Licensing: An attractive model but can startups afford the risk?
Sometimes, to the outside world, it may seem as though landing a major business deal is a success that happens overnight. DKM Blue’s Co-Founder, Dorry Kordahi says that early stage businesses should be prepared for the hard slog that can be involved with getting a major customer on board. Their recent licensing deal with Australian stalwart brand Akubra was three years in the making, with the first conversations dating back to late-2011.
The relationship, which is a first for both businesses, means that DKM Blue has the global licensing contract for Akubra – producing branded bags, wallets and iPad covers, which are available at www.akubrastore.com.au. Kordahi himself says that the actual process of setting up a licensing arrangement with a company is in itself not a difficult task, but that startups thinking of planning their business from the beginning around that type of business model should go into it with their eyes open.
I want to license a product and sell it
There are many great products and brands out there, and most sales savvy entrepreneurs would immediately be able to identify the bigger picture and come up with a game plan to get their product out to a mass market. At the moment, not necessarily in the tech eco-system, but definitely in the new business environment, there are many entrepreneurs that have expressed to Shoe String, plans that involve bringing a new local or international product to market via a licensing deal.
Kordahi, whilst encouraging of the fact that it is possible, encourages young entrepreneurs to enter this territory with open eyes: “What most people don’t anticipate when it comes to licensing is the overheads and risks involved. We spent three years developing product and ranges before we even put anything out to market, that type of thing costs a lot of money, plus what a lot of people seem to forget is that you have KPI’s you need to hit, there is never a guarantee of a return.”
It is a massive risk to take, putting money into developing a product and strategy for an asset that is not owned by you. Often the licensing arrangements in Australia are never in perpetuity either so as a new business there is a constant risk of losing everything in one hit. The notable fact around the DKM deal to take heed of is that they are not a startup anymore and co-founders Dorry and brother Danny have been in the manufacturing and merchandising space for around 18 years, and have robust systems, facilities and suppliers already in place.
They also have the team and channels to hit the key performance indicators given to them by Akubra. A startup with limited resources would struggle to do this without a proper team and network of people to supply to, and in most cases would immediately lose the contract.
Licensing is not core to their business; it is a growth strategy and that should really serve as an example to those considering entering the game.
My product is awesome, I will just license it and collect the money
On the flip side, licensing a product or technology to an experienced operator, has just as many pros and cons involved in the process. We are always painted a pretty picture of the way it works from this angle on television programs such as long running hit Shark Tank. In most scenarios when you are working with seasoned professionals who are used to licensing, the process is relatively risk free and the best people only partner with winning products and technologies.
Partner with a dud though, and you could find yourself twiddling your fingers with no sales coming through the door. Kordahi says when it comes to licensing a product, the more experience someone has in that industry, the better investment it will be for your business.
A good lawyer is also a wise investment, you want to make sure that expectations are clear and sales targets are met, and then also have the power to terminate the contract early if things seem to be going south from that perspective.
When it comes to licensing it seems to be a game of good ideas versus bad ideas – it’s a world of gamble from both sides of the fence that shouldn’t be entered into lightly. But when executed correctly and competently, it can act as a major growth engine for a business and open up a whole new series of sales channels. This is already evident with the relationship DKM now has with Qantas Inflight duty free.
Licensing – a little bit like investing, isn’t it?
Featured image: Danny Kordahi, Dorry Kordahi | Twitter handle @DorryKordahi