What is Licensing?

What is licensing?


So, you may be wondering, what exactly is licensing? In essence, you can think of it as the renting of an idea. In exchange for coming up with a product idea, a company pays you for the right to make and sell it. Sounds awesome, right? You get to do the fun part: Being inventive. The company who rents — or licenses — it from you does all of the heavy lifting, including figuring out how to manufacture, distribute, and market it. You get paid each time a consumer buys the product, an amount that is referred to as a royalty. You only get paid a small percentage of what each product ends up retailing for, maybe just 3-5%. But then again, you haven’t done most of the work. It’s the company that licensed the idea from you — your licensee — that has shouldered the risk and responsibility of getting things done. Of course, we recommend that inventors help their licensees see things through, especially if the company is interested in working with you.

So, let’s say you come up with a great idea for a new product, but you don’t work for a company that makes other products like it. You’re just you. You believe in the idea. You think it’s a really good one. More importantly, you think that other people will think it’s a good idea too. In fact, you’re sure that other people will want to buy the idea. So, what do you do?

You could start a business to bring it to market. But starting a business can be very expensive. Some businesses are easier to start than others, of course. But businesses that develop ideas into physical products and then get those products to market are not among them. Stephen knows this because he once did just that. Years ago, he had the idea to reinvent the guitar pick, which hadn’t changed for more than 80 years. We like to call products that have been around for a long time but haven’t changed “sleeping dinosaurs.” These kinds of products are ripe for innovation. Stephen changed the shape of a standard guitar pick into images that consumers liked better, including skulls and vampires. Eventually, he expanded his line of guitar picks to include all sorts of images, including Mickey Mouse. A highlight of his career is when Taylor Swift’s father asked him to make her special picks with her image on them.

Guitar picks are really inexpensive. They cost pennies to make. They’re easy to store, too, because they’re so light and thin. But in total, it cost Stephen nearly $250,000 to get his guitar pick business off the ground and running. That’s a lot of money! More money than he wanted to spend, really. Hot Picks ended up being very successful. When he wasn’t having that much fun anymore running the business, he sold the company for profit.

Stephen started Hot Picks because he did not believe the idea could be licensed. Not all product ideas can be licensed. Sometimes you do have to start a business to bring a product to market. We’ll save that discussion for a later day. What we’re going to be focusing on in this course are ideas that can be licensed — and how to license them.

If you want to read more about licensing, please click on the following articles:

A Quick Guide to Licensing Your Big Ideas http://www.fastcompany.com/3003907/quick-guide-licensing-your-big-ideas

Get in the Game: What Licensing Can Do For You http://www.inc.com/stephen-key/get-in-the-game-what-licensing-can-do-for-you.html

Why Licensing is the Ultimate Form of Outsourcing http://www.inc.com/stephen-key/why-licensing-is-the-ultimate-form-of-outsourcing.html

Inventing Can Be Fun, and Profitable. Here’s How to Get Started http://www.entrepreneur.com/article/232204