One important decision to make when creating a new product is whether to sell the product directly to consumers (or businesses) or to license the technology. There are, of course, various mixes of the two approaches. For example, a company can be established solely to develop and license products. Or a company may need to be established and the technology proven in the market before it can be licensed.
At the outset, it may not be obvious which route will be more successful. However, there are some indicators that can hint at whether licensing or selling the product directly is the better route to market:
- Existing intellectual property rights
- Established distribution channels and barriers to market entry
- Technology production and manufacturing capabilities
- Funding opportunities and financials
- Lifestyles preferences of the founding team / inventors
Below is a matrix that may help clarify whether a technology would be better commercialized via licensing or selling directly to consumers.
|
License Idea |
Sell Directly |
Market research indicates a market |
Yes
|
Yes
|
There are high barriers to entry |
Yes
|
No
|
You can protect intellectual property |
Yes
|
Yes
|
You want to be an entrepreneur |
Not really
|
Yes
|
You have knowledge and access to resources for production |
No
|
Yes
|
You will be able to obtain financing for your business by demonstrating favorable ratios and financial statements |
No
|
Yes
|
You plan on “going it alone” without a team |
Yes
|
No
|
You have a high tolerance for risk
|
No |
Yes
|