Startup founders need every tool at their disposal to successfully launch and grow their businesses. One of those tools is a clear understanding of how the licensing business model can be employed to support their goals, including speed to market and filing intellectual property that is attractive to investors.
The concept of licensing has been around for a very long time. The inventor of the first patented technology -- Samuel Hopkins, in 1790, for a new method of manufacturing potash and pearl ash -- licensed it to a local businessman the next year, says historian Arthur Daemmrich at the Lemelson Center for the Study of Invention and Innovation.
Basically, one party (the inventor or artist) grants another party (typically a company) the right to produce and sell something they created.
As far as I can tell, most startup founders aren't very familiar with the concept of licensing a product onto the market. Venturing -- the traditional method of bringing a product or service to market -- gets all the glory. It makes sense: You do it all yourself.
Licensing can be an alternative to venturing, but it can also be quite complementary. Here are six major benefits that an understanding of product licensing offers to startup founders.
1. If you're extremely creative and have lots of ideas, you don't have to pick just one.
Starting a new business to commercialize each of your ideas isn't practical. Some ideas aren't a good fit to develop a business around anyway. If you develop an understanding of how the licensing process works, you won't have to abandon or set aside your ideas for new products, because licensing is far less time intensive than starting up.
2. Reduced risk and expenses.
Most startups lack the funds, time, and/or experience they truly need to launch a new successful product or service. When you license your technology to an established company, that company and its myriad of resources become your partner. No longer do you need to establish your own supply chain, relationships with retailers, and marketing department, for example. This reduces your expenses, which reduces risk.
Licensing is particularly helpful for startups whose technology will be expensive to develop and implement.
3. You can get to market faster.
Speed to market is as relevant as ever.
"All else being equal, the fastest company in any market will win. Speed is a defining characteristic -- if not THE defining characteristic -- of the leader in virtually every industry you look at," says Dave Girouard, founder of Upstart and former president of Google Enterprise.
A big benefit of licensing is speed. Beating others to market and becoming the original in the eyes of consumers is a great form of protection. A good licensee will have the resources to commercialize your product or service at scale much more quickly than you could on your own.
If you're just starting out and don't have any intellectual property, you should consider licensing intellectual property from a third party. This is a much quicker way to acquire IP because patents take at least a couple of years to issue.
"Licensing in rights to a proven product or technology shortens the time to market. Rather than spending your time and money on R&D, you focus your resources on getting the IP into the commercial marketplace," explains the Licensing Consulting Group.
There are many places to look for intellectual property to commercialize, from research universities to corporations that license out their intellectual property. Much like getting a patent, a license to use intellectual property will be attractive to investors.
4. You can generate supplemental revenue and use it to finance your innovation.
Do you have a plan for how you'll leverage all of the non-core technologies your startup invents? They might be useful to others. By licensing those technologies out, you can generate additional revenue to help you grow and scale. IBM is a classic example of a company that licenses out the technology it develops.
5. You give yourself another exit strategy.
The failure rate of startups is fairly high given the cost and time required to launch a new product or service. So, looking ahead, let's say you run out of money. Having multiple exit strategies could be very helpful. You might determine it's best to license your product or service and avoid incurring additional expenses.
"Sometimes, shareholders will request that management or a third-party attempt to license or sell the technology to provide some return on investment to shareholders in 'stalled or failed' technology businesses that have been backed by equity investment," explains MaRS in its Startup Toolkit.
6. You will draft more valuable patent applications.
By looking ahead and considering how you might incorporate licensing into your startup business model, you can devise an intellectual property strategy that allows for multiple income streams. This will increase the value of your business in the marketplace, helping you raise money and create partnerships that can increase your chances of success. Intellectual property should be approached from a business perspective, not only a legal one.
The licensing business model offers many potential benefits to startup founders. It's a useful tool to bring your vision to life -- one that every entrepreneur should know about.