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.

For any business, online or off, you should always be looking at complimentary services and products in your industry.  Then, you should go and strike business deals with those companies to package your products or services together or to cross sell to your customers.

This is very common in the online business world where affiliate, reseller and joint venture arrangements cause companies to grow over 1000% with just one deal.  This is because everyone wins.  Usually there is a revenue share so both businesses make more money and the customer gets high quality products endorsed by businesses they trust.

The biggest mistake you can make when you do one of these deals is to not reduce the business joint venture to a legal document.  These documents do not have to be complex but they serve an important purpose.  First and foremost, they document the business terms- this is important to make sure everyone is on the same page.  Second, they provide legal protections for both sides which is equally important.

One thing that savvy businesses like to sneak in is an exclusivity clause.  These come in many forms but, in essence, their goal is to restrict you from doing similar deals with others.  Now, there is a price for everything and so if you are getting such a unique deal or the other side is making a significant investment in the deal, perhaps one might be worth it.

However, in most cases, it is a trap that will significantly limit the growth of your business and options you may have later.  Let joint ventures thrive on meeting business objectives and not based on legal ties or legal requirements.