Procuring a license is a great way to power up your business, says Antonio Sarabia II, an attorney specializing in intellectual property and contracts. To know if you're ready, evaluate your company's financial strength prelicense. If you're barely making it, it's probably not a good time to become a licensee--it's not a balm for a bad bottom line, notes Sarabia. It can, however, help take a strong startup to another level.
Licensing works for almost any kind of manufacturing business where brand recognition is important-apparel, housewares, accessories and so on, notes Sarabia. Even service businesses, like hair salons or lube and tuneup stations, can benefit from advertising an established brand name on the door. The key is to make sure the product you want to license makes sense within your industry and experience. "You need to build on your strengths," notes Sarabia.
If you're dreaming of licensing a huge name, remember that large companies sometimes have long-term licensing agreements (15 to 20 years) with other companies. In that case, consider the licensing opportunities with new and upcoming brands that are growing in prominence. A licensing agent--someone who knows which companies are looking for licensees--is a good source of information, says Sarabia. Two other sources to check out are the International Licensing Industry Merchandisers' Association website, which has listings of licensing agents and a wealth of general licensing info, and License! magazine, which provides a marketplace of properties available for licensing at http://tracker.licensemag.com.
When finally negotiating the agreement, get help from a lawyer to ensure it's fair to both parties. Pay special attention to the minimum sales and royalty payments required by the licensor, says Sarabia, and make sure you can realistically make those payments. A licensor can cancel the contract immediately if you're not meeting the terms. It's more difficult for a licensee to get out of an agreement if things go awry, so make sure to examine the fine print before you sign.
According to Sarabia, licensing success is definitely possible if you get the right product hooked up with the right brand: "If you think about the brands that make you successful [and] will fit with your company, [that] great brand . . . pulls your business right along with it."