Step 7: A Good Marriage
A licensing deal is like a marriage. The courtship is filled with promises, and there is a honeymoon period after the deal is signed. Everyone is happy that the deal is done and looks forward to success and prosperity in the years to come. Alas, a licensing deal is like a marriage… and even the best marriages have disappointments.
No matter how good your deal is, no matter how diligent and hardworking the licensee, you will likely see ways that more could be done. I guarantee that if you grant a worldwide license to a US company that you will be disappointed with sales results outside of the US – if you are dealing with a large corporation, you probably need to grin, bear it, and take comfort in the fact that the US is the world’s best market by far. If the company is relatively small you might retain rights outside of the US for licensing to non-US companies.
Good marriages require work from both parties. Once you get married you must continue paying attention to your spouse otherwise the relationship will sour. Licensing deals are similar. When you sign your deal the licensee sees the value of your invention and has no conceptual problem with paying your royalty. As time goes on the licensee tends to forget where the invention came from. Maybe people left the company or perhaps the company sold its rights to your invention to another company. Either way, at some point in the future, it is virtually certain that someone who does not know you will review the profitability of the product line that is based on your invention. This person will see an expense for royalty, and will invariably think, “We could immediately increase profitability by x% if we stopped paying this Royalty.” If you have maintained active contacts at the licensee and have continued to contribute to the program you will have internal champions who will defend you on both moral and business grounds. The problem should be nipped in the bud. But if no one knows you or cares about you, then there is a half decent chance that the licensee will start looking for ways to get around the licensing deal it signed with you.
All the warm fuzzies you had with the original negotiating team means nothing. Throughout the term of your licensing agreement, you should stay in regular contact with both the product manager assigned to your invention/product and the person who calculates your royalty. When you call or email the product manager you should have something useful to share. Product improvements are an obvious thing to offer (Do not push these too fast. It takes time for a company to digest the original invention). Also useful is information you gather from visiting local stores. If you are in a different part of the country than the product manager this can be very useful information:
· Is your invention/product well displayed or is it gathering dust?
· Is the quality of the manufactured product good or does it need improvement?
· How fast is it selling (keep a count from week to week)?
· Do retail clerks know your product? What do they say about it?
· What are competitors doing? Prices? Product introductions?
The person who calculates your royalty should be thanked at least once a year with a thoughtful but inexpensive Christmas gift (if this is allowed). A $50 fruit basket or gourmet popcorn is probably right for most circumstances. The product manager should get an equivalent thoughtful gift. If you are dealing with a small company, then the product manager could be the President. In that case either no gift or something nicer (ie more expensive) than what you give the bookkeeper would be appropriate.
The Black & Decker Marriage
Once the licensing agreement was signed, B&D pretty much cut WorkTools out of the development process. B&D did not fully understand the design and without WorkTools’ input the quality of the final product suffered. Nonetheless, when Black & Decker launched the PowerShot® staple gun there was a lot of excitement. The Industrial Design Society of America (IDSA) and Business Week gave PowerShot® a Gold Award for innovation and good design. An editor at Fine Homebuilding compared it to the compact disc and radial tires. B&D featured it prominently in its 1993 Annual Report. Despite all of the good press, WorkTools felt it was only the tip of the iceberg and that much, much more could be done. WorkTools even offered to do PR on B&D’s behalf at no charge. But B&D was unable to accept WorkTools suggestions and help at that time.
Sales were good. But there were problems with quality. B&D’s attention began to drift. Over the course of three years there were four different product managers. Mike became B&D’s unofficial staple gun consultant and helped to educate each new product manager about the stapling business in general, and PowerShot® in particular. To help with quality problems Joel offered design suggestions and even built a prototype assembly machine to enable faster, higher quality assembly operations. WorkTools’ assistance changed nothing.
In time, it became clear to WorkTools that B&D was doing little to build the PowerShot® business and that there was a chance the business might die. Mike told Joel and Brad, “B&D needs to do some line extensions. There should be a full line of forward acting staple guns.” Brad asked, “How do we get them to do that? We’re just three guys and they’re B&D.” Mike replied, “We’ll make them an offer they’d be stupid to refuse. We’ll offer to develop line extensions at no cost to B&D, including manufacturing tooling. All they’ll need to do is set the standards for quality and make a commitment to buy a reasonable quantity if we meet those standards. We’ll rope in some manufacturers who will be glad to invest in the chance to be a supplier to B&D.” So Mike called the B&D product manager and proposed exactly that. And the product manager spoke to his manager who said, “That’s a great idea. Could they do a DeWalt version too?”
The DeWalt brand was the biggest jewel in B&D’s crown of products. Designing a staple gun for the DeWalt brand name was serious, and WorkTools’ recognized that outside help would be needed. WorkTools called SG Hauser, a top level design firm, and waved the B&D name. Hauser jumped at the chance to have B&D as a client and agreed to work on spec. WorkTools also contacted a Taiwan manufacturer to make a light duty staple gun and a US manufacturer for the DeWalt staple gun. The Tawianese factory was already making staple guns, and the US manufacturer was a supplier of parts for the PowerShot staple gun. Everyone came on board.
The DeWalt staple gun was ready in record time. But before it was launched B&D’s Accessory Division (the division responsible for staple guns) had a management change. The new management said, “We don’t want a DeWalt branded staple gun. That brand name is for power tools. In fact we don’t want to be in the staple gun business at all.” WorkTools had some language in its licensing agreement that gave it a say in who B&D sold the business to. The business was sold to a start-up called PowerShot Tool Co., headed by a former B&D product manager named Sean Quinn. Sean launched the line extensions (without the DeWalt name) and achieved great success. The success was great enough that PowerShot’s major competitor, Arrow, took notice and ended up buying the company. WorkTools now receives its royalty checks from Arrow.
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