Don’t’ let this happen to your start-up. You spend all your money on hiring the right people, developing your IP, travel to meetings, investor presentations, legal fees, prototypes, marketing, and other expenses that just pop-up. One day your accountant tells you your current cash burn rate is only enough for six more months.
You scramble to cut costs and try to figure out a way to get more money. It’s desperation time. You head off to quickly try to raise money but at this point, it means giving away control of the company. Your next option is to find a way to generate cash with your IP by licensing it. The problem is you didn’t plan for this option, and now you’re licensing out of desperation to find a partner before you run out of money.
One example is Texas Instruments. It launched its patent licensing effort out of desperation in the mid-1980s, when it faced bankruptcy. Since then, TI generated a phenomenal $4 billion in patent royalties, and it continues to generate an estimated $800 million a year in licensing revenues.
Another way to think of licensing is a strategy to build your startup simultaneously in several markets. Except you do it with licensing partners who provide all the money, manpower and resources to make and sell it. Now your IP is generating revenues from several markets, instead of just one.
It’s like holding your place in line. At some point down the road, if you decide your startup wants to go direct in those markets, you’ll have the option to end your licensing agreement. Instead of having to build your sales from scratch, you can capitalize on the customers and market recognition created by your licensing partners.
Your startup strategy doesn’t have to be an either/or decision because no one plan guarantees you’ll succeed with your startup. The goal is finding the best way or ways to succeed in the marketplace. At some point in every startup’s life, licensing will be an important option for you. But don’t let it become a desperation option.
Your startup’s most valuable asset is its intellectual property, and if you only use it to protect your products, you’re missing revenue-generating opportunities. Success in licensing requires taking action and making it part of your daily business activities. Remember, the best licensing opportunities go to those startups that make licensing a part of their short and long-term business strategy.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. He’s a published writer with articles appearing in several prestigious trade magazine including The Licensing Journal, Intellectual Property Magazine, and License India. Rand also mentors at the Cal State Fullerton School of Business and Economics and is a judge for their startup business plan competitions.