Increasing sales, especially to larger customers, doesn’t mean larger selling expenses. Recently a small environmental systems company licensed a larger company, giving it exclusive rights to sell its water pollution control and water treatment technology to their Fortune 50 customers.
This licensing strategy expanded the company into a new sales channel and customer base without having to spend the money and resources trying to do it themselves. It opens a new market that will generate millions in revenues while they continue focusing their resources on the core markets and customers they serve best.
A big well-known company already has its own marketing team and sales force, its own distribution channels and a well-respected brand and reputation. They will get your intellectual property into the market faster and more effectively. By contrast, trying to launch your IP through a start-up company requires a lot of money, time and risk trying to enter the marketplace from scratch.
This is an example of a distribution licensing strategy. This type of license allows your licensing partner to buy the product directly from you (or another licensee) for distribution in a specific market. The terms include a number of conditions such as price, quantities, quality, labeling, royalties, and so on. A distribution agreement is also a good first step toward a full licensing agreement or co-development agreement.
One of my clients used this strategy to successfully launch their product in Europe. We licensed a large distribution company and gave them rights to some countries in Western and Central Europe. In this case, they bought the product directly from my client. Once they confirmed the demand for the product, we renegotiated into a master licensing agreement, giving them rights to produce and sell, and generate extra revenue by sub-licensing other companies in different countries.
Do your homework and make sure your licensing partner has the distribution capabilities. Not only does it cut the risk, it also makes it more likely that the potential partner will consider the licensing opportunity. If your IP is a “mass market product”, the potential licensee needs national distribution capabilities. Plus you benefit from the huge customer exposure a bigger distribution partner offers. Microsoft used this strategy in its early years by licensing its DOS software to IBM, and obtained the benefit of IBM’s global sales, marketing, and distribution systems.
In addition to opening up Fortune 50 customers, you can license your IP to get access to new markets, industry experience, or manufacturing capabilities – while continuing to market and sell to your primary markets. If your IP is infringed by another company, licensing it to the infringing company is a more economical option than litigating against them.
No matter what stage your business is in – startup or mature – capitalizing on your IP must be a part of your business strategy. Licensing lets you instantly tap the existing production, distribution and marketing resources other companies spent decades building. Licensing your IP in different formats, product configurations, distribution channels, or to different customer bases—these are all strategies to leverage your IP. You maintain a competitive advantage while at the same time make money by letting others use 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.