Licensing can help get item to market
July 30, 2012
What is licensing? Did you know, if you develop a new product, you don’t have to create the processes to manufacture, sell, and distribute? Licensing is a great alternative to getting your product to market and it may be right for your business idea…
By Dave Erickson
SAN ANGELO, Texas — Entrepreneurs who are developing a product (or process) for commercialization basically have two choices to get their product to the marketplace; manufacture it themselves or license the right to make and distribute to someone else.
The process is called licensing out. A license, through a licensing agreement, is a formal granting of the rights to make and sell to another party, who is called a licensing partner. The entrepreneur, or licensor, is usually paid in up-front fees and ongoing royalty payments.
Licensing offers a way of getting products to existing or new markets more quickly and with less expense. Many entrepreneurs lack the large amount of capital needed to invest in manufacturing, selling and distributing. Licensing offers a way to reduce capital investment by selling the rights to those who are in the business of manufacturing, selling and distributing. In addition, an entrepreneur who develops a product may not have the expertise to take it to market.
Licensing provides a way to develop the product and have experts in these areas do the rest. The chances of success and gaining wealth from the development of a product are greater if you allow experts with manufacturing plants, sales forces and well-developed distribution systems handle taking the product to market.
Licensing can also be used to expand into markets where one has little knowledge or experience. For example I know of a firm developing a device. It will manufacture, sell and distribute the device itself here in the U.S.
However, to expand to other countries, the firm will license the rights to licensing partners to make and distribute the product in a certain country, and gain revenue without having to invest a large amount of money. In the future, when the licensing agreement runs out, the firm may decide to develop the capabilities itself if it then has the capital and expertise to do so.
Experts say licensing is not an easy task, and an entrepreneur needs to develop a licensing strategy or plan of action. Elements of a licensing strategy include research on the industry and market for the product, research on a group of possible licensing partners, and getting resource partners who can help you through the process.
Visiting with an attorney experienced in licensing is your first step. He or she can help develop a licensing strategy, negotiate a licensing agreement and help research and select a licensing partner. An attorney also can help secure your intellectual property through patents.
Secure other resource experts to help with the market and industry analysis. This is where the Small Business Development Center can come in to assist. We have the resources to help entrepreneurs with market and industry analysis for any purpose.
So if you have developed a product, and have a working prototype, you should explore licensing as a way of getting the product to market in a less expensive way.
If you find the right licensing partner, you can reap the rewards through royalties. The process is not easy, but you may find it easier than trying to manufacture and distribute it yourself.
“Business Tips” was written by Dave Erickson, director and certified business adviser IV, of Angelo State University’s Small Business Development Center. Contact him at David.Erickson@angelo.edu.