Guest Editor: How to Evaluate a Licensing Partner
If you're reading this, then you're no doubt familiar with the world of brand licensing. You know the difference between celebrity licensing and brand licensing. You can regurgitate the perils of logo-slapping at a moment's notice. You have LicenseGlobal.com bookmarked in your browser.
Yet, even when brokered by experts, licensing partnerships can fail. Licensors sometimes let their guard down when dollar signs loom, while reasonable sounding exclusivity clauses almost always sentence a deal to stagnation. Over the past 20 years, here are the four biggest signs I've learned that your potential partner will be a problem.
They Have No Patience
Licensing can be profoundly profitable, but it's not a get rich quick scheme. Deals take time—to vet partners, to negotiate contracts, to conduct market research, to develop supply chains, to execute marketing plans, to respond to market conditions—and that's all for a single product.
A clear sign that a partner doesn't appreciate this scope comes in the form of a seemingly innocent question: "Can I count on licensing money for my profits and loss next quarter?" The truth is, they probably can't. Typically, it takes 24-36 months before sales kick in. That's not only because of the work involved; it's also because of a cardinal rule known to every businessman everywhere—you only get one chance to make a first impression.
The bottom line: even if you, as the licensor, aren't doing the heavy lifting, there's still a lot of lifting that needs to get done.
They Don't Respect the Process
Here's another litmus test we pose to partners: will you complete a 10-page business plan? For big companies, this is child's play, both because they're filling out a template rather than creating a document from scratch, and because the questions are so common in the C suite, such as what licenses do you hold? What royalties do you render? What guarantees do you offer? And most importantly, how does your brand complement the licensor's?
If a licensee isn't willing to fill out this form, they're not serious. (Years ago, one potential client balked at this paperwork. "You know who we are—just do it yourself," the CEO said. His more-indulgent competitor is now cashing major checks each month.)
The bottom line: Licensing is too important to your reputation and to your revenue to be left in the hands of a partner that can't be bothered with the equivalent of the clipboarded questionnaire you get before seeing a doctor.
They Want the World
Every licensee wants global rights. I get it—in theory, they should be able to sell their wares wherever they want. Yet the smartest licensors refrain from ceding this ground upfront. It's too important.
The probable retort is predictable. They say, "This means I can't lock up China." Here again, the truth is hard: That's correct, at least initially. While many licensees claim global reach, only 1 percent operate on a truly global level.
Indeed, licensors who let licensees tie up territory invariably encounter intractable issues, such as what if your partner fails to meet their sales or royalty targets? What if their relationship with a key vendor sours? What if they start selling outside an authorized channel? Sorry. You're stuck, your contract gave them exclusivity.
What's worse, by the time you figure out a solution, it may too late.
The retailers that have been putting your products on their shelves will now demand tougher terms.
The bottom line: The smartest licensors think globally, but act regionally.
They Focus on the Short Term
I hear the following story about once a month: a hot brand owner gets cold-called by a licensee. "We want to make you rich," the latter promises. The advances sound generous and the projections rosy. Naturally, the licensor is flattered.
But licensing is a long-term program. The smartest licensors don't chase short-term payouts, they think in terms of decades, not quarters.
To wit, here's what I tell clients: never accept the first deal you're offered. Similarly, the biggest company isn't always the best. Instead, the longest-lasting and most lucrative deals spring from deep research. Who's the best manufacturer? Who has the best distribution network? Who provides the best royalty rate?
These are questions that require deep diligence to answer. But if you invest the time and resources from the get go, then I can tell you this with the confidence of having founded and run one of the world's top licensing agencies: You can make a mountain of money.
Jeff Lotman is the founder and chief executive officer of Global Icons, a brand licensing agency. His growing corporation is a licensing agency that specializes in the extension of corporate brands and trademarks since 1988. His prescience that employees in global markets would better service clients in those areas has helped propel his company to becoming the largest global brand-focused agency, generating more than $5 billion in retail sales. Clients include Bob Evans, Crock-Pot, Ford, Nutella, Qdoba, the U.S. Postal Service and Vespa.