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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…

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

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 This material may not be published, broadcast, rewritten or redistributed. 


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    Dave Erickson, ASU-SBDC Director and CBA IV


Dave Erickson

  • November 10

    Attention all Entrepreneurs!

    In an effort to further business development in San Angelo, The Business Factory, ASU Small Business Development Center, and the ASU College of Business are bringing back the San Angelo Business Plan Competition for new ventures. Winners will be rewarded with cash and other in-kind services.

    The goal of the competition is to give startup entrepreneurs and existing business owners an opportunity to build new ventures in San Angelo. Contestants will develop viable business plans and compete for first and second place prizes.

    The initial entry will cost nothing more than time to put together a two page overview of their proposed business venture. The overview should briefly address the essential elements of the business plan as outlined in the competition guidelines. If selected for advancement to Phase II, there will be a $50 entry fee. Phase II is drafting a business plan and Phase III is the finalization of the business plan and a formal presentation of the business plan to the judges. 

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    One of the things that small business owners have told us they like is networking with each other in order to learn about and implement new and better ways of running their business. At the ASU Small Business Development Center, we are good sounding boards for our small business clients. Besides helping them with various technical business issues, we share ideas we have learned from our business ownership and management experience, as well as things we have learned over the years. Clients have told us many times this is a valuable part of our services that help them expand or start their businesses.

    Networking events are important and lead to valuable resources, connections, and opportunities.  Small business owners want to meet with other owners, to share ideas and learn new and better ways of solving their business problems, and to take advantage of opportunities. These opportunities can mean working together as business owners. They can also mean coaching and mentoring each other. 

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    Before you embark on marketing your service business, it is important to understand how a service business differs from a tangible product-based business. The factors that make a service business different are: services sell intangibles, employees and the business are inseparable, services are variable, and services are perishable. Below is a brief discussion of these four factors.
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