5 Essential Points Toy & Game Companies Need To Know About Professional Toy & Game Inventors
Recently we posted an article looking at what toy & game inventors need to understand about toy & game companies. Now we’re going to flip things around and look at key points that toy & game companies need to know about professional toy & game inventors/developers…
Professional inventors unfairly get a bad press sometimes from toy & game companies. They are sometimes described to us as not commercially minded or as a financial scourge due to the heinous and utterly outrageous offence of needing ongoing payment of royalty checks to keep supplying groundbreaking top selling toy concepts!
Yet the reality is that product – actually make that really cool product – is at the heart of the success of any company in this business. So surely we need to think more carefully and value more highly those who are a more or less inexhaustable source of cool concepts & new product ideas…?
To reiterate that point, here’s 5 essential points toy & game companies might want to consider and appreciate about professional toy & game inventors:
1. You Need More Cool Product…Professional Inventors Are One Of Your Best Options For Finding It – between 50 to 75% of ALL product SKUs are new to the market each and every year! In other words, our industry is perpetually locked in a race to churn out enough SKUs to maintain shelf space and drive sales. And these new products have to come from somewhere. So any toy company which isn’t actively soliciting as many new toy concept submissions as it can possibly handle (or even more than that) from professional toy inventors is really missing a trick. Unless you’re one of a tiny minority of companies that has evergreen SKUs representing most or all of your business, you need at least a few of these new concepts every year on an ongoing basis if you want to stay in business!
2. You Present Products That Bomb Too…But You Also Have Hits (Just Like Inventors!) - there is no way on earth that any person or company can develop only amazingly cool products or only create massive hit products. The market just doesn’t work like that. Toy companies have their fair share of failed products or products where you just should have known better than to launch – what were you thinking of?! The same applies to professional toy inventors…but the point is not every single concept in their portfolio has to be exactly what you need, and some of them are bound to suck/completely miss the mark. But the purpose of a thorough concept acquisition process is to sort the wheat from the chaff, and to find the golden nuggets among the stinkers!
3. You’re Saving Money By Paying Inventor Royalties & Building High Potential Value Brand I.P. At The Same Time – our company is increasingly representing and / or consulting with professional inventors to help them reach more companies and place more product…BUT where we are different is that I’ve worked extensively on the toy company side and sat in front of CFO’s asking why are we paying royalties on product without an entertainment brand attached to it? Or why are we still paying royalties on this product which we’ve been running for years, surely we’ve paid the inventor enough money by now? So we feel we have unique insight into the reality of how this process really works and what the substantial financial benefits are for toy companies (regardless of the CFO’s complaints!).
Here’s the answer – there are 4 primary options for toy companies to get new products: a). Develop concepts from scratch and pay wages/take on overhead for the resources to do so b). Buy in finished product/manufacturing license for existing product from other companies c). License from professional inventors.
The advantage of developing own concepts is largely theoretical in terms of the overall market situation, as there are few (if any) toy companies with global reach and significant market share that manages to deliver enough products solely via it’s own R&D department. For sure if you’re a smaller or low mid size player you can do this, and perhaps should, but only in exceptional circumstances does this deliver enough volume of new products for companies with their own distribution across multiple markets/categories etc.
The advantage of buying or licensing in from other toy companies is that market ready, proven product can be acquired without the effort, resource, level of launch failure risk and financial investment of developing your own products. At first glance this seems like a golden formula…however, there are several disadvantages of this approach, firstly you are building brand I.P. owned by someone else (not clever if you want to build long term shareholder value, higher profitability, security and eventually sell your business), you don’t get to sell into all markets globally, only those designated to you by the company owning the brand, of course you have to pay a premium in terms of the margin or royalties from the brand owning company and perhaps most saliently, the rights can be taken away from you, despite all your hard work building the brand up in your market. Now I’m not suggesting companies shouldn’t do this, just that it doesn’t make sense to me to work on this business model alone for long term success and shareholder value.
Then finally, there is the option to select from a seemingly endless array of amazing concepts created by professional toy designers, who are ready and enthusiastically willing to work away in faith and at their own risk on anywhere from dozens to hundreds of new product concepts purely on the basis that someone eventually may want to bring one to market. Under a standard inventor agreement, the licensing company is likely to have auto renewal should they continue to have the product in market to an agreed level of performance (so the rights won’t disappear as long as the products keep selling), there is usually stipulation for exploitation of the brand I.P. into other product areas with the upside potential that offers. Moreover, the company commercially retains full control over the brand for as many markets as they agree i.e. global if negotiated thus, therefore opening up export opportunities and perhaps the chance to use proven products to open up subsidiaries in other markets. And of course the outsourced, pay you if it works royalty model allows for considerably less in house R&D overhead & investment at risk from the toy company (admittedly R&D work is still needed, but at a significantly lower level versus originating all concepts internally).
But all these financial/business model scenarios are meaningless unless there are sales to be had, and so the ultimate counter argument to a CFO’s ‘why are we paying royalties’ stance is always because any prudent business would rather pay a small royalty on something than no royalties on nothing! And the nature of P&L’s in the toy industry is such that lost or missed sales hurt profitability more than anything else.
The bottom line is that toy and game companies should be elated when you have to pay inventor royalties, and the higher the amount to be paid, the more elated they should be, because it means they have an incremental hit product which they didn’t originate and wouldn’t otherwise have had!
4. There Is A Limited Pool Of Top Level Professional Toy Inventors (And By The Way They Talk To Each Other) – or to put this another way, beware blowing inventor / invention group relationships, because there are is a finite number of potential partners out there for your toy company or games company…and if you make a habit of ripping off, alienating or disrespecting people or companies from this elite group, the word will spread, and good luck getting enough inventor originated product into your line then…then you get to watch as your competitors feel the benefit of your short term errant approach!
5. Check Out This Hall Of Fame Of Hit Toy & Game Products Created By Inventors – we can talk about the business model, financial relationships and whether toy and game inventors are hard work for companies to manage or not, but there is really one ludicrously powerful way to eject those issues from any debate on the impact of these self driven warriors who make up the creative heart and soul of our industry…just check out this brief list of inventor originated products:
- Bop It
- Tickle Me Elmo
- Mr. Potato Head
- Connect 4
- Hungry Hippos
- Rubiks Cube
I could go on (and on, and on) with this list, but even this brief list of just a handful of inventor originated products gets the message across…
…so the question for toy & game companies is whether it’s worth sifting through hundreds/thousands of new concepts, building relationships over time, launching the odd flop here or there, and paying royalties in order to find the next Furby, Mr. Potato Head or Rubiks Cube…err, yes I think so!
P.S. If you are a professional inventor looking to place more products/present to more companies (Europe, North America and beyond), or whether you are a toy company looking for cool toy and game concepts, please feel free to drop us a line via the ‘Contact Us’ page…
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