Jul 25, 2012

Business: Licensing your business ideas 101

You ever talk about a subject that interests you only to have the person you're talking to stare at you blankly? Ya, I get that a lot.  Especially on the topic of licensing.  It's something that everyone has seen, probably owns at least a million products, yet has no idea that it is a licensed product.  

Monkey Toes have been licensed.  Another company manufacturers the products for me, but since I own Intellectual Property (IP), meaning the Trademark (TM), Registered Trademark (R), and Copyright (c) , I am able to enter into a "Licensing Agreement" with another company (the Licensee).  NO, I did not sell my company.  I simply authorized, as a Licensor, another company to produce products (my example is shoes) using my Registered TM (Monkey Toes) and Copyrights (the designs on my shoes).  I still have 100% control over my company, I just now have someone creating product for me, instead of me manufacturing (hand painting) product myself. Does that make sense?  

What does the Licensee handle?  They handle the manufacturing and distribution of your products.  Hopefully they already have established manufacturers and sales channels in which your products will slide right into.  

There are Pro's & Con's to licensing:  

1 - You don't make all the profit, you are paid in a percentage of sales, called royalties, BUT you don't have to fork over the money up front to produce all the product either.  Royalties vary depending on the industry, how long you've been in business, past sales, etc.  Everything about a licensing agreement is negotiable.

2 - You have say in everything that your name and designs are on.  You have to be a little accommodating and compromise frequently because this is a working relationship.  Both parties are out to make money, keep that in mind.  As long as you have a similar vision, you must trust the licensee to pull it off.  

3 - Have a savings of $$ built up because you may not be paid right away.  Royalties are typically paid quarterly, it's always good to have some money in the bank or inventory to sell while you wait for everything to launch.  Checks in the beginning can be small and seasonal depending on buying seasons for your industry.  

4 - It can be a long process - from initial contact with the licensee to launch was about 18 months, for me, which is probably slower than average - give or take a few months (my memory is foggy).  

5 - This can allow you to branch off into other categories or improve your product beyond your wildest dreams. Look at the before and after up there.  The new quality, the packaging, it's all amazing!  And don't think I could have done that without a mass influx of $$ resources.  

6 - The connections your licensee has could skyrocket your sales and get you into larger stores.  BUT - see #7.

7 - The licensee could make or break your brand.  Unfortunately, this can happen.  Sales slump and they can drop you OR you can drop them.  Write your contract carefully to protect yourself should this happen.  And always be thinking about other ways to license your brand so you can have multiple streams of income.

There are probably many more pros/cons, but these are the first off the top of my head.

How did I get my company into licensing?  Funny you should ask...  I had the idea of Licensing in my goal book years ago, not knowing much about it, but thinking it would be a good avenue for my company - since I do own a lot of IP.  A few years ago, I had sent out an email blast to my retailers announcing something (who knows what at this point), and received an email from a Licensing Agent.  Someone who is very well known in the industry (I actually did check many references) - who wondered if I would be interested in being a licensee (the one who purchases a license).  I said no, but that I would be interested in learning more and working to get my artwork and name licensed.  And there you go.  Lesson to write down your goals, you never know how it will happen.

Almost everything around you is licensed.  My favorite example is Disney.  Disney is in the business of characters and theme parks, right?  Do you think they manufacture cute little cup and plate sets too?  No, they license another company to do that for them.  I'm guessing you/your hubby/son has a baseball hat laying around with your local baseball team's logo on it?  Look at the tags, it's a licensed product - I know the Colorado Rockies team has better things to do than embroider my son's hat.  They're farming it out to someone who knows the hat/embroidery industry and has connections to move mass amounts of products.  

You might be Licensor if:  You own the Trademark and Copyrights to products you own.  This could also work for a Patent, but I don't have experience there.  You have a product that can be mass manufactured.  Like Monkey Toes or Lolita Designs with her art on glassware and tons of other products - 

You might be a Licensee if:  You'd be interested in putting a license on your existing product, like collegiate logos/mascots, Disney characters, video game characters.   A great example of this is Swaddle Designs and their Angry Bird Collection, as seen here:
Any questions?  Type them up below.   If you have in-depth questions, I do some consulting in this area, and in small business too, and would be happy to set up a time to speak to you over the phone.   



Dari said...

Great information Jenny! Thanks so much for sharing. I don't have a product yet, but will definitely hire you to help me if I get one!

Alma said...

Have a baby/juvenile product, some distribution nationwide, utility patent, trademark and have been tinkering with licensing for the exact reason you stated---$ up front for inventory. Do you have any licensing referrals you'd be willing to share? Thanks for sharing your story and wishing you continued success!

Jenny Ford said...

Hi Alma, Thanks for your comments! I'd love to share some ideas with you. You can email me at info (@) monkey-toes.com.

Anonymous said...

Hi such interesting information. I actually am talking to a license company about an idea/invention I have...now working with an industrial designer to get some pictures done... any information would be very helpful to me! Thanks Carol

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