How to Create an Effective Intellectual Property Monetization Strategy
There are several steps involved in assessing intellectual property and creating a monetization strategy. Once you’ve created your strategy, you should be able to easily and concisely answer two questions: “what is the best course of action for my intellectual property” and “how does intellectual property contribute to the overall value of my business in the short- and long-term”.
Step 1: Assessment of business
The first step in developing an intellectual property monetization strategy is critically assessing the strengths, weaknesses and opportunities within your business.
Any decisions you make about your intangible assets are also decisions made about your business, which is crucially intertwined with your intellectual property. Thus, considering a strategy for one in isolation of the other will not lead to the effective results.
Take the time to evaluate the general strategy of your business, including the business mission statement, short and long-term goals for profitability, expansion, development and other critical metrics. One way to tackle this would be to conduct a SWOT analysis (strengths, weaknesses, opportunities, threats) to identify the current state of the business and future steps that need to be taken to ensure success.
At the completion of this initial step, it is critical to understand the current condition of the business (finances, operations, short-term outlook) as well as longer-term goals to increase profitability, market share, etc. All decisions regarding intellectual property should be considered within the wider context and circumstances of the business, and be guided by overarching business needs and goals.
Step 2: Assessment of intellectual property assets
The next step would be to conduct a similar analysis of the intellectual property assets that belong to you or your business. This should include both registered assets (patents, trademarks, copyrights, industrial designs), assets currently in the process of registration, and unregistered assets (i.e., brand goodwill, trade secrets, ideas for which a patent has not yet been filed, etc.).
Try to conceptualize a mission statement that would adequately reflect the purpose for which your intellectual property was created (and registered, if applicable) and how that purpose helps your business. For example, a trademark may have been created as a catchy brand name to attract consumer attention and recognition of the product, which is helpful to your business through increasing market share.
At this point, you should also conduct a SWOT analysis of your intellectual property assets. Try to strike a balance between being overly hopeful and too critical in your analysis. Here, it is also helpful to determine the competitive advantage that your intellectual property can offer to your business, whether it is providing a unique experience for consumers, goodwill from a trusted brand name or a cheaper method of production than market competitors.
It is important to look out not only for the usefulness that consumers can derive from your intangible assets, but how it affects the entire consumer experience. A laser focus on utility can prevent you from discovering other uses for your assets that can result in business profitability.
Other factors to consider include the lifespan of your intellectual property, whether any oppositions or challenges from competitors need to be pursued, whether there are any maintenance or legal fees associated with upkeep of the asset, and whether there are any monetization offers pending that need to be considered (i.e., a licensing offer).
Once you have evaluated these considerations, you should be able to answer the 5Ws of your intellectual property assets:
- What: which assets you have in your possession, the status of their registration, and their value (both financial and operational).
- Who: who is entitled to legal ownership of the assets used within your business? (i.e., yourself, the business at large, independent contractors doing work for the business).
- Where: in what jurisdictions are your assets currently registered and where do intellectual property rights have to be acquired as the business continues to expand its operations?
- When: what timelines exist on the registrations of your IP assets? When are maintenance deadlines coming up? Are there any deadlines that are expiring for registration of new assets (i.e., the grace period for disclosure)? Are there any monetization deals on offer for which a decision has to be made on a timeline?
- Why: for which purpose was the intellectual property created and registered? Is that purpose still relevant and profitable to the business?
Step 3: Determining role of intellectual property within business
The next step is to merge the two assessments together to determine both the value your intellectual property holds and the role that value plays within your business. There are several strategies for intellectual property valuation, which can be divided into two primary categories: quantitative methods and qualitative methods.
Quantitative valuations rely on measurable data or numerical information to produce an estimate of asset value, particularly on the basis of opportunity cost. Qualitative valuations attempt to provide a non-monetary estimate of value through intangible metrics such as strategic impact, brand loyalty and impact on future growth.
The two should not be treated as mutually exclusive, and can both be useful for guiding the trajectory of a monetization strategy. However, it is often more useful to conduct a quantitative valuation if tangible metrics are necessary for securing a licensing, collateralization or securitization deal. You can read more on the methods of quantitative and qualitative valuations, as well as how to conduct them, in our IP valuation primer.
Once the fiscal value of the intellectual property assets has been determined, it is then necessary to evaluate all available monetization scenarios to figure out which one yields the greatest short and long term profits. There are a number of common monetization strategies that can be explored, including commercialization within the business, co-development, licensing, securitization, and spin-out.
When selecting the best route or combination of routes to utilize the intellectual property assets, make sure to look at the opportunity costs involved in each as opposed to evaluating only the potential revenue. Further, analyze the implication of a decision in the longer term even for short-term contracts.
For example, a two-year licensing contract may yield more immediate revenue than independently commercializing a patented invention due to the high initial cost and the lack of economies of scale within your business. However, such a licensing deal may saturate the market by the time you’re prepared to enter and dilute the long-term profits from your patent.
Intellectual property is likely to also play a non-financial role in your business. Whether it is an asset that can be used to convince investors that your company is serious about entering the market, a potential draw for hiring talent, or being able to enter R&D networks that were previously closed to your business, identify and note any non-tangible benefits.
Step 4: Developing a vision and strategic objectives
Once you have conducted the above assessments and determined the most profitable monetization route for your intellectual property assets, it is time to integrate this information into the strategic framework of your business.
Integrate intellectual property into your vision statement, which aims to address the direction the business will take in the long term based on the purpose and values that it hopes to bring to market.
Here it is also key to clarify what steps need to be taken in the short and medium terms to make the vision statement a reality. Thus, it is necessary to define the strategic objectives of the business and how intellectual property can help you accomplish them.
Some questions to consider in formulating your strategic objectives include:
- What do we do better than our competitors?
- How can we secure and monetize our competitive advantage?
- What value do we bring to our consumers?
- What are the associations that we want consumers making with our business/brand?
- What are the obstacles to achieving the above objectives and how can we use our assets to overcome them?
The vision statement and strategic objectives should form the core of your strategy, based on which you should be able to set goals for intellectual property performance and business performance at large.
Step 5: Setting short and long-term IP goals
The strategic objectives identified in step 4 should form the basis of the short- and long-term goals of your intellectual property strategy. Unlike the broader strategy, the goals should be specific, measurable and timely in order to be actionable and easily assigned to employees or partners responsible for their undertaking.
Ideally, a goal within the overarching strategy should be SMART, or possess the following components:
- Specific: the goal should have a definite and quantifiable aim as opposed to a general one (i.e., “increase market share within the perfume industry” by 2% as opposed to “sell perfume to more people”).
- Measurable: you must be able to measure whether the goal has been fulfilled through an impartial indicator, or set of indicators (i.e., checking the total products sold on the market to determine percentage of market share in a given time period as opposed to assuming that more perfume sales mean that the target has been reached).
- Actionable: there should be a clear path to how the goal can be fulfilled that is broken down into steps if necessary. When setting the goal, it is not enough to outline just the goal; the path to accomplishing it should also be specified (i.e., Company XYZ will aim to increase its share of the perfume market by 2% by marketing XYZ trademark in association with perfume products to increase consumer loyalty and brand goodwill).
- Rational: the goal must accurately estimate the capabilities of the business and the scope of legal protection that the intellectual property is entitled to; overestimating the potential of the business can lead to goals that are too lofty and thus cannot be accomplished.
- Timely: there should be a concrete timeframe associated with accomplishing the goal. Further, for more substantial, long-term goals, midway checkpoints should be specified to see if progress has been made toward the larger goal in that timeframe.
Step 6: Creating a timeline for achieving target IP objectives
Your vision and strategic objectives should not be abstract. Without specific and measurable goals to structure the trajectory of your intellectual property assets, it is nearly impossible to create a fully functional monetization strategy.
As such, it is key to set up a timeline by which your strategic objectives must be accomplished. If applicable, set both an ideal goal time and a more realistic one to keep your business on track.
Setting such a timeline will also help you track the performance of your assets later, and simplify the process of reviewing your commitments.
When setting up the timeline, make it easier for yourself to stay on track by involving others. This can include sharing the timeline with business partners, investors and other stakeholders, as well as setting up a rewards system for those involved (i.e., a bonus system for meeting deadlines ahead of the timeline).
These key dates should be reviewed on a consistent basis to include more short-term goals, and, if necessary, calendar additional long-term goals.
Step 7: Communicating strategy to relevant parties involved in the business
Once you have established the short- and long-term goals for your intellectual property assets, it is time to get your business partners on board. Of course, your monetization strategy is an intangible asset in itself, and as such should be kept confidential from competitors and other entities not involved in your business; however, confidential does not mean entirely private.
A good rule of thumb is to reveal to others as much as they need to know to be an effective asset to the business. This is decided on a case by case basis – for example, information disclosed to an employee working on creating new assets for the business would be very different from the details given to a licensing partner. In general, the more involved someone is in your business strategy, the more information they should be provided with.
Business partners should be notified in advance of all changes in your plans. For example, if you have decided to terminate a licensing deal in favour of commercializing an asset on your own, make sure to notify the licensee several months in advance so they have adequate time to communicate this information to those involved in their channels of production, distribution and marketing.
In some cases, it may also be useful to ask others for input on your strategy at this stage and implement their suggestions into the plan. Involving others in the development of your strategy may prevent you from insular thinking, open the business to fresh perspectives and build a stronger relationship with relevant entities.
Step 8: Implementing performance tracking systems
It is key to consistently measure the performance of your intellectual property and the profits that it brings to your business to make sure that it is being used in the most effective way possible. Implementing performance indicators into day-to-day operations will make sure that you catch any inefficiencies early on and can correct them before they become crippling.
Performance measurement can involve both tracking milestones (both whether they have been accomplished at all and whether they have been accomplished by the deadline set) and tracking metrics on a consistent basis. Relevant metrics can include profitability, market share of consumers, month-by-month or annual growth of the commercial goods backed by the IP asset, and/or growth of royalty payments from partners involved in commercializing the assets.
The metrics should serve as a check-and-balance system to any monetization strategy and ensure that the intellectual property continues to be profitable. The most important thing is to have a consistent timeline for conducting these audits, and to take action to alter the short-term goals if the results are not consistent with expectations.
Step 9: Setting up a review process to identify new opportunities and maintain IP value
Developing an effective monetization strategy does not mean that your work is done. For your intellectual property to continue to bring value to your business, it must be constantly reviewed and maintained in accordance with the guidelines of your jurisdiction. This includes not only filing all maintenance fees and applications on time, but seeking new opportunities for monetization.
Within your timeline, include checkpoints at regular intervals at which you and other key decision makers within the business evaluate current performance metrics and research market opportunities such as new licensing, securitization or collateralization to see if any of them would increase the value and profitability of the intangible assets owned by the business. Having such a review process prevents complacency and the gradual decline in value of the intellectual property.
Hopefully this has provided you with a good framework for creating an effective intellectual property monetization strategy. If you would like our help in this process, contact us for a complimentary and confidential initial telephone appointment.