Normally the subject of licensing wouldn’t come in a Bootstrapping context since there usually is an up-front cash payment along with a guarantee related to securing a license. These two factors could be substantial using a high visibility license, for example, Mickey Mouse, NFL football, Nike, Armani, etc. However, I bring it up here for two reasons:
In the early stages of one’s business, a fantastic license offers advantages as well as potential pitfalls. Early knowledge of the how-tos of licensing can assist you in identifying license opportunities and ways to exploit them. I believe there are several niche licenses in the early stages of your respective company where no cash up-front is essential plus your only payments are royalties (a Variable Expense). One example of this is in our second year within the watch business (A mature industry with many large companies).
We secured this wristwatch license for that Wizard of Oz and Gone with the Wind. We paid no up-front monies, just a royalty on shipments. It was a not-in-demand license; there was good marketing experience with other industries; first and foremost, our plan to sell to a distinct segment market (Direct Response Companies and Collectibles) was appreciated. We were successful and gained needed credibility in the new field for us. This led us to eventually secure licenses for Elvis Presley, the NFL, NASCAR, Precious Moments, and others. Our concentration on untapped watch markets and our unique watches powered our success.
Here can be a short tutorial about the licensing industry.
First, Licensing is the process whereby one company uses the trademark, property, or brand name of one other company in substitution for some type of compensation. In most cases, the licensor grants the licensee some sort of exclusivity-perhaps geographical, perhaps by-product, perhaps by distribution channel. Most often, the compensation involves some sort of up-front fee along with a percentage of sales (a royalty).
There’s a fantastic range of products that licenses are issued. They include, as an example, limited-run automobiles, perfume, plates, cereals, vitamins, toys, clothing, jewelry, and beverages. The number and level of licensed products seem to grow annually. The total volume at retail for the year ending 2007 was $180,000,000,000, according to LIMA, that is an association.
Why go this route? There is a minimum of seven reasons:
– More Credibility in selling into established distribution channels. This is particularly true for young companies. The right name from the license on the product can get you in the front door using your target customer. If this particular licensor’s goods have performed well with this distribution channel inside the past, your product or service is less risky for this retailer. Your potential client may not have heard of you, nevertheless, they most likely may have heard of the licensor.
– Competitive Advantage. A license takes your products or services out with the commodity class-it’s not only a watch; it’s a Mickey Mouse watch-and simultaneously protects your products from being knocked off. This, consequently, signifies that you’ll be able to usually build and keep higher income despite the higher price level that is certainly necessitated by the pass-along of royalty charges.
– Better Sell-In. In many situations, a particular license will open the entranceway to market a fresh account or to offer more products to an existing account.
– Better Sell-Through. Because consumers recognize and (hopefully) such as this brand or image you’ve licensed, they’ll pull your product through the distribution channels. This will result in reorders that may help you stay in business.
– Better products. In some cases, a licensed processor technology permits the licensee to create a more valuable product and to enter into markets that he/she otherwise couldn’t penetrate.
– Access to capital. A good license will help you in getting capital (whether invested or loaned). Smart “money people” have in mind the price of an appropriate license.
– More company value, more rapidly. A successful licensed product builds the value of the company which assists you if you sell, go public, or merge.
In light of most of these benefits, licensing may seem like a gold mine. In many ways, it can be. However, such as all other realms of business, you can find questions being answered and obstacles to get overcome for the road to success.
The first question you have to answer, honestly, is whether or not your products or services are nice and whether there is a demand for it. Just as great advertising can’t sustain a lesser product indefinitely, a fantastic license can’t rescue a bad product. Don’t pay someone else money for your right to produce a product which nobody wants. As licensing consultant Stu Seltzer says, “Licensing can make an excellent product it cannot make a negative product good.”
The second thing to be aware of is always that licensing is a competitive field. Lots of people require to use Mickey Mouse’s face. As a result, Disney can become choosy and expensive-and these are.
What does any licensor are interested in when he talks about you? One major licensor, Peter Van Raalte, former VP of Turner Entertainment and Scholastic Entertainment, Inc., said that they actively seek six things when looking at a potential licensee:
- Creativity and quality
- Appropriate positioning with the property
- Financial responsibility