Why Cannibalism Can Be A Problem For Inventors Seeking Licensing Deals

I'm not talking about eating executives who say "no" to you, as tempting as that may be. I'm referring to the possibility that sales of your wonderful new invention would replace sales of an existing product. For example, let's say you have a much improved mouse trap that catches mice 100% of the time and costs just pennies more than a conventional mouse trap that fails half the time (we just tried licensing such a product). Why on earth wouldn't a company jump at the chance to license the vastly improved product?

Cannibalism. That's why. A company that pretty much owns the market with an existing product has little reason to sell an improved version because that improved version will not increase profits... even though it works better - instead, sales of the new product would simply replace sales of the old one. In fact, an improved version might actually reduce profits because, in the example of mouse traps, fewer units would be needed.

Cannibalism is why you should first seek licensing deals with the number 2 and number 3 companies in a product category. Sales of your wonderful new invention will grab market share from the number 1 company. THAT is an appealing concept to a company that is not the market leader.

If you want to license any invention it needs to offer increased profits. If you want a deal with the market leader, your best bet is an invention that reduces costs.

- Mike