Intense competition makes firms more open to licensing outside intellectual property. In today’s interconnected market, your competition is no longer your competition. Instead, they are potentially your best business partner.
Is cooperating better than competing? History has shown cooperating to be a more effective strategy than battling it out at the expense of revenues and profits. Especially when it comes to technology intensive industries where competitors are constantly stepping on each others technologies.
In the 1870’s, Western Union and Bell were battling over the telephone market. Rather than continuing to eat at each others profits, they agreed to cooperate. Western Union gave Bell rights to commercialize the telephone in return for a 40% equity stake in the company. And Bell agreed to stay out of the telegraph business (smart move).
In every industry around the world, large companies of all sizes – from GE to Johnson & Johnson, IBM to 3M – are all turning to outside strategic partnerships with startups to develop the innovation needed to stay ahead of the competition and adapt to a rapidly changing market.
Many of these large companies are forming innovation incubators and special development divisions to reach out and create partnerships with startups. For example, one of the largest nonprofit health care systems, Ascension Health, set up a division to develop external partnerships with small health tech startups. Their goal is to uncover the latest new emerging technology focused on digital health care.
They realize, like most of the biggest players in the health care industry, that they are too slow to develop innovation themselves. That’s why they’ve turned to strategic alliances and licensing partnerships with the startup community.
Innovation today means getting your new technologies into the market as quickly as possible. You no longer have the time it takes to build and mature a startup business. Your technology only has a short commercial lifespan as new technologies quickly enter the market.
Unless your IP is a real game changing breakthrough that completely disrupts the market, you won’t be able to displace big entrenched competitors. The early lead your startup gains eventually disappears as they catch-up with new competitive technologies.
Now more than ever your startup must use licensing as part of its business strategy. Through licensing, you partner with a larger company, who has the resources to quickly launch your IP into the market and ramp it up into a large revenue-generating business. They do it in much less time then it would take you to build your startup, and they have the sales power that you wont’ even come close to achieving.