licensing decision

Making a decision to license demands answering a fundamental question. Is it worth it? Answering this question fully requires you to think through both the personal and professional objectives involved.

Several factors are likely to affect your decision to license or not to license as a business option: Strategy, capital needs, and core competencies and/or technology.

Strategy

What are your business goals and how can licensing help you achieve them? Does the product fit with your business expertise, or maybe you're an individual with no business experience at all, and all you're looking for is help getting the product to market.

Capital needs

This is usually the primary reason. While licensing can offer access to cash, it is infrequently a means of getting rich quick. Superior technologies or products with mass appeal and demand sometimes override your products ability to get licensed and the possibility of the product not developing sufficient revenues might curtail the actual marketing of the project. You have to be reasonable and realistic, and aware of these elements.

Although there is some variance from industry, the price of a license generally takes several factors into consideration. These include;

• Value to the customer

• Dynamics of the marketplace

• Competitive situation

• Financial forecasts

• Impact in the marketplace

There are pro's and con's to licensing like everything else, and like everything else there's give and take. The following should be considered before deciding:

You lose control of your property, usually total control for a long time and often forever. Your involvement with the licensee is reduced. In most cases to the point of no further involvement at all, except perhaps for some limited consulting.

Finding the right partner is tough at best, difficult and sometimes non-existent. Expect potential licensees to use skilled negotiators, leverage and a detached we don't care attitude. Negotiating a legal binding contract is no place for amateurs.

Protecting your interests is crucial. It is also very difficult.

But there is also good news

Licensing is a resource multiplier. A dynamic licensee can put whole teams of professionals to work on developing, product service or technology. The licensee can quickly obtain access to property it currently needs and does not have: to produce or distribute a product, to perform a profitable service, to advance the goals of the licensor.

Licensees see things you will not see. They perceive uses and therefore markets that licensors do not see.  The more markets the more potential.

You may make some money and you may make it soon. The licensee pays you up front money sometimes, although probably not as much as you would hope for. They may also agree to a minimum amount of royalties for some period.

Licensing frees you to do other things. You could even go back to inventing!

Applications Analysis

Conducting an applications analysis for potential uses is a very helpful exercise for determining the real and potential value of the license. It considers;

• It's robustness; the numbers of uses to which it may be adopted and potential spin offs.

• Anticipated target industries for potential applications.

• Contacts and assets; vendors, users, R&D, capability, etc. in certain industries.

• Rationales for developing the item... which application if developed stands the greatest chance for acceptance in the marketplace, versus which would command the most lucrative market if successful.

Your assessment of the value of the product, process, or service must also come into consideration. For each application you must analyze and consider the industry as follows;

• Concentration of firms

• Decision making structure

• Capital Formation

• Product development patterns

• Regulatory drivers

• Life cycles

• Market buying characteristics

• Attitude towards sourced new products

• Pricing policies and required ROI

Lastly, no assessment of business value of the licensor would be complete without attention paid to the market. The elements to consider;

• Market size

• Market expansion

• Market segmentation

• Value of market in dollars

• Market share percentages

• Buying keys

• Competition

• Market trends

• Pricing requirements and ROI

• Distribution channels

• Market entry elements

• Key selling points and feature/benefits

While the exercise is exhaustive, it should and must be adhered to and flushed out. And, even if you do have all this information available, it still is valid and viable to use professionals for the actual approaching and negotiating. Doing this homework just creates more value, leverage, and worth for you in licensing the product.