Licensing is a flexible strategy that offers many options. One of those is using it to capitalize on new growth opportunities without spending lots of time and money.
Recently a company with natural health products (insect repellent products for humans and horses, pigs and poultry) announced a licensing deal with a global consumer products company. Although its products were selling in major retailers in the US, the company wanted to expand its business but didn’t have the financial resources to support its growth plans. So the company split its product IP into two separate companies, and licensed out rights to its human health products. In return, the company received an upfront payment of $500,000 plus ongoing royalties, and generated cash flow to fund their growth plans for its animal health products.
This is one example of how your business can leverage its intellectual property assets. In this case, the company focuses on expanding the market for its animal products by letting another company make and sell its human products. The market segments, animal and human, are very different, which made it an ideal situation for licensing. They license their technology exclusively into one market, while continuing to market and sell their other core market. The company not only generates licensing revenues, it also makes them more attractive to investors and will help them secure more funding for their animal products business.
Licensing is not a mutually exclusive strategy, and using it to support your core markets is a great way to expand your business without the risks and costs of doing it yourself. For example, licensing a bigger company gets your IP into other markets, and access to their manufacturing efficiencies. Not only do you generate new revenues, you also lower your production costs.
Licensing is a flexible tool that can be used in many ways. The challenge is making sure you use the right licensing strategy. When evaluating your business or startup plan, here are some of the top situations where licensing is an ideal strategy to use:
- Reduce the investment needed to reach the marketplace
- Accelerate market introduction
- Increase investor return and lower potential liability
- Acquire resources such as manufacturing, sales and distribution, or business management
- Access foreign markets that are not inaccessible due to shipping restrictions or lack of a distribution system
The real value of your IP is the way you use it as part of your business strategies. It impacts every area of your business – marketing, capital raising, research and development, and business development. Your IP is a flexible asset and through licensing it can quickly adapt to a changing market. Licensing turns competitors into customers. It enables you to grow your business by allowing others to use your IP in different markets. Most importantly, licensing is one of the fastest and most powerful ways to grow and expand your business for little or no cost in today’s highly competitive innovation economy.