Starting the Licensing Process

For a tech company with plans to license its software, the toughest part at first can be finding the individuals in organizations who make buying decisions

I would like to find someone to license my software to operate an application service provider. Our software covers the distribution, manufacturing, and importing industries. The business plan is targeted at $500 per user. How do I start the licensing process and locate interested parties?

—G.R., Ridley Park, Pa.

Licensing software is not all that different from selling ordinary products. Many sales of technology products are structured as licenses because of the intellectual-property rights involved and because the customer needs an ongoing relationship with the manufacturer to get fixes, upgrades, and technical support.

The first step in licensing your software is to identify your target customers, says Bill Cross, a partner at Montclair (N.J.)-based Broad Street Licensing Group: companies that can benefit from your program and would be interested in using it. "While there are companies that handle technology licensing in general and software licensing in particular, your program sounds relatively specialized and targeted to an industry niche. I think you might be better off handling the initial sales and marketing of the program yourself, concentrating on a few targeted prospects. If you get a strong response, then look for businesses that sell or distribute B2B software," he advises. Stuart Blake, founder of the General Counsel in Newport Beach, Calif., agrees: "You need to put together a standard marketing and sales plan, with a target market list, and then put together your marketing materials and start making sales calls."

If you don't want to do the selling yourself and can afford to hire outside help, many tech companies outsource their licensing efforts, and there are professionals who do nothing but handle licensing deals, says Brad Hulbert, a Chicago-based intellectual-property attorney and chair of the high-tech sector of the Licensing Executives Society. "The society is made up of thousands of people who do nothing but this for a living. Licensing is an art form, and there's now a certified licensing professional degree. Finding the right licensee, and getting them interested, can be hard work," Hulbert says.

"Get In There and Sell"

The toughest part of initial licensing is not identifying target customers but finding the individual in that organization who makes software decisions. "It's not going to be the janitor, or the president, but it could be almost anyone else in the company," Hulbert says. "It's not usually someone who has 'licensing' in their title, and what their title will be varies from industry to industry." After you find the appropriate contact, educating her about the benefits of your product—and how it improves upon what they are already using—is another tough task. "It's like anything else in business. You have to find out everything you can about the industry you're selling to, about the companies you're selling to, and then get in there and sell," he says.

If you make some initial sales yourself, be sure that you turn the legal negotiations over to a qualified attorney who specializes in this area. The International Licensing Industry Merchandisers' Assn. should be able to provide you with some referrals in your area, Hulbert says. You'll establish either customized licensing agreements with your clients, or put together a shrink-wrap license that comes standard with your product, Blake says. "If you're selling to large companies, it's standard to have a hard paper license agreement that you negotiate with each party," he notes.

Before you start selling, Cross advises caution about your proposed fee structure (BusinessWeek, 12/14/07): "Business plans that start out requiring a fee based on cash-flow needs—rather than what the market can support—are inherently unrealistic, especially in the area of licensing," he says. "End users might be willing to pay more than $500 per user, or a good deal less, depending on what other products are already available. The most qualified judge of what fee the market will support is likely going to be a licensee. Licensors who tell their licensee up front what they're going to pay are risking disaster."

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