter or every year. Otherwise, you get your idea back and you can license your idea to another manufacturer.
It isn’t usually necessary to call in [enforce] the minimum guarantee clause. Most of the time you want to give the manufacturer a chance to perform. After all, you are partnering with them and they’ve spent big money on setting up their facilities to manufacture your new product.
Here’s another tip: Don’t front load the deal. I see many people with ideas doing this. They ask for large up front fees and make it to hard for the manufacturer to say yes to the deal. Instead ask only a small amount of money up front and scale up the minimum guarantees each quarter.
An example of minimum guarantees:
100,000 units quarter one
200,000 units quarter two
300,000 units quarter three
Let’s say the manufacturer sells 110,000 units quarter one. You would get paid a royalty on each of the 110,000 units sold.
Then let’s say the manufacturer only sells 190,000 units quarter two. The manufacturer can choose to pay you the royalty for the minimum 200,000 units they guaranteed you they would sell and they would retain the rights to manufacture your idea.
You should be OK with these “Minimum Guarantee” numbers since you set them up when you negotiated the contract. Set up numbers you think the manufacture can meet and that you’ll be OK with if the manufacture just meets the agreed upon “Minimum Guarantee”.
Of course you would prefer to earn royalties on 600,000 units every quarter, but you know you are guaranteed at least a certain “Minimum Guarantee” every quarter. This makes it nice when budgeting to buy that new sports car you’ve had your eye on.
2- I’ve heard you say that the most important thing you can do when licensing an idea is to spend as little time and money on the project before you get feedback from a manufacturer. Why?
Yes, that’s true. Unfortunately, it’s the exact opposite of what most people do. Most people go out and spend $3k to $20k or more on a patent and a few grand or more on a prototype first.
Time is the enemy in this process.
I’ve talked to inventors who have been contemplating or working on ideas for years. That’s not me. When I have an idea, it only takes me three days to three weeks to find out if the idea has legs.
On average, I recommend that my students take no longer than three weeks to three months before they make the decision to keep working on the project or dump the idea and move onto the next one.
Spend very little time or money on a project before you get feedback from manufacturers. The reason for this is simple: You’re not going to hit every idea out of the ballpark. Sometimes the benefits of the idea just aren’t intriguing enough. Maybe the idea has some manufacturing problems. Maybe the idea has been tried before and you didn’t find it with your research. There can be many reasons why manufacturers decide not to move forward with an idea.
You need to call a handful of potential manufacturers that might sell your idea. It takes very little time and next to no money to make the calls, and it’s the only way you’ll get the critical early-stage feedback.
File a provisional patent application ($100), create your sell sheet ($0-$80) and start making phone calls as soon as possible. That’s totally the opposite of what most people do. Most people dream or plan and research the idea to death.
The reality is that you will never be as knowledgeable about a particular industry as a manufacturer that been in the business for thirty years. They’ve seen everything imaginable in their product area. Their opinion is the only one that matters. Get your idea in front of them as soon as possible and get the feedback you need to pursue it or kill it.
Here’s a summary of my solution to the patent and prototype hang ups many people seem to have.
PATENTS:
PROBLEM (What most people do):
The majority of people I talk to think the first thing they need to do is go out and spend money to have an expensive patent filled by a patent attorney. Here’s why that’s wrong: Many times you’re going to get complaints from manufacturers that your idea needs to be fixed in one way or another. No problem. You’re creative and they aren’t. Go back to the drawing board and fix the problems the manufacturer presented.
The only problem is that if you’ve wasted $3k to $20k on a patent, now your going to need to file another patent covering the new features of your product. Another $3-20k? I don’t think so. There is a better way.
SOLUTION (My method for you):
Instead, spend $100 on a Provisional Patent Application (PPA). A PPA gives you one year to fish of the end of the pier to see if anyone is interested in your idea.
A PPA also allows you to say “patent pending.” It’s a huge benefit to the small guy! If you come up with a new version of your invention, just file another PPA with the additional features. With my approach, you should be able to get a “go” or “no go” in three weeks to three months.
Make sure to put another one to five months aside for negotiations and you’ll still have many months left on your twelve month PPA.
Then when you license your idea to a manufacturer, you’ll put in the contract that the manufacturer is responsible for paying your attorney to upgrade your PPA to a full patent and put it in your name! This is how I get multiple patents, in my name, paid for by manufacturers.
PROTOTYPES
PROBLEM (What most people do):
People think you need to have a polished and perfect prototype in order to sell an idea. I have sold many ideas with very simple prototypes and many without prototypes at all .
What people don’t understand is that you are not selling your prototype or your patent. I’ll say that again. You’re not selling your prototype or patent. You are selling the benefits of your idea.
SOLUTION (My method for you):
Create a sell sheet. What the heck is a “sell sheet”? It’s a regular 8 ½” x 11” piece of paper. It’s like an ad for your idea. It has the big benefit of your product in one sentence at the top, maybe a few sub benefits or features in bullets below and a picture or drawing of your idea. “Oh, but I have to build a prototype,” many will say. No, you don’t.
You don’t need a prototype until you get some interest. If you don’t get any interest, you haven’t wasted time on a prototype.
Your sell sheet should be like a billboard on the freeway. People should be able to glance at it for a few seconds and understand the benefit of buying your invention. They don’t need to understand every feature or hear you make clichéd statements like, “if we only sell this to 1% of all households in the country, this new idea will make millions”.
My one line benefit statement for one of my biggest ideas was, “I have a new label innovation that ads 75% more space to your container.” That’s it. I didn’t need to explain how when I called on the phone, they just wanted to know more.
Benefits, benefits. That’s what you are selling. Not your patent or prototype.
Stephen in motion: Repurposing existing products in 5 minutes for a call sheet model or prototype…
[To be continued in Part II: negotiated royalty rates, who to call within companies, product idea criteria, what product categories to avoid, and more]
First, a few questions from Eastern Europe for you all. Take a minute to seriously consider each:
Envision the 5 books that have most impacted your life. How would your life be different if you’d never read them?
Where might you be today if you’d never met the most influential teachers in your life, past and present?
How would your options be affected if you could never again read a book, menu, or sign?
Here is the huge competition I’ve been promising. It’s the biggest I’ve ever done, and there are some incredible world-famous people involved. You won’t be disappointed:
If you’d like to support this idea, please take a second to vote for it here. Be sure to see the “prizes” section — how could you get into the 10K Club if you had to?
What is the true cost of your commute? One example comes from 4HWW reader Troy Gardner, who recently wrote to me:
I’m still work focused (I like creating things!), but since I control my time/location, I’m reaping some of the rewards of being among the New Rich. My girlfriend and I will be spending the entire month of October visiting Chicago and Hawaii. Since I’m project/laptop based I can work during the evenings/free time, while spending the time out and about, finally learning surfing, and maybe kiteboarding etc.
Here is his experience, in his own words, of going from shocked awareness to blissful mobility… Read More
Let us celebrate a week well fought and pause for a moment of Zen, capitalist-style:
If you have any Zen capitalist questions of your own, please share them in the comments!
Take a well-deserved breather this weekend and schedule some personal fun for your psychological and emotional bank account. Income is renewable—time is not.
I love and hate blogs. One minute I feel like David Weinberger and the next I feel like Andrew Keen.
The beauty of blogs: they give every genius a voice. The beast: they give every idiot a voice. To be fair, most of us are neither pure geniuses nor idiots but seem to alternate between the two. I get stuck in idiot mode at least 60% of the time and don’t realize it 99% of the time.
So the question of blog self-defense isn’t just “how do we defend ourselves against full-time idiots?â€? but also “how do we defend ourselves against part-time idiots who are probably cool most of the time but woke up on the wrong/stupid side of the bed this morning?â€?
“Defend ourselves against what?� you ask? Here is a glowing fan e-mail I received one week ago:
[Your sport] shows that you are a hypocrite to profess helping others with your book. You are showing a grave example of the White horseman to our children. Shame on you. Shame on you… Shame. And Wickedness… It is the most evil war on earth, the one for blood spectacle for those who would entertain by whoring themselves prostituting violence to those who seek and lust to watch inhumanity. You are an evil one who has gained the world and lost your soul.
Was this in response to my how-to article on clubbing baby seals? My “Top 10 Places for Tripping Blind Old Ladiesâ€? post? No, ma’am… Read More
More unbelievable, this week 4HWW is simultaneously #1 on the NY Times and #1 on the Wall Street Journal business bestseller lists.
How is this possible? How could a book from a first-time author — with no offline advertising or PR — hit both of these lists and stick for three months and counting?
The book was turned down by 13 of 14 editors, and the president of one large book wholesaler even sent me PDFs on historical stats to “reset my expectations”—it could never be a bestseller. The odds seem impossible: there are more than 200,000 books published each year in the US, and less than 5% ever sell more than 5,000 copies. On a given bestseller list, more than 5 spots could be occupied by unbeatable bestsellers like Good to Great or The Tipping Point, which have been on the lists for years.
Is it all luck? I don’t think so. Luck and timing play a (sometimes big) part, but it seems to me that one can still analyze the game and tilt the odds in their favor. I don’t claim to have all of the answers—I still know very little about publishing—but I’ve done enough micro-testing in the last year to fill a lifetime.
The conclusion, in retrospect, is simple…Read More
