When it comes to startups there is more than one way to build your business. But these are often overlooked, especially if you’re wearing your “I’m building a business” blinders and miss other options to get your IP into the market.
In most cases, startups choose the direct route. What they often overlook is licensing as a strategy to get them to market. It’s not either or. Today, smart startups consider a dual approach that enables them to switch from one strategy to the other as they acquire resources and their technology matures in the market place.
It’s called a switchback strategy. Unlike a pivot strategy, which tries different approaches to get into the commercial market, the switchback changes directions based on market success, not failure. The startup switches from a licensing strategy to direct sales or vice versa.
Just like a mountain climber who uses switchbacks to go back and forth to climb a steep mountain and avoid obstacles, the switchback strategy is ideal for startups facing a steep financial climb with lots of competitive obstacles.
If your startup doesn’t have all the resources, such as platform technologies, expertise in distribution or regulatory approval, then the switchback strategy is a great option to use at the launch stage. This is what Genentech did. They used licensing to launch and build the company. Once it acquired the development, regulatory and marketing know-how, they switched from licensing to direct sales.
The switchback strategy is also a great option for a fast-moving market, where products and technology change quickly, and you only have a very short window to successfully develop and get your IP into the market. One example is the health care industry, where it’s all about risk-taking and getting your technology or device to market sooner than later.
That’s where switching to licensing once you’ve proved your IP is a great strategy, especially for expanding your technology in the market. That’s what a startup with a patented laptop charger did. It successfully launched it, then switched to licensing instead of trying scale up as a manufacturer. It licensed its technology to one of the big component companies with the resources for large scale production, distribution and sales of the laptop charger.
Licensing your IP is also a first step to an exit strategy. Once your startup launches its IP into the commercial market, consider switching into a licensing strategy to partner with one or more of your bigger competitors. Depending on what your IP is, for example, if it’s a technology that’s integrated into their products or services such as a processing component, an exclusive licensing agreement will be your first step toward an exit. At some point, you’ll get an offer to buy out your licensing agreement and the IP.
Your startup strategy doesn’t have to be an either/or decision because no single plan guarantees you’ll succeed with your startup. The goal is finding the best way or ways to succeed in the marketplace. That’s why licensing should be part of your startup strategy. The switchback strategy gives you more than one option to build your startup. Especially if your startup has little or no revenues. Your IP is the biggest part of your startup value, and investors favor startups with solid IP and a strategy to use it to succeed in the marketplace.
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.
Thanks for explaining the the switchback strategy. I didn’t know that this is a good method for startups that are facing a lot of competitive obstacles. I’m kind of interested to learn if it’s ideal to try out this strategy long before you have this issue.