CPG Licensing Myth #1: Build It So They Can Take It?

I hear this concern all the time: 

“What if I am successful in building out a product line and the Licensor decides to make it themselves or give it to someone else?”

It’s a reasonable concern but my experience in the last 10 years has shown that it misunderstands why a licensor seeks partners in the first place. 

There’s no doubt that the Brand you’re licensing holds a lot of power in the relationship. 

The contracts are lopsided. 

But you bring a lot to the table too. Category expertise, unique manufacturing and operational capabilities, retailer relationships or the sales and distribution history required to make the new licensed line work.

That’s the value of the partnership. 

Both parties bring something to the table to create a singular thing of greater value. 

So how do you protect yourself?

Term lengths, renewal rights, performance requirements, exclusivity and other provisions may be negotiated to give you peace of mind and a strong foundation for a long term relationship.

My experience has been that most licensors want long term relationships. 

The initial agreement and term is where you’ll need to prove yourself. 

Like any relationship, if you're successful early, you’ll be in a stronger position to negotiate changes that help you grow together.

I have a few good examples in my own deals that I’m happy to share in private conversations if you’d like to hear them. 

At the end of the day, if the licensed products are successful, the sky’s the limit. 

If they aren’t, you may be the one who wants out.