Skip Navigation
Small Business Development Center
Member, Texas Tech University System The Princeton Review - 373 Best Colleges, 2011 Edition

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…

BUSINESS TIPS
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.

© 2012 San Angelo Standard Times. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. image

 

  • News Image
    Dave Erickson, ASU-SBDC Director and CBA IV

Save and Share

Contact

Dave Erickson

  • July 29

    For long term business success, you know customer satisfaction is key. But do your employees? Many managers make the mistake of assuming their employees understand good customer service and how to deliver. But too often, employees have never been trained, or they don’t understand the long term effects. Here, Dave Erickson explains a few tips for training your employees to deliver better customer service.

  • June 20

    Business is good in San Angelo for most firms. The influx of companies and workers related to the oilfield have created a lot of demand for goods and services, more so with some than others. This same increase in business will attract competitors who want to take advantage of this growth. We have seen this in restaurants, hotels and other areas…

  • May 6
    The complex issue of cash flow often creates a disconnect between owner and employees. What actions need to be made to encourage sales? How much inventory do you really need on hand? All of these decisions are vital to the success of a business…
  • March 25
    Like me, you may have noticed an increasing number of “Now Hiring” type signs and banners popping up throughout the city, primarily in the retail sector. Here are three tips for finding the right help.