License What You Do Best

by Doug Powell

There are many reasons designers struggle to bring their own ideas to market: it’s risky, expensive, and really complicated (among others). But there is an option for designers who want to stick to what they do best—cranking out awesome ideas—and to avoid the messiness of building a business: product licensing.

In fact, if there is a “well-worn path” from graphic design to entrepreneurship, licensing is probably it; there are many examples of designers who have had success in the stationery, gift, and publishing markets, as well as font and image licensing.

The basic premise with licensing is that you sell the rights to your product or idea to an established business in exchange for royalties on the sales of the product once it goes to market. Royalty percentages can range from 5-15% based on a variety of factors, and often an advance payment can be involved. While product licensing is a valid option that is well-suited for the designer who is not interested in the complex, demanding, and expensive process of creating a business (financing, production, distribution, marketing, etc.), it should not be mistaken as an easy alternative. The licensing arena is outrageously competitive and the process of selling an idea can be time-consuming and fraught with rejection and risk.

One of the ways licensing deals “get done” is when they are brokered by a licensing agent—a matchmaker who usually specializes in a specific industry. In established markets like consumer goods, toys, and publishing, working with a licensing agent is an important consideration. These agents have deep connections in the industry and can quickly introduce you to possibilities that would otherwise take years to develop. A good agent will also offer advice and guidance based on their own industry experience. An agent will take their share of the proceeds of an eventual business deal.

Another way to find a licensing deal is for the designer to directly seek out businesses who might benefit from their idea and pitch them. Ironically, the current slumping economy is forcing many large companies to abandon internal new business development in favor of seeking out external licensing opportunities to fuel their innovation pipeline. This is great news for designer-entrepreneurs.

It is important to protect an idea before beginning the process of negotiating a licensing deal. A key first step will be to consult with an attorney specializing in intellectual property and licensing. An attorney will help set up legal protection for your idea and will also negotiate and establish a payment arrangement which might be a blend of advanced payment and royalties.

For designers, perhaps the most difficult part of the licensing process will be giving up creative control of the idea to some business that might not share our exquisite taste in typography and color.


bottles and labels for soyu beverages

Above:
The proprietary labeling system on Soyu Natural Tea bottles was developed and licensed by designer Mateo Neri.
Image from Soyu

ad for type

Above:
Typeface design is a natural area for designers to work in. In most cases, designers will license their designs to a Type Foundry.
Image from Chank

screen shot from CSAimages.com

Above:
CSA Design was an early pioneer in the area of image licensing with their CSA Archives collection of vintage artwork.
Image from CSAimages.com


Quick Tips
1. While most larger companies will not agree to sign a non-disclosure agreement (NDA) prior to entering a negotiation, it is important to request this. NDA templates are available online and can be easily customized.

2. The US Patent and Trademark Office offers a basic patent application for relatively low fee (basic filing fee for a small business is less than $200). This can be an important basic level of protection for a new idea, regardless of whether it is eventually patentable.

3. Online databases of licensing opportunities are available for other business categories, like health care, environmental sciences, and IT.

4. Analyze the company you are targeting prior to a licensing pitch to ensure that they are the right fit for your product.

5. Rejection is common in the licensing process. Don’t be discouraged by a negative response, instead try to learn from the experience by asking why, and what could be done to address these concerns.


Dig Deeper!
1. The website StartupNation.com is a great resource for entrepreneurs. Here are some links specific to licensing:

This 5-step series on licensing is very informative: http://www.startupnation.com/steps/97/5-steps-create-license-invention.html

This post by The Sloan Brothers contains deeper content on this topic, like exclusivity and payment options: http://www.startupnation.com/business-articles/905/1/AT_LicensingAgreementKeys.asp

2. Many business categories hold trade conferences to showcase new products, and these shows can be important opportunities to meet potential licensing partners. In the retail gift area, the New York International Gift Fair is a huge annual show that attracts the major players in this category.


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