You have cracked a problem for a customer. You sense a chance to sell your solution more widely. You tie up the intellectual property, build some extra capacity, then press the button. Great.
But have you let yourself jump too quickly to an assumption about which business model to use? Could you perhaps lever your intellectual property into a more profitable path without going to the cost of building a new unit?
One modification that was turning into a surprise hit prompted these questions at a metals fabricator in the Black Country. A customer had asked them to find a clever way round a new standard for buildings. Normally, they would just have built a new production line to meet demand.
This time, queries flooded in from around the world. When an American rival three times their size asked about buying a licence, they had to review their whole commercial strategy.
Alongside its core manufacturing, it decided to run its IP and technology know-how as a separate profit centre. These standalone activities now account for a fifth of all its earnings. The old assumption that the only way to make money with an idea is to exercise end-to-end control over it and build a business yourself has long gone.
Yes, if you have the resources to go into full production, you can create significant extra value for yourself by creating a platform technology. But you run the risk of failing to meet demand quickly enough.
If you have a potential winner on your hands, but will struggle to scale up, you could decide to wrap up your IP and sell it to the highest bidder. The more tests you have conducted and the closer you are to market, the more value you will realise, of course.
Alternatively, you could find a partner to help capture your potential. Many corporations are now actively looking to improve their speed to market by developing ideas with smaller specialists. You create the spark; they have access to market. Together you could take off, as long as you are clear about who owns the IP, who shares the rewards and who can follow up the results.
Another way to grow fast on little capital is to licence your idea to set up a stream of royalties for yourself into the future. As well as letting you roll out your winners at speed, it gives you a set of tools to exploit minor improvements and to bring ideas that have a brief window of opportunity to the market.
IP is the basis on which any agreement will be reached. Rather than protecting a core idea, as you might if you were producing it yourself, it often works best if you are able to phrase your IP for licensing as a series of commercial applications. By taking a more layered approach, you will be better placed to trade your technology.
Behind most innovations, there now lies a bundle of fragmented rights. In slotting your IP into the right business model, the rewards are going to those who can put their ideas into a commercial context and see where they fit into the value chain.
If you are in a commodity like metals then you are also less exposed to trading fluctuations on the world’s exchanges. By competing on your IP at the top end, you are better able to withstand any downward pressure on your margins.