Before executing an agreement, ensure you have the right fit and get professional expertise
Licensing is not exactly money for nothing, but it’s close. By leasing out your name, image and ideas to an established partner, it’s possible for your business to set up a reliable revenue stream that requires little care and feeding.
What can a business license? A successful and readily available trademark can be a tempting proposition for another retailer or manufacturer looking to expand its line. Intellectual property also is a frequent source of licensing deals: Software, patents and unique technologies all can drive licensing revenues. Patents, too, may be licensed as a way to augment an existing business.
There are potential downsides. By definition, you’re giving up some element of control. A licensee may present your name and image in a way that turns consumers off. Done properly, though, a license arrangement can be a profitable way to expand a business. Here’s how to do it right.
1. Show success.
As an entrepreneur in the midst of executing a licensing deal, Tamara Clarke has learned that potential licensees want to see not just a good idea, but also a substantial track record. "Potential licensees are looking to invest in proven business models. Once there’s proof of profitability and an existing market for the product or service, it becomes a more attractive opportunity," says Clarke, managing partner of hair care enterprise Eco-Exquisite.
2. Get an agent.
For two and a half years, Dog is Good has been licensing out the trademarks and patents of its lifestyle brand for dog lovers. President and co-founder Jon Kurtz says the secret to success is bringing on board someone who already knows the ropes. "Get an agent," he says. "Yes, they cost money, but it is a whole different set of relationships and expertise you’re paying for. We have found some licensees on our own, but if it were not for our agent, we never would have known what to do. I think if you have a good brand and a strong message, an agent will likely approach you. Make sure it's a good fit and that you are comfortable with the person and the terms."
3. Protect what’s yours.
In pitching a potential licensing deal, the business owner will, of course, have to disclose the ideas, products, and properties that are on the table. You’ll need to do this without giving away the goods. (What’s to stop the potential licensee from walking away with your best ideas and pursuing those products on their own?) Hot tip of the day: Get. A. Lawyer. This is not something for the novice to try unaided.
RELATED: How Much Should I Pay for a Lawyer?
4. Find the right fit.
Not every company will be a good match for your products and ideas. A smart entrepreneur will do some deep digging before going out into the marketplace. Trade shows and industry magazines, industry associations, and personal contacts: All these will provide insight as to who the big players are and which might be in a position to benefit from what you have to offer.
5. Reverse the model.
Licensing can work both ways. In addition to sharing its ideas and products, a small business can grow by taking on someone else’s proven product. Consider BLP Commerce Inc., the parent company of eco-lifestyle brand Organic Bouquet in Maitland, Florida, which recently began licensing the Kathy Ireland Worldwide brand. Together, the companies will design and market a line of floral gift products. "For our company, we felt faster growth would come via retailing already known brands and partnering with a brand that could help us grow, while defining our own brand for possible future licensing to gift shops nationwide," says BLP’s CEO Robert McLaughlin.