A consulting company specializing in leadership and sales development wanted to expand its business internationally. Rather than going the riskier route of opening their own offices, they licensed out rights to their brand name and proprietary consulting tools to improve business performance. They now operate internationally with over 50 licensing partners and 250 consultants worldwide.
If you’re a professional services business, what you know how to do is a trade secret. But it’s also an overlooked and undervalued intellectual property. In most cases, this know-how is simply stored in your head and not in a tangible format such as a product. Sometimes it’s created from carrying out activities in your business for clients. In other cases, it’s sensitive and specific only to your business. In both cases, it qualifies for protection as a trade secret. It includes business processes, formulas, recipes and other confidential information – basically anything you’ve created that helps you make a profit and don’t want anyone to know how you do it.
A professional know-how organization is buzzing with new business ideas and it can turn them into licensable intellectual property. Know-how is used to solve problems. Its key resource is knowledge as opposed to raw materials for a product. It’s used to make and deliver goods and services to customers, or help customers run their businesses better. Professional know-how companies are one of the biggest industries, and include many types of businesses such as consultants, business advisers, journalists, physicians, academics, lawyers, researchers, merchant bankers, venture capitalists and more.
Service organizations aren’t the only ones with valuable know-how. Inside many of the largest traditional corporations are know-how departments. Some examples include R&D centers in manufacturing firms, engineering departments in automobile companies, securities divisions in banks, and surgical units in hospitals. A number of these large corporations license out their business process know-how. Ford licenses its lucrative rental business process and Proctor & Gamble licenses out its quality control process.
Know-how is the knowledge processes embedded inside your company. It increases in value the more it’s used or practiced. Many times, it’s a combination of people and technology, such as software, in action together. It’s created and used to shape decision making and activities related to your company and customers business goals.
Practice is different from process. Process is the map of how things are supposed to happen. Practice is the way things are actually done. Practice is putting the knowledge into action using the process map to initially figure out how to get from point A to point B. Then the process is set aside as you start working around all the uncharted road blocks. Practice develops over time and reflects the way people and groups in your business actually create and use explicit and tacit knowledge to produce, sell, and deliver your products and services.
Practice is the source of your know-how competitive advantage because it can’t be easily replicated. For example, because of its highly effective work practices, an office furniture manufacturer creates a big competitive advantage from its quality reputation. Its well-designed production processes and procedures, and well-trained, experienced employees with great engineering relationships enables them to quickly diagnose and fix sources of quality problems.
How do you know when it’s time to license your know-how? One of the best signs is when someone asks. Sometimes it is a company outside your industry, and in many cases, especially for training consultants, it’s often one of your customers. This is exactly what happened to one of my clients. They offer workplace safety consulting and training to Fortune 1000 companies, who spend millions using their training to improve safety and productivity in the factory workplace. After years of working with their clients, some of largest ones started asking to license the training systems so they could do it themselves. They knew the training works, and realized it would be more cost-effective for them to do it internally.
Recording and protecting your valuable know-how is the first step to licensing it. The best starting point is an IP audit to create a detailed inventory of what your know-how does and how you’re using it. The audit will also help you make sure all parts of your know-how process or systems are properly protected. From there, an SOP – standard operating procedures manual – is created. The SOP manual is an invaluable and effective training tool, promoting consistency and quality for your licensing program. It has the details of the proper procedures, reducing the amount of time needed to aid new licensees. It also serves as a strong selling tool for your licensing program, and helps your licensees run their businesses more successfully.
Licensing it requires attention to confidentiality, pricing and managing the licensee relationship. When presenting it to a potential licensing partner, provide enough information to show its value, but don’t show everything. The goal is to show the licensee the value of your know-how to their business. Sometimes this is tricky because you must disclose enough so the potential partner understands its value to their business.
A “know-how” licensing agreement secures it with non disclosure and other clauses to keep it confidential. The key is making sure your information, processes and systems remain confidential. The licensing agreement details specifically which information is confidential (and which isn’t), limits what the licensee may use it for, and specifies how long it must remain confidential after the agreement ends.
Know-how is licensed both exclusively and non-exclusively. Which one to use depends on how it’s being licensed. For example, if the know-how is part of a consulting agreement, then it’s best to license it non-exclusively so you can continue using and licensing it to other clients. A second strategy is to license your know-how to multiple competitors in your industry and accelerate adopting it by the market. It creates new distribution channels for your know-how and you get paid you every time they sell their services using your know-how. You license it to others, and become an innovator business, developing better and more profitable ways to deliver your know-how processes or services. GE is a good example of this with their Six Sigma product development process. They license it to management consulting firms and focus on new ways to improve the process for current and future customers.
The secret to success is maintaining control. Be sure your licensing agreement specifies what and how your licensing partner can use your know-how. You must create quality control guidelines, and make sure your licensees adhere to those guidelines. Include detailed steps with benchmarks at certain points where licensees must give QC information, such as training sessions, delivery materials and outcomes. For example, requiring the licensee use a specific power point presentation to deliver a seminar is one way to control quality. You can give them the flexibility to customize the look of the presentation to match their branding, but require the content be presented exactly as provided.
If your goal is to increase your professional services revenues and profitability, but don’t have the time or resources to do so, then licensing is your ideal strategy. You’ve got a number of options when it comes to licensing your know-how. Some expertise based businesses license only the use of their information for an annual payment. Others allow licensees to use the name, logo, and the methodologies they’ve created in return for a periodic royalty fee. These are two of most common but not the only options. Figuring out the best licensing option for your know-how depends on what it is and the different ways to license it.
Securing your know-how is key. Record it, register it (if it includes copyrights or trademarks), and keep it confidential. And make sure you include a detailed description of your know-how and how it can be used in the licensing agreement. That’s what insures your know-how IP will remain your IP.
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. His first book, Hidden Wealth: The Money Making Power of Licensing was released in 2019 and is available on Amazon.com. He’s also 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.