I can be such a nerd sometimes. Sure, I do my portrait paintings and world travel, but sometimes really nerdy things get me all excited. Case in point: licensing intellectual properties. Sure, your average person on the street doesn’t even know what that means, but I think there’s something entirely cool about developing technologies or intellectual properties (i.e., creating something valuable) and having other companies sell it in some shape or form and pay you a percentage of the proceeds. Several of my clients and past employers have exclusively used this business model to generate revenues. Cool, no?
(OK, I told you I can be a nerd.)
Today I found myself sitting at a presentation by Sidney Blum, an expert in the field of royalty auditing. Royalty auditing requires your licensees to open up their books and operations for a third party accounting audit in order to determine whether or not they have been paying your royalties properly.
According to Blum, licensees routinely underpay the licensors by 20-30%. Some licensees, by way of policy, underpay until they get caught, at which point they pay pennies on the dollar owed. Hello! That’s a good chunk of money if royalties are your main source of revenues. How much does a typical company spend on product development or sales and marketing to increase revenues by 20-30%?
Common reasons for the underpayment of royalties range from fraud to oversight, to misinterpretation of the terms of the contract such as: the “sales price” (what happens to discounts, freebees, barters, etc), inventory accounting (does anyone really have a good handle on their inventory?), sub-licensing, foreign exchange conversion rates, and many other factors.
I know, when you’re working on that licensing agreement, everyone is ready to pop the champaign bottles, and details fall by the wayside. It’s particularly exciting when you are with a smaller company licensing IP to a larger company (been there, done that). But you want to make sure to get paid for your hard work. So here are some things to consider for a licensing deal:
Engage a royalty auditor in the early stages of contract negotiation. Everyone associates contract administrators and attorneys with licensing agreements. But I highly recommend (my clients know what this means – “you must”) you also engage a royalty auditor in the early stages of a licensing contract negotiation. They will know what can go wrong and try to prevent it from happening. Two good firms in southern California are Green Hasson & Janks, and Stonefield Josephson.
Include a detailed audit clause in the contract. Discuss the details with your royalty auditor.
Include penalties and back interest in the contract. Not everyone does.
Don’t be afraid to perform royalty audits. Seems a bit nerve wrecking, but get used to performing this regularly. According to Blum, licensees don’t walk away from a good deal because they were audited. Think about it, if they have nothing to hide, the audit shouldn’t bother them (except it’s probably a pain in the neck, but that should be part of the contract – not the pain in the neck, the audit).
Expect some underpayment beforehand. I know someone who owns a bunch of bars and says he factors cash stealing by employees into his business model. You can apply the same principle to your business. Increase your minimum annual royalties, or simply raise your royalties to cover for the loss.
Enforce the contract. Once the contract is signed, make sure your finance department understands it in detail so they can charge your licensees properly. Make sure all the negotiated clauses are enforced.
Keep your licensees. Sure, they all underpay, but they’re still paying! Don’t lose your licensees over underpayment issues. Have a good contract in place, enforce it, and make the licensee pay penalties for misbehaving. Then get back to business.
At the end of the day, conducting a royalty audit is a business decision. More often than not, the audit more than pays for itself. The question becomes how often you will conduct them, and how you’ll collect your royalties once the underpayments are discovered. That’ll be up to you and your licensees.
Disclaimer I: under no circumstances, any IP attorney or audit CPA I have ever known or will ever come to know will be considered a nerd. Count on them being way cool. You heard it here first.
Disclaimer II: Disclaimer I was not written by an attorney.
Showing posts with label ip licensing. Show all posts
Showing posts with label ip licensing. Show all posts
September 30, 2009
August 17, 2009
Ten growth factors for small and medium business (SMB) during the recession
Times continue to be difficult for businesses about a year into this recession. So many small and medium businesses I’ve recently spoken with are either going under or selling out, I’m beginning to take it personally (yeah, it’s all about me!). During good times, anyone can drift along, and during tough times, the weaklings fall off the grid, but during particularly hard times like right now, only the best survive. Being average no longer cuts it.
Reality check: by definition, half of all companies are below average. Where does your company fall on the spectrum?
Best business practices that make stellar companies need to be front and center in hard times as there’s no time to snooze. You and your employees have to work harder and much smarter in order to succeed. Here’s a list of factors that will propel growth during the good times, but must be seriously considered during tough times.
Embrace change. I know it’s cliché, but you don’t have a choice. The road ahead of you has turned and you’ve either come to a screeching halt or headed for the cliff. The only way to survive is to turn with the road. Change can be scary and unsettling for some, but get used to it. A windy road awaits all of us.
Define your target market with laser accuracy. Many of you have drifted along and survived on low hanging fruit, but this is no time to be fuzzy about your target market. Take a giant step back and define your market strategy. Where is your best bang for the buck? Are you headed for where the market is going? Without this, you’re shooting blind hoping to hit the target.
Develop complementary corporate partnerships. I’m a big advocate of corporate partnerships and when times get tough, joining forces with others becomes essential. Some of the best partnerships are with companies that provide solutions complementary to yours into the same target market. A combined sales force selling combined solutions can generate strong revenues.
License your intellectual properties (IP) to non-compete entities. This doesn’t apply to everyone, but to those who develop IP… In a perfect example of working smarter rather than working harder, licensing can increase your revenues solidly over time with high margins. Some companies develop IP and patents without doing much with them. Put your hard earned IP to work and watch your revenues grow.
Boost R&D. Times are not going to remain down indefinitely. When the next “up” wave comes around, you want to be ready with new solutions for the market. This is when weaker companies scale back on R&D and smarter companies invest in their future.
Evaluate all aspects of your marketing operations. The marketing function has transformed exponentially in a very short time. You can’t expect to print some brochures, design a cool website (even with SEO), announce some new releases, and expect the market to come after you. Explore new ways in which you can continue to engage the market (sometimes at a lower cost than traditional marketing methods). Social media is not a fad. It’s here to stay, and it will turn your marketing department upside down.
Evaluate and optimize your sales operations. Make sure you have the best Sales VP your money can buy as (s)he is the one in charge of generating your revenues. Being aggressive is no longer the main success factor in sales. Your sales VP should be strategic and creative, and embody excellent leadership skills to keep your sales staff highly motivated during tough times. Evaluate all aspects of your sales operations including direct sales, telemarketing, channels, ecommerce, etc., and focus your resources on the highest ROI methods. Spend time evaluating new sales and lead generation tools and pick one that best fits your business. If you decide to hire commission-only sales people, make sure they are deeply knowledgeable about your products and your vertical, otherwise they’ll fail and leave within weeks.
Engage your employees and listen. Your employee base is a goldmine of ideas and information about your business. They know your customers, your market, and your operations. Actively encourage them to come up with ideas to improve revenue generating operations, product innovation, cost cutting measures, etc., and listen to them. You’d be surprised at the level of ideas you’ll generate simply by asking. This also gives your employees a great sense of inclusion.
Evaluate your board. The purpose of your board of directors is to help the company’s health and growth. If every single one of your board members isn’t actively involved in the growth of your company, what are they doing there? Pick individuals for your board who can specifically help the growth of your company through their expertise in your vertical, connections to potential clients or partners, or extensive experience running businesses similar to yours. And ask them to get active about your company.
Stay physically healthy. (This is your mother talking!) You need to keep healthy to handle the pressures of working harder while managing change. Stress compromises your immune system and induces depression and anxiety. Regular exercise has the exact opposite effect, and has myriad of other benefits. It’s a slam dunk.
I’d love to hear about other creative improvements you have implemented for growth in hard times, and I invite you to share your ideas here.
Next time, I’ll talk about fund allocation tips for small and medium businesses during the recession. Feel free to subscribe to this blog to get the follow up blog by email (I don’t blog that often so you won’t be spammed).
Reality check: by definition, half of all companies are below average. Where does your company fall on the spectrum?
Best business practices that make stellar companies need to be front and center in hard times as there’s no time to snooze. You and your employees have to work harder and much smarter in order to succeed. Here’s a list of factors that will propel growth during the good times, but must be seriously considered during tough times.
Embrace change. I know it’s cliché, but you don’t have a choice. The road ahead of you has turned and you’ve either come to a screeching halt or headed for the cliff. The only way to survive is to turn with the road. Change can be scary and unsettling for some, but get used to it. A windy road awaits all of us.
Define your target market with laser accuracy. Many of you have drifted along and survived on low hanging fruit, but this is no time to be fuzzy about your target market. Take a giant step back and define your market strategy. Where is your best bang for the buck? Are you headed for where the market is going? Without this, you’re shooting blind hoping to hit the target.
Develop complementary corporate partnerships. I’m a big advocate of corporate partnerships and when times get tough, joining forces with others becomes essential. Some of the best partnerships are with companies that provide solutions complementary to yours into the same target market. A combined sales force selling combined solutions can generate strong revenues.
License your intellectual properties (IP) to non-compete entities. This doesn’t apply to everyone, but to those who develop IP… In a perfect example of working smarter rather than working harder, licensing can increase your revenues solidly over time with high margins. Some companies develop IP and patents without doing much with them. Put your hard earned IP to work and watch your revenues grow.
Boost R&D. Times are not going to remain down indefinitely. When the next “up” wave comes around, you want to be ready with new solutions for the market. This is when weaker companies scale back on R&D and smarter companies invest in their future.
Evaluate all aspects of your marketing operations. The marketing function has transformed exponentially in a very short time. You can’t expect to print some brochures, design a cool website (even with SEO), announce some new releases, and expect the market to come after you. Explore new ways in which you can continue to engage the market (sometimes at a lower cost than traditional marketing methods). Social media is not a fad. It’s here to stay, and it will turn your marketing department upside down.
Evaluate and optimize your sales operations. Make sure you have the best Sales VP your money can buy as (s)he is the one in charge of generating your revenues. Being aggressive is no longer the main success factor in sales. Your sales VP should be strategic and creative, and embody excellent leadership skills to keep your sales staff highly motivated during tough times. Evaluate all aspects of your sales operations including direct sales, telemarketing, channels, ecommerce, etc., and focus your resources on the highest ROI methods. Spend time evaluating new sales and lead generation tools and pick one that best fits your business. If you decide to hire commission-only sales people, make sure they are deeply knowledgeable about your products and your vertical, otherwise they’ll fail and leave within weeks.
Engage your employees and listen. Your employee base is a goldmine of ideas and information about your business. They know your customers, your market, and your operations. Actively encourage them to come up with ideas to improve revenue generating operations, product innovation, cost cutting measures, etc., and listen to them. You’d be surprised at the level of ideas you’ll generate simply by asking. This also gives your employees a great sense of inclusion.
Evaluate your board. The purpose of your board of directors is to help the company’s health and growth. If every single one of your board members isn’t actively involved in the growth of your company, what are they doing there? Pick individuals for your board who can specifically help the growth of your company through their expertise in your vertical, connections to potential clients or partners, or extensive experience running businesses similar to yours. And ask them to get active about your company.
Stay physically healthy. (This is your mother talking!) You need to keep healthy to handle the pressures of working harder while managing change. Stress compromises your immune system and induces depression and anxiety. Regular exercise has the exact opposite effect, and has myriad of other benefits. It’s a slam dunk.
I’d love to hear about other creative improvements you have implemented for growth in hard times, and I invite you to share your ideas here.
Next time, I’ll talk about fund allocation tips for small and medium businesses during the recession. Feel free to subscribe to this blog to get the follow up blog by email (I don’t blog that often so you won’t be spammed).
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