Keys To Successful Licensing: Early Choices Affect Outcome
Many emerging companies plan to commercialize their products and grow their companies through licensing deals. By focusing on licensing “deals”, many company leaders make the mistake of thinking “it’s just a deal” that is a one time event rather than a strategic process that requires preparation, implementation, and on-going partnership relations.
A licensing relationship must be viewed as a strategic partnership if its full potential is to be realized. Fundamental choices made before a deal is signed may put at risk the possibility of having a successful outcome. To be successful, company leaders must master the vital art of partnering and approach prospective strategic relationships with greater discipline.
The questions, “how does a licensing partnership support our existing corporate strategy?” and “how does this licensing partnership support our existing corporate strategy?” must both be answered well before any deal is signed. This also presumes, of course, that the question “what is our corporate strategy?” has been clearly answered prior to taking up the licensing questions. If a licensing partnership does not support corporate strategy, management will find it increasingly difficult to focus on post-deal relationship challenges that take resources away from true corporate priorities and arguably should not have been formed to begin with, because there is a good chance the relationship will not be successful.
When working with companies on establishing successful licensing partnerships, we find it illuminating to discuss the following questions very early in the process:
1. What benefits do we expect to get from the partnership? Conversely, what are we prepared to let go of in order to make this partnership a success?
2. How will the partnership support the overall purpose, vision, and strategies of our company?
3. What do we plan to bring to the partnership? Why should another company partner with us? What would make our company a partner of choice?
4. What are some absolute requirements that we have of the partnership in order to make it worthwhile for us? What are some things the partnership must not have to maintain our interest in the relationship?
5. What would be the benefits of having a single licensing partner (i.e., an exclusive licensing deal)? Will a single partner be able to address all of our needs? What would be the benefits of having multiple licensing partnerships? How would we ensure that these partnerships are not mutually exclusive but are instead mutually beneficial? How would we enforce boundaries among the various licensing agreements?
All of these questions must be considered carefully prior to entering into conversations with any prospective licensee. The answers will largely come from within your own company; they should not at this point be colored by the needs, pressures, or stated desires of any other company.
Far too many companies dive into licensing (and other) partnerships without sufficient prior consideration of the potential consequences of such a move. There is no reason to be afraid of partnerships – but do think before you start investing resources into any such deal.
Karin Hollerbach and Schuyler Morgan bring financial and transaction expertise as well as real-world management experience to work with companies to complete successful financings, mergers & acquisitions, and strategic partnerships. To us, deals are not just financial and legal transactions; they are relationships among organizations powered by humans. For more information, please visit www.TakuGroup.com/resources.asp.
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