Why Licensing is the Ultimate Form of Outsourcing

by | Oct 6, 2016

Back when companies were smaller, communication technologies were less advanced, and the economy was less cutthroat, businesses could count on internal R&D to drive growth. In today’s world, that’s no longer the case. Innovation is driving the global economy. Demand for new and improved products is seemingly insatiable! Last month, Apple sold more smartphones in an opening weekend than it ever has before–a whopping 10 million units in three days. According to Forbes, there’s good reason to believe the company is already nearing 20 million sales. The unveiling of a new iPhone has become an event. People wait in lines that span the length of multiple city blocks. Social media is set ablaze.

As soon as a new product comes out, someone else somewhere else ups the ante by creating a spinoff. Maybe they’ve adapted it for a new application or are marketing it to a different demographic. Maybe they’ve made it better, fancier, cheaper, prettier, or “greener.” These improvements are often very minor. It’s not at all about reinventing the wheel. On and on, the innovation engine keeps churning. To feed the frenzy and stay competitive, companies must constantly be looking for new products and for ways to improve existing products. This is great news for people with ideas.

When I started licensing my ideas in the ’80s, an innovative company like Proctor & Gamble wouldn’t have taken my call. But a decade and a half ago, it realized that going it alone wasn’t the smartest. In a 2006 Harvard Business Review article, two Proctor & Gamble executives wrote, “By 2000, it was clear to us that our invent-it-ourselves model was not capable of sustaining high levels of top-line growth.” The company made a serious about-face. Many of the iconic products you associate with Proctor & Gamble today were actually developed by outside innovators, like the Swiffer. In every way, open innovation encourages faster development. And in an economy in which speed to market matters most, that’s priceless. 

Thousands of other major corporations are cashing in on the power of open innovation. In fact, I’d be willing to bet there isn’t a company out there that wouldn’t look at an idea that might push their business forward. (Actually getting that idea in front of said company is a different issue.) Companies know they need new ideas to stay relevant. You know your idea for a product should be in the market. They’re ready and willing to pay for your innovations. When it works, licensing is the ultimate example of a “win-win” situation. It’s also the ultimate form of outsourcing.

But who is really capable of coming up with new product ideas? Everyone and anyone, I say–as long as you buy stuff. Consumers are prime innovators. You know what you like and don’t like. You know what frustrates you. You know what’s out there and even more importantly, what isn’t. Better still, as an individual and not a company, you can pivot on a dime. You don’t have to form a committee to make a decision or get approval from shareholders. You don’t have an established way of doing things that prevents you from being as forward-thinking as you could be. You’ve seen Shark Tank. You know that ideas spring from observation and necessity. The first step is honing in on how to identify problems and create solutions that offer a clear benefit–which I’ll be discussing next week.

It’s a perfect storm.

Originally published on Inc.com October 7th 2014. 

Author

  • Stephen Key

    Stephen Key is an award-winning inventor, renowned intellectual property strategist, lifelong entrepreneur, author, speaker, and columnist.
    Stephen has over 20 patents in his name and the d...