A License Business Model

University of Dayton Business Plan Competition

Ever consider licensing your idea

UDBPC.com

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What is licensing? 

Licensing is where you create an idea (the first step of the Business model), then sell someone else the right to produce and distribute your idea

What are the benefits to licensing? 

Lower cost, often quicker entry to market –

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Quicker to scale growth –

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You don’t have to build a factory to produce your product

They provide the capital for expansion

Allows you to focus on creating new ideas

When should I consider licensing? 

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When you have an idea that requires manufacturing, but you have no background in manufacturing When a potential competitor has the background/resources to produce your product When you are creating a variation on an existing product When you are good at idea generation, but lack follow through

What do licenses sell for? 

Typically about 0.5%-2% of the gross selling price, depending on the product – – –

More complete the idea relative to the product being sold, the higher Patents/trademarks/copyrights increase it’s value The closer you have it to market, the more valuable it is (Beta is great!)

Won’t companies steal your ideas? 

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Very rarely happens Goal: price it so it is cheaper to license than to steal it! Companies are very hesitant to look at ideas unsolicited—for fear of being sued for stealing –

Best to identify someone who can help you get in

What is the downside to licensing? 

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Less profitable than doing it yourself Companies rarely grant “perpetuity” contracts—generally 5-7 years May lose control of idea

How does a Licensing Model work in a Busines Plan Competition? 

In your elevator pitch you state something like

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This is a licensing model. We intend to first provide a working prototype of this product, and obtain the requisite IP for our concept. We then intend to market our idea to our competition, selling them a five year license to produce our product, in their name.

Resources to consider 

EurekaRanch.com –they provide training on idea generation

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US Department of Commerce’s NIST/MEP network

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Merwyn Business Simulation Research

An important caveat 

A good IP lawyer is crucial for a successful Licensing business. Interview attorneys with experience in doing licensing.