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Do you understand the different ways licensing has the potential to add value to your business? You can create additional revenue streams by licensing “out” the intellectual property you invent and develop. (This is typically what’s known as product licensing.) To help you accelerate the growth of your brand, entrepreneurs should consider licensing “in” others’ intellectual property.

This is what’s known as brand licensing, and the opportunity it poses is massive. In 2018, the global retail sales of licensed merchandise topped $280 billion. I experienced the power of brand licensing firsthand when my guitar pick company Hot Picks became a Disney licensee. Having our guitar picks in the shape of beloved characters like Mickey Mouse enabled us to start selling at Walmart.

Becoming the best-selling small accessory in the music department at Walmart resulted in further retail opportunities, including 7-Eleven. Our sales grew through the roof! To find out about best practices in brand licensing today, I interviewed Jackson Aw, the founder and CEO of Mighty Jaxx, an innovative Singapore-based company that produces designer collectibles and soft goods.

Mighty Jaxx is a licensee of many of the world’s most beloved brands, including Netflix, Formula 1, Hasbro, Toei Animation, Cartoon Network, Nickelodeon, Warner Brothers, and Adidas. Founded in 2012, the company has grown to 150 employees, is valued at $200 million, and ships to 80 countries.

Each Mighty Jaxx collectible — which range from as low as $12.99 to upwards of $800 — features a patent-pending authentication system that merges hardware and software. Collectors are able to register their ownership of their collectable on the blockchain with a simple tap of their phone.

Provenance is particularly relevant for limited edition collectibles, Aw explained, because it allows their value to grow in secondary marketplaces. “When we think about why people collect stuff and like certain things, part of it may be because of the product, its quality and the scarcity of it and whatnot. But above everything, it’s the intellectual property that they love and why they want to buy it,” Aw said.

Here’s what I learned.

1. The first step? Just ask. 

Aw’s team was only five people strong when he sent a cold email to the head of toys at DC Comics, a Warner Brothers’ property, about licensing its characters. At the time, he said, no one took his company very seriously because it was small.

Recognizing that Mighty Jaxx couldn’t compete on volume, he stressed his point of difference — that his collectibles would take classic characters and make them cool to a lifestyle-oriented audience — during their 30-minute in-person meeting.To his disbelief, it worked: They shook hands on a deal, and when he returned to Singapore, a contract was waiting for him.

2. It’s much easier to land your second licensor than your first. 

After securing the partnership of DC Comics, the floodgates opened. This is especially true if you land a high-profile licensor.

3. Hire an experienced intellectual property lawyer to review the finer points of your contract. 

There’s a difference between the business terms of a licensing agreement and the legal terms. Make sure to also seek out an individual who understands how to negotiate the business terms.

4. Look for a sweet spot when negotiating minimum guarantees. 

Minimum guarantees refer to the fee you are legally obligated to pay the licensee, regardless of how many units featuring their IP you actually sell. Warner Brothers was kind to allow Mighty Jaxx to split up its initial payments, Aw said.

5. Expect to pay a higher royalty rate for intellectual property that is trendy. 

IP that is hot generally trends above a 10 percent royalty rate and can garner as much as a 20 percent royalty. Ask yourself, “What’s appropriate for my business right now? What kind of exposure can I let myself get into?”

6. Don’t overlook the power of nostalgia. 

At first, Mighty Jaxx focused on acquiring properties that were likely to resonate with an older audience who had more disposable income.

7. Trust your gut when it comes to assessing the value of new intellectual property. 

It’s almost impossible to gauge whether a new movie, for example, will become a hit, Aw says. Licensing a popular brand onto your product can help you open doors that you wouldn’t be able to alone. Becoming a Disney licensee was one of the smartest things Hot Picks did to grow our audience and our business.

To find out more about brand licensing, I recommend following Brands Untapped, a site that celebrates the creativity of the licensing community.

By Stephen Key