Big Companies vs. Small Companies
The reality is that 80 percent of any business is done by 20 percent of the companies in a particular market. And given a choice, you want to be with the larger company.
Unfortunately, you usually don’t have a choice. So often it is any port in a storm.
Large Companies
Let’s look first at large companies and the opportunities they offer.
Large companies need so much to fill their pipeline that a failure could still make you more money than a hit with a small company. Hasbro and Mattel, for example, would not publish a game that did not launch with at least 250,000 copies and then have the possibility of increasing in year 2 and so forth. A smaller publisher might be content with 10,000 copies the first year, and see 50,000 copies as having hit the mother lode.
Hasbro and Mattel would not license a toy that could not do at least $15 million to $20 million in year 1 and then expand into a line. Their overheads do not allow them to license single items, no matter how clever the item is. A smaller company might launch a toy that sells a few thousand units per year.
Large companies can give you a huge advance/guarantee package. Smaller companies are normally lower in the advance and are reticent to guarantee anything, but are willing to give a higher royalty and more flexible terms.
Notable Quotables
The secret of genius is to carry the spirit of the child into old age, which means never losing your enthusiasm.
—Aldous Huxley
Large companies typically have advertising and promotion budgets and departments to spend these dollars on your product. They may have outside agencies, too. Smaller companies sometimes barely get out a press release—unless the president writes and mails it—and have no budget for making noise.
Large companies have clout. I recall years ago asking a senior executive at Mattel how confident he was about securing shelf space for a new, edgy product of mine it had licensed. “If they like that pink aisle, they will give us a shot,” he quipped. Of course, he was referring to Barbie. Smaller companies often have trouble getting a buyer on the phone to set up a meeting and show your product, let alone get an order.
Large companies could pay you millions of dollars in royalties and not bat an eyelash. The smaller company might pain over signing a royalty check for $1,000.
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Large companies can afford to invest in product. The smaller companies are usually undercapitalized or otherwise unwilling to gamble on large runs without a guarantee in hand.
Large companies can license your product without first showing it to trade buyers for their approval. This is what you want. Do not permit anyone to show your product before it is ready for prime time. Smaller companies may lack the confidence to license new products without a prior vote of confidence from a trade buyer(s). They want to know that someone will buy it before they make an investment.
Large companies are typically multinational and get global distribution for your product, and quickly. Small companies usually do not have sales and distribution offices overseas and usually make their foreign deals through agents after the product has proven itself in America.
Large companies have strong front lines and benches deep in talent: engineers, programmers, model makers, sculptors, quality control experts, designers, copy-writers, packaging people, and more.
Notable Quotables
Embrace rejection. Sometimes it’s the only thing you have going for you.
—Barbara Slate, creator of Angel Love and other comic characters
Smaller companies farm out most work to freelancers, which can be problematic when the crunch is on.
Large companies benefit from economies of scale. Small companies are not able to hammer vendors for lower prices because their minimum order quantity (MOQ) is less.
Large companies typically carry higher product liability insurance than small companies and usually add inventors to it if so requested. Small companies frequently balk at adding licensors to a policy or increasing their insurance.
Perhaps the best way to sum it up: large companies can power product in ways small companies cannot.
Small Companies
On the other hand, smaller companies do have positive attributes. For example, we were awarded a U.S. patent for a dramatic departure in baby bottle design. Inspired by the spiral pattern on the Nerf Turbo football, our design featured a spiral grip. Most companies saw it as being too “far out.” No one wanted to license it.
Then one day the phone rang. It was my old friend Harvey Lepselter calling to tell me he had landed a job as senior vice president for R&D/marketing at a start-up Long Island company Babies ’n Things.
“What do you have for infants?” he asked. I thought for a moment, mentioned a couple items, and sent them up for review. They did not pass muster. After explaining why the submissions were not appropriate, he asked if there was anything else. “No,” I responded. Not one to take no for an answer, Harvey asked me to look around in my prototype closet again. Because he’s such a close friend, I took the time. Then I remembered the baby bottle.
Bright Ideas
James Fergason holds over 100 U.S. patents, among them a series that is the foundation of the multibillion-dollar LCD industry. The Wakenda, Missouri, native invented the first practical uses of liquid crystals. A former associate director of the Liquid Crystal Institute at Kent State University in Ohio, today he is an independent inventor.
A year after his call, we were in production overseas, samples of the bottle had been shown to the trade, and purchase orders were landing. Amazingly, we went on to sell over 2 million bottles before the company ran out of gas. Harvey expanded the line into spiral-grip juice bottles, spill-proof cups, fork and spoon sets, comb and brush sets, and so forth. This is what happens when a great product concept meets a great product champion and marketer like Harvey.
Here was a product that had no home. Then a small company made us some money with it. Unfortunately, the company was undercapitalized and unable to take the bottle all the way. I recall that some retailers asked to see the bottle in a certain type of packaging, and the company did not have the money to comp up the packages, the product’s success notwithstanding. But we were always paid, if not on time, then soon after the contract called for payment. And a product that might never have seen the light of day made us some money and gave us the satisfaction all inventors get when they see their products on the market.
Here are some of the most salient issues to consider when you look at a small company:
Small companies may give your baby tender loving care because it is likely more important there than at the large company. Large companies eat like elephants and, to put it politely, evacuate like sparrows. They always have back-up product in development, and if one product hits a snag, rather than solve the problem, someone may kill your item and pick up a new one that is easier to develop.
Small companies frequently need the inventor and tend to embrace his or her assistance. Large companies sometimes look at the inventor like a hitchhiker with pets.
I have lost track of how many times I have put together the development team for a particular product. In some cases, I have even found the manufacturer for my licensee.
Small companies with aggressive leadership are decisive. There’s less molasses of process and administrivia and other paperwork. I have seen smaller companies move like a raven on road kill while the large company misses the meal. After all, at the larger companies, process often comes before product, more so today than in years past.
Small companies mold opinion while larger companies are busy measuring it. You may be familiar with what is called the paralysis of analysis.
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The Inventor Assistance Program (IAP; formerly Office of Independent Inventor Programs) reports directly to the Commissioner, and provides invaluable assistance and a direct channel to the highest levels of the USPTO. IAP is managed by John Calvert (571-272-4983). He is supported by Cathie Kirik (571-272-8040). They are consummate pros and inventor advocates. IAP organizes online chats between inventors and senior USPTO officials. To see if a chat is coming up or see if there is an event of interest to you, check out www.uspto.gov. In 2009, IAP hosted more than 50 web-based teleconferences. If you are a member of an inventor group or university and would like to take part in such a teleconference, contact John or Cathie, or check out would like to take part in such a teleconference, contact John or Cathie, or check out www.uspto.gov/web/offices/com/iip/index.htm.
So What’s the Answer?
When all is said and done, there is no one correct answer. Even when a company does everything right and the planets align, products fail. Therefore, what I look for in companies—whatever their size—is that they apply their best efforts to develop, market, and sell my product, in commercial quantities, and under terms and conditions that are fair and equitable to both sides.
Both large and small companies can be, as they say in Texas, all hat, no cattle. Both types of companies have disappointed me, just as I’ve been surprised and delighted by them, too.
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