BIZTIPS - August 24, 2008
Biz Tips: Licensing Can Unlock Revenue Potential
Some entrepreneurs start with an idea, create a product, then build a company around it. They work for years carefully adding more products and services, gradually increasing revenue. It’s the classic entrepreneurial path, creating jobs and wealth for business owners.nt>
Other entrepreneurs start with a wealth-creating idea then skip all the steps in the middle. Too good to be true? Yes and no. The skipped steps still have to be done by somebody else. After documenting the initial idea, the next move for these entrepreneurs is licensing.
A good definition of licensing is “A business arrangement in which the manufacturer of a product grants permission to some other group or individual to manufacture that product in return for specified royalties or other payment.” (www.fibre2fashion.com).
Licensing has a long history, especially in the design and entertainment industries. It’s a popular way for creative individuals to get paid for what they do and for companies to retain ownership of intellectual property. You don’t own Microsoft Office just because you pay a license fee to use it. Microsoft retains ownership, along with the right to sell, re-sell, and support (or stop supporting) their licensed products. The success of Microsoft licensing pretty much speaks for itself.
Licensing also works for small businesses and individual entrepreneurs. Last week I met a graphic artist with over 1,800 designs to her credit. She manufactures some herself in metal and ceramic. The rest are licensed through her agent. She jokes about getting “mailbox money” from her licenses. Not a bad way to make a living.
Another example is closer to home. The owner of Pendleton-based Meg H. Designs was once a staff designer for a major jewelry manufacturer. Her design for the earrings worn by Hermione at the Yule ball in a Harry Potter movie earned her employer an exclusive license. The earrings are still featured in catalogs, and the exclusive license is still in effect. The owner of Meg H. Designs no longer works for somebody else...now she has her own lines of jewelry.
No discussion of design licensing would be complete without mention of Spokane’s Debbie Mumm. According to her website (www.debbiemumm.com), “Debbie heads an organization with a highly successful licensing program that has generated over half a billion dollars in retail sales.” That’s billion with a “b” since Debbie founded the company in 1986. How’s that for staying ahead of inflation?
So let’s say you have a design that you think might be suitable for licensing. You’ve done your homework, know your target customers, and have a written marketing plan that includes estimated costs, product cycle, and projected sales. You would rather license the design than manufacture and sell the product yourself, and are willing to turn over control to someone else in return for license revenue.
As usual, the devil can be in the details. How do you find an organization interested in licensing your design? Do you ask for all the money up front, or agree to receive some in the form of royalties on sales that may soar or flop? Will you consider making modifications to the design? How long should the agreement be in effect? What records will be the basis for payment? How can you get out of the deal if it doesn’t work out?
These questions must be answered in the legal terms of your license agreement. Examples can be found at www.swimmuse.com (click on “Art License Contract”) and www.findlegalforms.com/forms/copyright-license-contracts (see sample artwork license). Review these samples but be sure to have an experienced creative licensing attorney draw up your contract specifically for your design and the parties involved in your individual licensing deal. No two deals are the same, and “canned” agreements leave lots of room for disputes down the road.
We’ll explore this topic further with an experienced licensing agent, her business partner who sets contract terms, and an entrepreneur whose licensed designs made it past the “tipping point” to international success. Until then, consider whether licensing might be a good way to establish or grow your business. Nobody has to ask Bill Gates how it worked out for him.