Licensing Myths & Mastery

William S. Seidel

• Publisher: Business Expert Press
• Year: 2017
• ISBN:
  9781631575884
• Topic: Business
• Subtopic: Small Business
• Index: Business

This book is for the 97 million Americans who want to quit their job and make money with their ideas. Licensing is one of the fastest and most profitable ways to make money with ideas. It is fast because it facilitates existing production, distribution, and marketing, and it is more profitable because it eliminates your costs and a percentage of the revenue goes in your pocket. "Most Ideas Don't Work" because of bad decisions, which come from bad information. Myths are everywhere, hard to recognize, and impossible to avoid. Failure precedes success, and knowing how to fail small, fail fast, and fail forward allows you to focus on what works. "And What To Do About It" explains how to master what works. It reveals valuable tips and secrets that will give you a distinct advantage. Learn new information like the Royalty Rule, Active Licensing, and the Acceptable Profit Threshold. Understand when to manufacture and when to license with the 5X Rule. The right license with the right company is everyone's dream and may be the highlight of your career and your life. If you want to make money with your ideas, this book is for you.

CHAPTER 1

Understanding Licensing

1.1 Introduction

If you have ideas, concepts, works of art, literary works, music, inventions, designs, processes, methods, or brands, you have Intellectual Property (IP). You can sell it; license usage rights; or fund, market, and distribute it yourself. It is even possible to license ideas to a few companies.

IP is an intangible property created in someone’s mind. It has value just like real property and fits in two categories: Hard Rights include protected property like patents, trademarks, and copyrights, and Soft Rights include unprotected property like trade secrets, know-how, and concepts.

The concept of licensing is relatively simple. The word, from Latin, means permission, given by one party who controls something to another party who desires it. Your IP has value, someone or some company may want to exploit it, and a license is the right to use it.

Licensing works because of international laws for government-issued rights of patents, trademarks, and copyrights, protecting intellectual property. Without the legal ownership of names, works of art, inventions, and the ability to restrict exploitation by others, commercialization and innovation as we know it would not exist. This affects everything we see and use from movies and books to cars and smartphones.

A license is a contractual grant, the License Agreement, by the owner, the Licensor, of the intellectual property rights to the party desiring to use part or all of those rights, the Licensee. A license agreement grants the licensee permission to commercialize the project by manufacturing, marketing, and/or distributing it while paying for those rights. As a licensor, you become a vendor to the company, under protection by the company, and you may even contract and work with the company. A license agreement is more like a profit-sharing agreement or an employment agreement than a sales agreement.

Licensing creates one of the greatest financial freedoms anyone can attain. If all goes right, licensing has the ability to create Passive Income, which continues to arrive at the office or while on a 3-month holiday in Italy. Passive Income is payment for your ideas, while the business or the product has a life of its own. It is the freedom to do what you want, work on the projects you like, or not work at all.

There are few faster or more profitable ways to make money with ideas than by licensing. Licensing is faster because the license agreement facilitates existing production, distribution, and marketing systems the licensee already has in place. It is more profitable because the licensee absorbs your costs and a percentage of the revenue goes in your pocket. In other words, you create and license it to a company to fund and commercialize it.

A Royalty is payment for granting the rights to the licensee. It is usually in the form of a percentage of the revenue from every product sold. This goes straight to your bottom line. For example, Calvin Klein Inc. has sales of $160 million a year, and 90 percent comes from licensing the Calvin Klein name to makers of jeans, perfume, and underwear. The only merchandise the New York-based company makes itself is women’s apparel lines.¹

The actions required to obtain an agreement are a matter of communications, knowledge, and relationships. Most companies are cautious and do not want to work with anyone outside of their Inner-Circle. Getting in the door requires clear communication of how the product can improve their business, an inside knowledge of their needs, and a relationship to get their attention to consider the IP.

I-Myth: “Companies are going to want my idea!” Despite what you may hear, companies are not interested in ideas, products, or patents. Companies are interested in profits, and to get more profits they want proven products with a history of sales or commercial potential.

To the potential licensee, it is not the idea that is important. The size of the product category and the industry is critically important. If you have a great idea in a $10 million industry, it is too small to get the attention of the big players. If you have a moderate improvement for a $600 million product category, it would capture the attention of most companies. You need to do the research, know the numbers, and focus on the most lucrative first.

1.2 Myths and Mastery

Myths are unfounded opinions and false assumptions that rule the entrepreneur, inventor, and small business owner. Myths about licensing are heavily ladened with opinions portrayed as facts and exceptions believed to be the rules. These anecdotal fallacies create false representations and confusion. When people are confused, it is because of bad information that led them to the wrong decisions. Grabbing onto myths and opinions, even expert opinions, and accepting them as the right answer is convenient but wrong.

Most myths come from single examples used to represent the entire market, or the response of an industry, or proof of success. These are exceptions and unreliable, cherry-picked examples, and nonrepresentative.

So much of what we understand is partially correct, and to succeed, a complete understanding is necessary. This is not new; over 100 years ago Mark Twain said, “If you don’t read the newspaper you are uninformed. If you do read the newspaper, you are misinformed.”

I pose popular myths and misunderstandings as I-Myths to identify them while discrediting them. The “I” stands for the Idea, Innovation, and Invention. I highlight these because they are common beliefs, and I explain why it is wrong and what to do about it.

I-Myth: “I have a million-dollar idea!” There is no such thing. Ideas are worthless without action because there is nothing to show, test, or sell. Chasing ideas in an attempt to find a million dollars is misguided. There are million-dollar products and there are $10-million products, which have the attention of some companies. Then there are $100-million products, which have the attention of all companies.

Myths may appear to be just some misstatement, but the damage they cause is terrible because it sends entrepreneurs and innovators in the wrong direction. They act on bad information from opinions of how they can sell their ideas, which is often from family and friends who believe in you but have no knowledge of the business. Beliefs and hopes are important but not enough to succeed in today’s marketplace.

Finding the right information for a new product is hard because it is specific to the circumstances of the product as it relates to the market, and if it is new, it does not exist. It may have worked for another product, in a different situation, at a different time, but that does not translate to working for your product. There really is no way to explain or recommend the best way to succeed without a specific understanding of the product and the business. Without sales data, testing the product in the market is the best option.

A common I-Myth is that people buy products. People do not buy products; they trade their money for the benefits the product offers. This is usually the focus of the marketing message. Most people believe Harley-Davidson markets motorcycles. They make motorcycles in the factory, but they market the freedom the motorcycle provides.

Even some vintage professionals do not know the business of the product. For example, product development is not about developing products. Product development is about obsoleting the competition. The objective of product development is to provide a Complete Product, while the mission is to make the competition obsolete. Consider the Super Soaker squirt gun; it made other squirt guns obsolete at 60 times the price.

These are simple distinctions but make a big difference in understanding the business of the product and the perspective of the potential licensee. Understanding their business will shed light on how the product may fit their business, which could lead to a license.

“Most Ideas Don’t Work” for hundreds of reasons: lack of capital, incorrect pricing, no market research, poor management, and no plan, among many others. There is one common denominator of failure—bad decisions. Bad decisions come from bad information, and bad information comes from assumptions; free advice; and no knowledge of the product, the business, or the customer. Bad information and myths are everywhere, hard to recognize, and impossible to avoid. Compound this with hearsay, unknowledgeable opinions, and myths, and it is near impossible for the startup or the novice to get the right information to succeed.

The truth is grim at best. Eighty percent of startups fail in the first 5 years, and over 99 percent of new products fail, which results in the loss of hundreds of billions of dollars each year and enormous personal losses. Business incubators have dramatically reversed these numbers, with 87 percent of new business from incubators succeeding.² This supports the fact that the right information and knowledgeable guidance can reverse the failure rate.

“And What To Do About It” debunks the myths and explains the steps and tasks to master what does work. The point is to get what does not work out of the shadows and highlight what works. If you want to succeed, the best way is by not failing. Failure is a reality in everything, so use it to your advantage and manage it. Failing small, failing fast, and failing forward allows you to learn what works, adjust your plan, and improve the results.

Eliminating what does not work will get you closer to what will work. Experimentation and improvements are the basis of the scientific method. When asked about the failure of so many light bulbs—“Isn’t it a shame that with the tremendous amount of work you have done you haven’t been able to get any results?”—Thomas Edison replied, “Results! Why, man, I have gotten a lot of results! I know several thousand things that won’t work.”

Mastery is understanding what works, what is appropriate, the business of the product, and the mechanics to implement it.

Having the best information to know what to do with the product and the business is fundamental to making the best decisions. Over many years, we have seen the same products fail in one market but succeed in another because of simple changes such as a different name or a change in distribution. Consider the 9 years of dismal sales of the Pluto-Platter. As a toy product, the Pluto-Platter struggled to survive. The inventor licensed it to Wham-O, who changed the name to Frisbee and marketed it to an older audience in sporting goods distribution. This was a masterful maneuver by Wham-O.

I-Myth: “I don’t need marketing; I just want to license my product.” The activity of licensing is marketing the product to a license agreement. Good marketing details what needs to be in a presentation, knowing the customer, and how to talk to them. When most people think of marketing, they equate it with sales, advertising, or promotion to the end user. For licensing, the prospective licensee is not the end user. Instead of planning the presentation for millions of consumers, you plan the presentation of the business opportunity to the potential licensees capable of funding and distributing it.

The message to the potential licensee is fundamentally different from that to the consumer at the other end of the supply chain. Reaching the prospective licensee requires a presentation designed specifically for them. It resembles a business opportunity rather than an ad for a product sale.

For example, if the package is terrible and no one picks up the product, then no one will buy it. This has nothing to do with the product. Similarly, if the presentation to a potential licensee, investor, or buyer does not quickly communicate what is needed, they will have no interest. Marketing is key to finding potential licensees, creating the present...

Table of contents

• Cover
• Half Title Page
• Title Page
• Copyright Page
• Contents
• Preface
• Chapter 1 Understanding Licensing
• Chapter 2 The Activity of Licensing
• Chapter 3 Negotiating the Terms
• Chapter 4 Agreement Overview
• Chapter 5 Summary
• Index