For many years, I licensed out my ideas for new products to companies that were better equipped to bring them to market. When I came up with an idea I thought was good, I’d show it to companies that marketed similar products. If they liked the idea, they would pay me a percentage, or royalty, of each unit they sold.
That process worked well for me: I loved the freedom that licensing out — and earning passive income — afforded me. Then, after venturing on my own into the category of uniquely shaped guitar picks, I grew to appreciate the power of licensing even more. Why? Because I became a licensee of Disney, and that became one of the best decisions I’ve ever made for my business.
My company Hot Picks began with a simple idea: Why not change the shape of the guitar pick? We knew a local businessman who was selling alien-shaped guitar picks at a brisk pace. So, we designed picks that looked like skulls, vampires and zombies. It was fun! And people dug them.
After a few years, our picks were being sold in thousands of stores around the world. To grow the business and stay ahead of our competition, we kept coming out with new artwork. At the time, we were selling picks mainly to the heavy metal crowd. But, eventually, I ran out of ideas. And I thought, What about an image from the Hellraiser movies? Maybe I could license that. Although I’d been licensing my ideas out for many years, I’d never licensed a brand in.
My first move was to travel to New York City to attend the licensing trade show held at the Javits Center. Boy did that open my eyes! I had no idea how big brand licensing was. Every major company was there, from Apple to Disney, from Black & Decker to Lego — you name it. I couldn’t get into any of their booths; entry was appointment-only. But there were smaller companies there I connected with that helped me understand a bit about how to license a brand for your product.
My first licensing deal was with Alchemy, a small UK company that owned heavy metal imagery. I spoke to the owner, who then showed me a sample licensing agreement. After picking up the company’s literature, I was on my way.
So, I picked up the phone and called Disney’s licensing department. Fortunately, the person who took my call was very helpful and amiably answered all of my questions. What I basically said was, “I am a small manufacturer of guitar picks. We sell them in thousands of stores around the world. I’m just curious — what would it take to license a brand?”
He had looked through all of his licensees and, sure enough, no one was producing guitar picks. Of course, I was interested!
He wanted to know how many years we had been in business. Five, I said; and he was perfectly happy with that. Most major brands want to partner with businesses that have a proven track record. He asked a few more questions about our business. All in all, it was a very short, straightforward conversation.
The next thing I knew, I had received a licensing agreement from Disney in my inbox — a lengthy one. Like three inches thick-long.
But what was truly amazing was: This licensing agreement was no different from the licensing agreements I had seen over the years. It had all the standard features, including royalty rates, minimum guarantees, audit clauses and so on. Disney was extremely flexible, actually. We would get exclusive, worldwide access to the company’s library. Incredible!
The minimum guarantees were extremely easy to hit. We were required to obtain a letter of credit, meaning money in the bank that Disney could draw payment from regardless of whether we hit those minimum guarantees or not. Basically, the deal was that Disney was going to get paid whether we were successful or not.
Smart move. We sold more than enough that first year to meet our minimum guarantee.
Having that three-year contract changed our business completely. It enabled us to step up into the big leagues. We expanded our product line by the hundreds. Soon after, we became a Walmart vendor. And then we were in 7-Eleven.
Disney changed everything for us. Being a Disney licensee carried weight. Everyone we contacted now took us completely seriously. Instead of having to pry them open, doors opened automatically: We made picks with images of Mickey Mouse, and characters from the films Nightmare Before Christmas, Finding Nemo, High School Musical and Cars, plus more, of Winnie the Pooh, Tinker Bell, you name it.
Then we became a Taylor Swift licensee. This was years ago, just after her first album. We had access to a library of movies, so we packed 13 frames of her strumming the guitar on to one lenticular pick. When you moved the pick back and forth, Swift moved back and forth. (Which is funny: We were doing live action a decade before Boomerang.) All in all, it was a wild ride.
The licensing industry is bigger than ever these days, which is something to be aware of. Entertainment brands are incredibly popular! It’s hard to compete with the sheer volume of advertising dollars that has already been spent promoting beloved characters and franchises. That kind of brand recognition is hugely powerful. It drives consumers. By licensing-in, you can harness that strategy to grow your business.
Alvin Uy and E. Ray Phillips, the cofounders of SoapSox, who appeared on Shark Tank in 2014 to promote their line of stuffed animal-shaped children’s washcloths, recently became Disney licensees. A week after launching six new Disney-themed SoapSox designs, they told me they were thrilled.
“Becoming a Disney licensee, it carries weight,” Uy said. “Having a company like that want to partner with us has given our business a lot of integrity. People are more willing to engage with us, to take a second look.”
The degree to which Disney was willing to help the duo become their licensees surprised them, they added. “They’ve been amazing partners, actually — even just in calming our nerves,” Phillips said. “We were intimidated. It’s Disney! But they told us, ‘We love good ideas and we want to work with small, innovative companies.’ And they were genuine about that! They said they were there to help, and they did.”
That sounds a lot like the experience I had: What’s not to love about passive income?
Article courtesy of Entrepreneur.com, first published on November 22, 2016 under the title “How Licensing-‘in’ a Brand Can Wildly Grow Your Product Business”. Link to original publication: https://www.entrepreneur.com/article/285384.