Why Pivoting into Licensing is a Smart Business Strategy

Pivoting into a licensing strategy isn't just for start-ups and small emerging companies. It's a core business strategy for just about any size company in any industry.

Many of the largest companies pivot to a licensing strategy as a way to continue growing their business. One example is Nokia, one of the most well-known phone manufacturers and brands around the world.

Nokia is a multi-billion-dollar corporation that pivoted out of the phone production business in 2014 and sold it to Microsoft. It created a new division, Nokia Technologies, which now focuses on building its brand. Brand licensing expands to Nokia's patent licensing business, which has been a big part of their revenues for many years.

Now Nokia is using its brand equity instead of producing and selling products. Its licensing partners provide the products, and Nokia focuses on ensuring the quality and consistency of the licensed products reinforces the Nokia brand. And its brand is proving to be a high value for its licensing partners. One example is the licensing deal for cell phones and tablets. The Nokia brand helped that licensee become one of the top 10 global smartphone manufacturers in the world.

Nokia isn't the only large company that pivoted to a licensing strategy. Most big apparel manufacturers such as Tommy Hilfiger, Calvin Klein, and others pivoted to a licensing strategy decades ago. Rather than producing and selling products directly, they use their brand recognition to expand beyond their core apparel products. They now generate hundreds of millions of dollars from all types of consumer products – from perfumes to sunglasses, menswear, underwear, socks, and more.

Bankrupt companies (and even those facing bankruptcy) often pivot to a licensing strategy. Two examples are Kodak and Polaroid. Both of these companies emerged from bankruptcy and pivoted to a licensing model, and they now generate tens of millions of dollars licensing their technologies and brands. Texas Instruments did the same thing when they were in big financial trouble and facing bankruptcy. The strategy paid off, generating over $800 million in royalties.

For Nokia, its brand licensing strategy is expanding its business outside its core smartphones and tablets, reaching new customers through various consumer products. Now Nokia makes about half its gross profit from two licensing revenue streams – branded products and patented technologies. Now Nokia makes about half its gross profit from two licensing revenue streams – branded products and patented technologies. This revenue increases bottom-line profit because Nokia generates it without operational, manufacturing, inventory, and sales costs.

Pivoting to a licensing model is also a strategy for fast-changing or highly competitive markets. One example is the med-tech market. Startups and growing companies in this industry must be flexible and “morph” as they go. That's where the licensing pivot is a great strategy. Because the healthcare market is in a constant state of change, med-tech companies must expect to shift their technology and business model through getting their product to market. It might require changing focus to a different customer, altering the technology to address a different market need, or partnering with a larger company for a more compelling market opportunity.

Don't wait until you get into trouble before considering a pivot to licensing. Licensing is a flexible strategy that puts your IP to work in many ways. Using it as a proactive business strategy gives you more strategic opportunities, especially in highly competitive markets. It enables you to capitalize on other markets while you focus on building your core market. Licensing adds a second revenue stream to your company, so you do not depend on a single “make and sell” revenue stream. And it gives you the option to quickly pivot into a “100% licensing” business strategy if market conditions change or you don't have the resources to continue growing.