The Licensing Game

[Vigilante]

This is the license deal that was the subject of the first post in this thread.

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Quick update. She has her first offer from someone wanting to buy her out for an up front payment plus ongoing royalty. Not bad for an idea with very little sales to date. Developing...

 

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[AllenCrawley]

Quick update. She has her first offer from someone wanting to buy her out for an up front payment plus ongoing royalty. Not bad for an idea with very little sales to date. Developing...

Wow, didn't see that coming this soon. Very cool.

 

[Vigilante]

Because the offer is very early in the cycle, I assume two things :

1. someone sees tremendous upside in what she has and
2. the offer will probably come in extremely low

The guys that want to buy her out have done this before.

 

[InMotion]

How much upfront money did she need on this one? It seems fairly low cost. No product development etc. They way I started learning licensing was the reverse...from the patent holder side; I would prefer to get into your neck of the woods.

 

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[Vigilante]

She had almost zero development costs. Existing technology, she simply got the voiceover from the talent and provided it to the manufacturer who put it into an existing device, and screened the logo onto it. Nothing to it. When you think about it, it's no different than when we took a licensed logo and slapped it onto existing tooling for televisions with Akai. Same basic concept.

You could do this with rain boots, condoms, pillows, potted plants... How about a Rachel Ray blender? How about a Bill Clinton humidor (don't laugh... I bet he would do it and it would probably be the best seller of all time in this category.) How about a Cindarella mattress set? How about a Harley skateboard? How about a NASCAR cooler? How about a Scooby Doo dog dish? How about a Winnie The Pooh winter hat and mittens? How about a Snoop Dog headphones? How about a Simon Cowell karaoke machine?

She needed almost zero up front (I can't disclose her exact terms, but most people here could come up with what she needed up front) and an extremely small annual guarantee in exchange for a pretty big license %. The license % will probably need to be renegotiated when it hits large scale retail distribution (read : Wal-Mart) but at that point, everything is negotiable when it comes to getting onto Wal-Mart's shelves.

Components :
1. small up front, prepaid license retainer that went against her first year minimum guarantee
2. small minimum guarantee
3. sample and artwork approval
4. aggressive license % (in consumer electronics, I shoot for between 2% - 5% to make sure the price point stays reasonable compared to similar branded goods. she was way higher than that).

But the bottom line is this deal can lead to many others. Many different ways she could take this business if she hangs onto it and doesn't sell out. Or, she can sell out, sit back, let someone else bring this thing home... and collect a (smaller) check.

***warning : they don't usually work out this simply, this quickly***

 

[CommonCents]

I came across an idea perfect for licensing of a certain existing household type product that is pretty much dominated by one mfg company. No licensing exists that I can find for pro/college sports teams etc....

Any strategies of to perhaps get a deal and approach the company? I'd need a way to protect myself. Or if I did some leg work to get other manufacturers to make similar products, it'd be easy for that company to also get a license deal and plug into their current sales channel.

Will college/pro licenses grant an exclusive period of time for a particular product that isnt currently licensed? It would be niche but sales could be several million in this product category.

 

[InMotion]

But the bottom line is this deal can lead to many others. Many different ways she could take this business if she hangs onto it and doesn't sell out.

What I find interesting...not only the lack of development costs but once you build in value from a license you have obtained, you can they sell out when it wasn't your IP in the first place...you only built value onto it. Me like this model

My mind works much better this way than from the other end I have found. I have three products im interested in developing from this perspective. Its virtually unlimited though when you get your mind moving. Like you said knowing what works and what doesn't is a huge plus.

In your opinion, is it more valuable to have knowledge in the buying end or the licensing end? I think your going to say buying end. It seems more difficult to get experience in the licensing field than in the buying field. I was thinking I would like to get more experience in licensing then partner with someone who knows the buying end. What are your thoughts?

 

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[Vigilante]

I came across an idea perfect for licensing of a certain existing household type product that is pretty much dominated by one mfg company. No licensing exists that I can find for pro/college sports teams etc....

Any strategies of to perhaps get a deal and approach the company? I'd need a way to protect myself. Or if I did some leg work to get other manufacturers to make similar products, it'd be easy for that company to also get a license deal and plug into their current sales channel.

Will college/pro licenses grant an exclusive period of time for a particular product that isnt currently licensed? It would be niche but sales could be several million in this product category.

College and pro licenses are all handled through agencies that represent some or all of them. If you google it, there's a bunch of information out there on that particular license as they have a pretty cut and dry process. I like deals that are less formal than theirs as the less rigid, the easier to work with and the smaller their expectations will be.

NASCAR, for example, was a huge gigantic pain in the a$$.

 

[Vigilante]

What I find interesting...not only the lack of development costs but once you build in value from a license you have obtained, you can they sell out when it wasn't your IP in the first place...you only built value onto it. Me like this model

My mind works much better this way than from the other end I have found. I have three products im interested in developing from this perspective. Its virtually unlimited though when you get your mind moving. Like you said knowing what works and what doesn't is a huge plus.

In your opinion, is it more valuable to have knowledge in the buying end or the licensing end? I think your going to say buying end. It seems more difficult to get experience in the licensing field than in the buying field. I was thinking I would like to get more experience in licensing then partner with someone who knows the buying end. What are your thoughts?

Anyone can get a license deal. NOT anyone can source the merchandise strategy to go with it. Knowledge of how to BUY is more critical than how to license. Buying is a process, and licensing is a transaction. Easier to learn a transaction's components than it is to develop a sourcing process for merchandise. If you can't get merchandise, you can't do a license deal. Conversely, if you CAN get merchandise, you can get a license deal.

You don't need a partner. There's nothing here you couldn't step through methodically. I am partner averse --- there's usually one weak hand in any proposed partnership.

If you don't have the expertise... study like hell and walk slowly until you can make it happen. Shore up your weaknesses to the point where you don't need a partner.

Just about everyone that has ever come along that has wanted to partner with me --- was because they wanted me to do something with them that I could just as easily do on my own.

 

[Vigilante]

Sorry if these answers are short. I am compressing detailed subjects and answers to GREAT questions into just a few sentences. This is a fun but somewhat complex subject.

 

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[CommonCents]

College and pro licenses are all handled through agencies that represent some or all of them. If you google it, there's a bunch of information out there on that particular license as they have a pretty cut and dry process. I like deals that are less formal than theirs as the less rigid, the easier to work with and the smaller their expectations will be.

NASCAR, for example, was a huge gigantic pain in the a$$.

thanks, yep, not too concerned about getting the license and prob working with an agency but rather taking steps to protect myself in shopping the idea to the current company who has most of the market and sales channel already. Or if I source other manufacturers I'd have to do more leg work but would want to try and get a licensing exclusive from the sports teams etc... for a period of time to sell and develop sales channels.

any ideas?

 

[InMotion]

You don't need a partner. There's nothing here you couldn't step through methodically. I am partner averse --- there's usually one weak hand in any proposed partnership.

That's good. I understand your point. I thought getting experience on the sell side (licensor)of the deal would be beneficial but I get what your saying.

 

[Vigilante]

The sports teams all have an identical and relatively rigid process, and their expectations are that you will meet a minimum threshold of profit first year (minimum guarantee). They are ambivalent about your process, and offer almost zero time for channel development. In short, sports teams in particular are money hungry, and not really into slowly developed business models. Most of these deals are upside down for the licensee for the first few quarters as the licensor wants minimal revenue paid when the licensee isn't generating revenue yet.

Smaller license deals can give you 6 months to develop business before you have to start paying them. Larger licensors, like the NFL or collegiate licensing, don't give a shit. They want money. Less forgiving, less accommodating. The only real way to generate first year positive ROI with some of those types of license deals is if you already have a Wal-Mart type customer in your back pocket.

As far as how to insulate yourself in shopping the concept, no ideas that would be helpful to you. The license exclusive is not an issue, but you might find the expectations of the sports license departments to be an issue. There's nobody that will entertain an NDA nor a non-compete for an idea. You kind of have to stick your balls out there.

If you have a solid :
- license plan
- marketing plan
- distribution plan and
- product plan

there would not be a huge reason for someone NOT to do a deal with you. How you insulate the idea to get it out there is a fine balance, and nothing that I can really guide you on. The nuances of whom you are dealing with would dictate how to delicately step into that space.

 

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[Vigilante]

That's good. I understand your point. I thought getting experience on the sell side (licensor)of the deal would be beneficial but I get what your saying.

If you understand the parameters of a typical license deal, which you can gain through studying independently... you can secure a license deal with a few phone calls and a few emails. Not worth giving up an equity stake for someone else's expertise in that area as I think you can pick it up easily. If you have the basic terminology (a lot you can gain from the simple posts in that thread) you really have enough to engage in dialogue with your potential licensor.

 

[InMotion]

If you understand the parameters of a typical license deal

I understand licensing from that perspective...so your saying you can learn the buying process the same way without INSIDERS experience?

 

[Vigilante]

I understand licensing from that perspective...so your saying you can learn the buying process the same way without INSIDERS experience?

Sure. Check out some of the threads here by AMail, Wade, and others. Same process. There's people on this forum that have been cutting their teeth on the buying side for the past year.

You can literally combine those threads with this thread... and get both sides of the equation.

 

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[InMotion]

Sure. Check out some of the threads here by AMail, Wade, and others. Same process.

Great...Don't you think your buying experience gives you a leg up in this regard though....connections with channel partners etc. I am sure it can be made up with effort and networking from an outsider though.

 

[Vigilante]

Any experience you bring in to the equation gives you a leg up. Sure. That's why my clients pay me the big bucks.

But you CAN make it happen. The same would be true in any industry. My 20 years in the game certainly gives me short cuts.

You don't get the short cuts. You have to do everything the hard way... the first time. So did I on my first go round.

I just brought someone through the process that knew nothing --- nothing about product, and nothing about licensing. She just had an idea, and zero knowledge. Now she has a sourcing relationship, and a license deal. The final piece for her was distribution --- and those are the folks in her case that want to take her out in the early stage.

I think this business can be self taught. If you are from the industry you want to license into, it will always be easier... but I think the license process and the merchandise acquisition process doesn't vary significantly from industry to industry. I think it's replicateable.

 

[SIcmart]

Hey again Vig,

As I continue to read the thread, I keep coming up with more questions. From what I understand after reading(please correct me if I'm wrong), it seems to me like you always do licensing deals where you are the licensee, meaning that you always pay a percentage to be able use logo, brand, etc., right?

So my question is, have you ever done a licensing deal where you are the licensor? Have you ever developed a product or idea, patented it(at least provisionally), and licensed it so that a bigger company could implement it, so you wouldn't have to worry about marketing, manufacturing, etc.? This is how I plan to get in the game, what do you think?

 

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[mrsilva]

This thread is GOLD!

Thank you for your time to come here and share the information Vig. I find this very interesting and will study more about it!

I recently made some car deals with big hip-hop guys and I literally have their numbers on my phone, they call me to hang out and everything... I'm thinking how can I connect a product with the their name and make some money out of it. Like you said I will be offering them money!

 

[Vigilante]

So my question is, have you ever done a licensing deal where you are the licensor? Have you ever developed a product or idea, patented it(at least provisionally), and licensed it so that a bigger company could implement it, so you wouldn't have to worry about marketing, manufacturing, etc.? This is how I plan to get in the game, what do you think?

no - I can't help you there. Steven Keys book can though.

One Simple Idea: Turn Your Dreams into a Licensing Goldmine While Letting Others Do the Work: Stephen Key: 9780071756150: Amazon.com: Books

There are a few separate threads here on this.

 

[mrsilva]

Vigilante another question. So let's say I have a very good connection for distribution in another country.

I love this certain product and I know it will sell very good. What is the steps I need to take to make a deal with the owner/company to sell their product in another country. I'm offering them "money" and more sale. What do I have to pay them? Is this related to licensing, or only royalties?

How do I get exclusivity to sell that product in another country?

Thanks!

 

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[Vigilante]

So we are a few weeks short of the one year anniversary of the license deal that was the subject of the OP.

Here's your update.

She just contacted me.

She has a buyout offer for her license arrangement.

The offer has an initial amount up front that will wipe out most of the consumer debt that she has, and a backend payment that will be several times her annual salary.

It's not enough to live happily ever after, but for a year's worth of (extremely) part time effort, she's able now to cash it out and get it into the hands of someone that probably will turn it into millions.

This was a fun update to write, and I am proud of her accomplishment.

 

[MJ DeMarco]

Wow, freaking awesome update. For anyone new to the thread, I suggest a read from top to bottom.

The offer has an initial amount up front that will wipe out most of the consumer debt that she has, and a backend payment that will be several times her annual salary.

You mean she didn't stop drinking Starbucks and pay off her big debts five bucks at a time? LOL.

 

[TedM]

Wow. What an amazing thread. Wow, what an amazing thread. Wooooooooooooow!!!!!!! What an AMAAAAAAAAAAZING thread.

i'm interested in the patenting something and then licensing. zen******* & this thread really inspired me. Thanks.

Also - started reading Thread: One Simple Idea - Stephen Key;

There is a whole Body of Knowledge in this forum.

 

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[Eskil]

There is a whole Body of Knowledge in this forum.

I told you so...

 

[TedM]

She has a buyout offer for her license arrangement.

and this is just for that push button thingy w/his voice on it?

 

[Vigilante]

and this is just for that push button thingy w/his voice on it?

Ah. The concept of this response, if you grab it, is the most important point of this thread.

She's not selling a push button thingy with a voice recording.

Bose speakers sell an entertainment experience.
NASCAR sells a 4 hour diversion from a blue collar life of bills, work, and stress.
The lottery sells not a piece of paper, but a dream of a better life.
A home alarm isn't a piece of electronics. It's piece of mind, in a box on your wall. They sell security.
Coca Cola sells sex in a bottle (look at their ads.) Drink Coke and you can be one of the beautiful people.
Even Lamborghini. You think they sell cars? I propose they sell a lifestyle.

Back to her product.

She owns an idea. One simple idea.

Her idea adds levity to executive board rooms. It breaks up monotonous meetings. Her idea brings a celebrity some people love into their homes with his catch phrase. She gives a boss an easy way to throw you out of his office and end discussion with levity.

Anyone can source a button from Asia and add a recording to it. But there is only ONE button in the world licensed to do what hers does.

One.
Simple.
Idea.

She doesn't own the technology. The idea is technology agnostic.
She doesn't own the catch phrase, but now she and she alone can use it.

She owns an idea, and you can't replicate her idea. There's only one place to get it. And that's what she sold.

And that... is the essence... of the license game.

 

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[TedM]

OK. Got it.

I don't live in the US anymore and I had never heard of this guy before - so I was unsure that one simple device (which locks in the experience, memories and associations of the licensor) was what was returning so much money.

300 million people is a big market. (and, on another topic, I only need 1,000 or so coffee drinkers to subscribe to my service)

Thanks, Vigilante

 

[Programmer]

I have a great idea for a digital product and would need licensing from any big organizations, Nascar or MLB, NBA, NFL. I know some of those are very difficult to get and cost 100k but the biggest stumbling block is that they require clients to prove sales. I dont sell anything and i dont have a factory so im looking to partner up with anyone who has any type of such license to get started.

My idea is great because it doesnt require much inventory, or much investments (based the licensing) but i dont really know how wellit will do because it wasnt done before.

I'm not good at calling companies and convincing them to work with me so if anyone wants to help pm me.