Lately I have been thinking a lot about ways a business owner can make more money and diversify their risk at the same time.  And, the thought that keeps coming back to me is licensing.

Licensing is the magic secret sauce to most any software company.  It allows them to create their software product once and create scalable income streams by licensing the product through different channels.  As a lawyer who spent most of my professional life earning money through a model that is not scalable (fee per hour) without a lot of complexity, I was always amazed at how quickly a software company could build value through licensing.  Many times, my clients have done this without having to deal with other complexities of business growth such as the requirements for more money, employees and systems.

As a business owner, you may think that licensing only applies to business models such as software or music and entertainment.  But this is a big mistake that is causing you to lose out.  And, in times like these where businesses are struggling, I encourage you to think about how licensing might be your ticket to more revenue and more stability.

Licensing is I can speak to almost anyone who runs a business or has developed expertise or a special skill set in his or her profession and find several licensing opportunities.

For example, I met a local restaurant owner in my hometown the other day.  He owns three restaurants and we started discussing how the current economy has changed his business.

Throughout just our conversation, I determined that he was an expert at three things: (i)  how to cost effectively launch a restaurant; (ii) pitfalls that cause other restaurants to fail during tough times; and (iii) an advertising campaign he has perfected over the past ten years that still brings customers in even in difficult times like this.  I figured this out from just a 30 minute conversation with a guy I just met.  I am sure he could add at least 10-20 other areas.

Other restaurant owners would pay money to gain his expertise. For example, he could license his advertising campaign process to other restaurants in different cities. There are several revenue models he can use.  Given that the process has proven successful, he can charge a flat fee for it and even charge a premium if a restaurant owner wants an exclusive in his territory.  Or, he can create an ongoing revenue stream by allowing a business to license its use on an annual basis.  Another way to take some risk out of a licensing deal and more upside for him is to license it where his payments are based on the # of customers who come into the restaurant as a result of the process (use a coupon ID for tracking).  He could get an ongoing income for years. . . and think about how many restaurant owners there are in the US that could benefit from this.  It is a true win win for all involved.

I know of another business owner that has perfected a business for selling language translation services.  In order to grow, he considered raising money to fund advertising, public relations and other sale activity.  But, the avenue of a licensing model had more appeal to him. He is now licensing his marketing material to others to sell the same services.  In fact, he even provides his licensees with access to his translators at a wholesale rate.  In essence, he has licensed his entire business model to an army of representatives and will likely triple his income leveraging expertise he already has.

Through licensing, you will find ways not just to increase your income but to also diversify your income which is really important to any business.  In fact, it is certainly possible to create income streams that beat your current income level because licensing creates such scalable opportunities.

About 5 years ago, I started creating other income streams in my own life through licensing and other similar business models and I am now happy to say that the profit streams I created allows me the flexibility of not having to practice law if I do not want to.

If you are involved in online marketing, you have likely heard of Google’s newest addition to its Toolbar- the Google Sidewiki.  This feature allows anyone to make comments and provide any information that shows up when others (using the Google toolbar) pull up your website.

Just as with any wiki, there is some good intention here in that it is providing more social media and community elements to the Internet.  However, it is also an invitation for competitors, spammers and unscrupulous visitors to harm your business. . . and you have no control over what content will show up alongside your website.

Many feel like this feature goes a little too far since the comments show up right alongside your site when someone pulls up your website. This is very different from third party comments showing up on another independent site.

While I have had discussions with lawyers about the legal implications which could arise, I think the best solution to help your business avoid this fate is to use technology.  There are several Google Sidewiki “blockers” out there and I think it is well worth reviewing them for an appropriate solution if you run a website where others can exploit the Google Sidewiki to hurt your business.

My team is in the process of testing some of these blockers but you can learn about them by just googling “Google Sidewiki blocker”.

I started learning about how to make money via Internet Marketing back in 2004. A good friend of mine also started learning with me.  However, we both chose totally different online paths.

I stuck with the traditional method of finding a market need, building a site to build relationships and provide value and to sell both my own products and products of others which I tested and felt comfortable recommending.

My friend chose the “black hat” route which consisted of launching websites, finding loop holes in the different web site places where you can get traffic and sometimes even exploiting aggressive marketing and technology methods to earn income.

I must admit I was amazed at what black hat marketers come up with and do- They truly are extremely creative and innovative when it comes to finding effective search placement and marketing methods.

In our first year in business, I made very little money from my online ventures but my friend was making pretty good money.  He would find ways to promote something and it sometimes brought in thousands of dollars with just a few hours or work and dollars in investment.  In addition, his activity was limited to being an anonymous conduit for other marketers which meant he did not have to deal with customer service or product support issues, etc.

He grew his black hat business into quite an operation which involved setting up thousands of email accounts and web pages.  But a few years ago, something started happening.  The Internet companies started to combat against black hat methods.  Many of his web pages were shut down overnight.  Sites like Google and Craigslist came up with ways to find and nullify black hat marketers.  And his income stream became very unwieldy.

Even recently, Google came up with a cell phone verification for setting up gmail accounts and Twitter implemented some anti-spam measures. So, my friend is once again trying to stay ahead and work with his black hat buddies to find new black hat ways- they love this stuff and sometimes thrive on the challenges that come up.

But, what is happening is that his income has hit a plateau and sometimes he loses a lot of it overnight.  He needs to keep coming up with a new bag of tricks which might or might not work.

In the last two years, my online properties have become more established using traditional marketing methods and I now have significant income coming in every month that for the most part I can rely on (in business, you can never ever rely on anything 100%).  In the meantime, I am developing brands that can only build more value and create more income streams over time.

So, I think the decision really depends on your personality but I personally feel that the long standing internet businesses apply the same success principles as any business.  Focus on providing REAL VALUE to their customers and developing relationships over time.

The Internet is evolving into a social media format where transparency and relationships will prove to be most profitable for online business owners.  I think black hat methods and other similar forms of internet marketing that proved extremely profitable before will become less effective as the technology to identify these methods advance and the customers who use the internet become more educated about them.

Online fraud is growing rampantly without any end in sight.  While the Internet has become a lucrative channel for conducting business and selling goods and services, it also created a lucrative avenue for scammers and thieves.

Today, anyone can put up a professional website for very little costs.  A domain only costs $8, hosting can be free in some cases, and you can buy pre-made professional web templates that can rival the looks of the most established businesses.  Ecommerce functionality is likewise getting cheaper so anyone can set up a cheap way to extract money from unsuspecting web customers.

The technology and laws that have arisen to protect privacy on the Internet can be manipulated to protect revealing the identity of the scam artists.  Some of the most famous scams have extracted billions of dollars and the law enforcement agencies cannot trace the criminals.

The legal system has always been one of the slowest institutions in society to act to address new legal problems that arise due to an evolving society.  And, the law will never catch up.  Arguably, the minds behind criminal schemes are clever and even more innovative than the entrepreneurs with legimitate business models.

Technology will always outpace the law and even when the law does address a new problem, enforcement and real remedies are just not practical to a single person who has been defrauded.

We have gotten to a point where online commerce has become accepted and mainstream, but the concerns of online fraud are only now becoming a matter of significant concern to the average person.  Online fraud cases are showing up more and more in the news. The average business and consumer is becoming aware of the problems and the increasing chances that they could become a victim.

No longer will any security or trust certification seals work to alleviate the concerns. The public is becoming more savvy and understands that MOST (not all) of those certification programs are just another way someone is making a quick buck to sell a nice looking seal.

This issue will be elevated in the next few years and as a result- online buyers have started and will start to change their buying habits online based on these concerns.  They will want to only do business with companies that they KNOW are legitimate.

Even more, customers will come to realize that just because a website looks professional does not mean it is legimitate.  And, just because it posseses certifications or seals, does not mean it is a trustworthy business.  Customers will do more diligence seeking independent evidence of credibility.

This trend will make it more challenging for the new and small businesses to be successful and compete with the larger and more established businesses.  The best way to address this in your business is to focus on building your branding and establishing a presence in your industry.

Don’t look for shortcuts but think about what any real, legitimate company does over time to build their brand presence. Branding activity can be expensive but with new Internet based tools such as social media to help spread the word, a business can build a brand quickly with the right focus and approach.

One of the most effective methods of advertising on the Internet is known as Pay Per Click (PPC). Google Adwords is the largest and most used PPC ad network but there are many others (Yahoo Search Marketing and MSN) that are based on the same concept.

PPC networks allow you to bid on specific keywords that when searched in a search engine will trigger advertisements that link to the advertiser’s websites.

One question that has arisen lately is whether it is legally permissible to bid on your competitor’s trademarks and trade names as keywords or whether such use in in violation of the trademark laws?

Interestingly, courts have come down on both sides when it comes to this issue.  The matter comes down to whether this practice results in a sufficient “use in commerce” of the trademark to constitute an illegal trademark use.

There is a 2004 federal case (Eastern District, Virginia) that concluded that simply purchasing these keywords as part of a PPC network does not rise to the necessary use in commerce.  On the other hand, there is a 2006 case in Minnesota that went the other way because the court found that the advertiser was commercially benefiting.

In the law, the law of your jurisdiction (or the jurisdiction where a case is heard) governs your situation.  So for now, the issue is open.  What does this mean?

Well, if you are an advertiser there is a reasonable basis for using this practice and if you are a trademark owner and want to stop competitors from using your trademark in PPC programs, there is a reasonable basis for sending cease and desist letters.

Now, if you get a cease and desist letter, you should cease using another’s marks in your PPC or consult an attorney to better understand your risks in your specific jurisdiction if you want to continue the use of another’s marks and names in your PPC campaign.

PS- This post goes to show that there are a lot of legal uncertainties in the business world.  If you are not operating your business through an asset protection vehicle such as a limited liablity company (LLC), you should be!  If you look at any of the more successful online businesses, you will see they are operated through an LLC or corporation.  Learn about LLC Formation so you can protect yourself and your assets.

Social networking websites have become the latest rage on the Internet. Many traditional websites have been surpassed in traffic by social sites such as Facebook, YouTube and MySpace.

While viable business models behind the social networking sites themselves are still playing out, the benefit of social media to any business is definitely proving itself.

The fundamental premise behind social networking is nothing new- it allows people to connect with and communicate with each other. The reason for the incredible growth of social networking on the Internet is the result of a combination between (i) the evolving technology that allows the average person to post content easily and instantly; and (ii) the viral nature of these networks.

Just as the need to have an Internet presence with a static website became a necessity for any business (offline or online) in the past decade, the clear benefits of having social interaction on business websites are becoming the next step for any business to leverage the Internet to do more business.

So now, there are bowling alleys using Flickr to allow customers to show off their bowling skills and interact with other customers.  And then you have your local Mexican restaurant owner wanting to add social features to their sites where customers can review their food or atmosphere.  And some services based businesses are even going so far as to enable a chat amongst visitors on their sites and in their forums to discuss the company.

Social media really comes down to “user generated content” which can come in many forms such as customer or user reviews, blogs, instant messaging, comments, videos, and any other communications taking place on your site.

First, adding a social element to your site does have some business risk because the medium allows comments that can both help and hurt your business.  Social media gives power back to the people but this also means that competitors, unscrupulous customers and anyone else can use it to your detriment.

Second, by allowing user generated content on a site that you own, a myriad of legal issues come into play including privacy and intellectual property laws.

Given the unbelievable developments in technlogy (which will only continue) and the nature of the Internet where any content can spread like wildfire, the laws will never be able to keep up.

So, it is important that your terms of service or user policies be well drafted to give you the business flexibility and ownership over content to address both the business issues and the legal issues that may come up.

There will always be some risk to using social media elements in your business but the rewards will likely far outweigh the risks.  Even so, there is a lot you can do to minimize these risks by having well drafted terms of use, user policies and privacy policies governing any user generated content contributed to your website.

I love business development deals because these are the one plus one equals three business arrangements that can make a business grow extremely fast.  A business development deal is generally one when you partner with another business to create a business channel that benefits the businesses of both sides.

Now, these deals can be a lot more complicated then a straight sale deal where one side is buying something from the other so it is very important that you have a competent business lawyer helping you to structure and document the final deal.

But, there are two factors that you should focus on at a business level from the beginning to best end up with the optimal deal for you.  Here they are:

1. Align the Incentives. Create a business structure where the business incentives are aligned.  In these types of deals, the more you can get away from diametrically opposed positions, the more likely the arrangement will be successful.  So, you should create the business obligations and the economic components in such a way that both sides are better off when the one side performs as planned for.

All too often, a business development deal starts off as a win-win but then when it gets into negotiations, things can get messed up as aggressive negotiators come in.  Keep in mind that many times it is not the lawyers that cause this but business people that start to get a little too greedy or have the wrong thinking that they offer more because they bring more to the table. This may be the case, but if the end result makes it a suboptimal deal for the other side, everyone loses.

Bottom line- think creatively and create a business arrangement where both sides are incentivized to act in a way that will create value for both sides.  A related, second tip that I have seen make a big difference when it comes to business development deals is to assign an actual person on each side of the partnership to manage the arrangement and give those persons incentives to build the relationship and create ROI. When you have specific people with specific obligations for its management and success, it increases the chances of a more profitable deal.

2.  Always Have Break Up Planning.  When you are working on a business development deal, always be asking yourself internally what happens if the arrangement does not work out and what can happen that will cause it not to work out.  This is especially important if there EXCLUSIVITY is involved which means that the deal will prevent your business from doing any kind of other business deal (no matter how big or small).  Here is where a lawyer can help but it is reasonable for each side to have some downside protection planning in the legal agreements.

You should always know the what is my worse case scenario and plan for it as best as you can in the legal documents.  This is usually done with proper mediation, arbitration and termination provisions.  Other areas include planning for who owns what after a break up and what rights each side will continue to have.

I had a client once who, prior to retaining a lawyer, signed a horrible deal with a so called business partner.  The contract was so one sided in favor of the other party. It allowed the other side to limit what my client could sell to competing businesses and yet contained no obligation on the other side’s part.  Even worse, it gave the other party a right to renew the agreement over a very long period.  This in effect, tied up my client to ever expanding their business with other parties.

You should always have a legal out no matter what.  You do not have to exercise it and will not if both parties are mutually benefiting but without proper downside planning, you could be significantly affecting the future of your business.

After working with small businesses for over 15 years, I have to answer this question with a NO.

I always try to persuade any client who I work with not to ever have a 50-50 ownership business.  This is always a tough conversation to have because in most instances, the new business venture sounds exciting and two people are very committed and ready to move forward with a jointly owned venture and they have dreams of having this super positive mutually rewarding business relationship and making all this money.

The last thing I ever want to do is to get in the way of building a successful business.  But this advice I give is meant to protect the business that these two people will be working so hard to create.  Why am I so against 50-50 businesses?

Well, at the beginning of a business, no one is thinking or even wants to think about the things that can go wrong or that will cause challenges in business building. But, I can state with 100% that nothing ever goes according to plan and that with any successful business, there will be challenges, difficult choices, and disagreements.  Do not worry about this- it is a necessary part of building a great and profitable business. Instead, understand this and plan for it.

Based on the statistics, there is an over 88% chance that these two business owners will at some point face some significant conflicts and stand stills when it comes to a major business decision or transaction.  When a business is set up as a true 50-50 structure, both the business and the legal dynamics create an impasse environment.  There is nothing to help.  Each person will make himself or herself go crazy.  So, what happens in the typical situation is that the business is the victim to this.  The business dies as the owners fight over control and what should be done.  With the owners focused on the dispute, no one is minding the store, taking care of customers and sustaining the business. All the assets both business and personal go to the lawyers they hire.  It is really a sad outcome that I and many lawyers see all the time.

I am a business lawyer but I have business litigation and dispute lawyers who make a very good living just mediating or litigating business divorces among 50-50 partners. As a planning lawyer, the best way to deal with this is to not have a 50-50 business structure to begin with.  Between two owners, one should have the ultimate decision making power in the event of a dispute.

There are specific ways to get each one to receive the same economic deal as a 50-50 but when it comes to business decision making which is the necessary process to build a business, there should be one who trumps at the end of the day.  Now. there are some advanced planning methods used by business lawyers to allocate the trump decision among the two owners if it makes sense.  So it does not have to be 100% one way.  The point here is that the business should come first as this is the best way to preserve the value that the two owners will be working so hard to create.

If two owners insist on a 50-50 structure, then the next best answer is to have some prenuptial business planning in a shareholders agreement.  The most common technique is what is known as a buy sell arrangement. This is an automatic process which kicks in if there is a stand still that cannot be resolved and it results in one owner buying the other one out (usually after an auction process for price).

It amazes me that business owners still ponder over whether to run their businesses as a sole proprietor as opposed to using an asset protection vehicle such as a corporation or a limited liability company.

All you have to do is look at the small business lawsuit statistics in this country to know that the risk of being sued is so high. Business is all about risk and interacting with others.  As a business you may have arrangements with contractors, service providers, bankers, investors, employees, partners, customers and anyone you have any relationship with no matter how small.

Each interaction gives rise to a potential of problems.  Why take on an open ended risk of being personally liable for any and all business liability when, for a few hundred dollars, you can create and use a limited liability entity to give you a layer of protection?  This one step is a cheap insurance policy that can save you thousands if not millions later in losses.

Also, think about it.  If your business ever becomes successful, it becomes a lawsuit target. Lawsuits are almost always about money and once your business is generating money, the lawsuit predators will be lurking.

If you run a sole proprietor business, you are creating a ticking time bomb.  The more successful you get, the more attractive your business is for anyone looking to extort money.  Even worse, because you personally and all your assets will be at risk for a lawsuit, any potential plaintiff or attorney knows they have even more leverage against you.  What will you pay to make him go away?  Probably a lot more if you know your home, savings and other asset are at risk.

I just think it is crazy for any business, no matter how small or how remote liability can be, to not use a limited liability entity given the low costs and ease to maintain one.

I have worked with hundreds of entrepreneurs and probably over 30 extremely successful ones. In my years as a business lawyer, I have noticed something.  First time entrepreneurs shy away from speaking with attorneys and the last thing they want to think about is business planning or even worse, business legal matters.

On the other hand, experienced and serial entrepreneurs (meaning those who have millions of dollars of net worth after having built successful businesses) will hardly make any significant business decision without consulting their business lawyer. And, while they too do not get excited about business law or planning, they know that these two principles are essential to building a business of any real value.

I have the interesting background of being not only a lawyer but also an entrepreneur and sometimes serving in a business development and sales role for my clients.  So, I also understand the feeling you get when business legal or organized planning issues come up . . .and sometimes seem to get in the way of building a business.

But, to the contrary, these two concepts- business law and business planning- are key to making money . .  or at least keeping money.  And, making money is the main reason anyone is in business.  If you, as an entrepreneur can understand this, your business life will go more smoothly and you will avoid many of the the pitfalls, problems and even failures that are common with first time business owners.