Is licensing the best business model for your start-up?

Creating prosperous science-based companies is challenging. Science-based companies such as University spin-offs and deep-tech startups do not only face similar commercial risks and barriers as any other new business but also must validate the technical feasibility of the technology. 

Working with science-based startups is however extremely satisfying. There are so many open questions to resolve and strategic decisions to be made. Some of them might prove to be critical in order to achieve success.

As a strategy consultant at Strata, we recently supported a client in pivoting from a manufacturing business model towards a licensing one. This drastic move became essential as the decision paved the way to attract a very important grant and opened the possibility to raise additional private funding from investors. 

For some businesses and industries, licensing might be the only reasonable option. For others, however, a very thoughtful decision to made. Why did we decide to pivot to a licensing business model? The lessons learned might be useful for other entrepreneurs; you can start by asking yourself:

1.      Can we protect our IP? You must carefully assess if you can effectively protect your IP through patents, copyrights and other means. By licensing your technology you will have to provide access to your know-how and technology but must establish all possible barriers to reverse engineering. You also need to set up a litigation strategy in case your IP gets violated.

2.      What are we good at? Honestly and humbly assess your capabilities and resources. If you aim to establish a manufacturing business, for instance, you will need several profiles with solid experience in operations, supply chain, logistics and quality assurance. Instead, by licensing the technology to an external manufacturer your R&D team can stay focused on the technology.

3.      What do we want to focus on? Creating a successful company requires vision and focus. Licensing allows you to focus on tech development and IP generation. However, if you actually try to get dominance of a specific application space you might need to go downstream the value chain.

4.      How can we maximise scalability? You must really assess the potential scalability of the business especially if you aim to attract investors. Licensing is for sure a very scalable business model.

5.      How much profit can we make out of licensing? In some cases licensing might be a viable option but not the most profitable one. You might need to trade feasibility against profitability.

6.      Who are our strategic partners? Making a stakeholder analysis should be an integral part of deciding about your business model. By choosing the right partners and the right collaboration models, you can make the most out of your core capabilities, maximise returns and get faster to the market.

Licensing can be a very interesting option when launching a science-based startups as it may represent, in many cases, a smoother and easier transition for a research team into the business environment.

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