The expectation to grow fast with fewer resources is always a challenge, especially for small businesses and startups. “Can it be scaled” is something you often hear from investors evaluating the revenue potential of your business model.
A software product is a classic example of a scalable business. The costs are in building the first copy, but unlimited more copies are produced for little incremental cost. On the other hand, a business that is labor intensive and staff intensive is not scalable. Many service based businesses, such as consulting, are not scalable because they must be delivered by people, and it’s slow and expensive to hire more people to expand the service. That’s why investors don’t like to invest in services startups.
For a small business or startup, scalability means adding more revenues with little or no cost. Many businesses, and especially startups, don’t have the resources to reach every potential market. That’s where your intellectual property is a differentiator. IP is not only inexhaustible, it’s also scalable. It can be commercialized in multiple markets and used by many businesses simultaneously. The larger the number of companies that use your IP, the more the value of your IP and business grows.
That’s where licensing is an ideal strategy. It leverages your IP by letting other companies use or apply it in different products, markets or industries, and pay you royalties. If your IP is a production technology that increases profits by 2%, its value to a $100 million dollar business is $2 million, which could generate $100,000 or more (depending on the royalty rate) to your bottom line.
Entertainment IP is very scalable. A successful movie can be scaled up quickly from hundreds of screens and released through other media channels such as cable, PPV, DVD and internationally. Licensing expands its reach into hundreds or thousands of licensed products, reaching hundreds of millions of people around the world, with little cost other than marketing.
Similar to software and entertainment, information based IP is another very scalable IP. Books are one example. Once published, the author doesn’t have to write (produce) it for everyone who wants to read it. The wildly successful Harry Potter book series demonstrates just how big an information IP can be scaled. Through licensing into movies and merchandise, the author, JK Rowling, created a multi-billion dollar revenue generating business without the expensive overhead of trying to build a product company.
Licensing to a competitor is another way of scaling your IP. It lets you earn revenues from your competitors sales. In certain industries dominated by lots of cross-over essential technologies, such as smart phones, competitors pool and license out their patents. Rather than litigating against each other, these pools generate revenues from royalties paid on sales of all smart phones using their IPs.
If your business isn’t scalable, you can use licensing to acquire a scalable IP. Westinghouse used licensing to acquire IP and not inventing it himself. He used that strategy to get the patent rights for AC electricity from Nikola Tesla, which scaled up to the industry standard electric current technology we use today.
Scaling your IP means you must be on the lookout for new ways of using it. Doing an analysis of your intellectual property assets through an IP audit is the best way to figure out new ways of scaling your IP. It helps you consider the following questions:
- What type and kind of IP assets does your business own?
- Are you protecting all your IP assets?
- How can you better use and manage your IP assets in your growth and expansion strategies?
- Does your technology have non-competing applications that can be licensed to others?
- Does your brand offer value in a brand extension licensing or co – branding relationship?
- What distribution channels or partnering opportunities can be developed through a licensing agreement?
Brands, trade secrets, copyrights, patents, know-how, designs, data, formulas and business processes are all different parts of your IP assets. In many cases, you’ll discover some are underused or unused. You’ll also find ways your IP can be re-used in other applications or products. Once you identify these, you can figure out how to leverage them to scale up your business using a licensing strategy, whether it’s to sell more products or services, enter new markets, or create strategic alliances to develop new IP.