Eps. 85 Licensing Part 1: How to License Your Expertise When You Provide Bespoke Custom Services Transcript

Erin Austin: Hello, ladies. Welcome to this week's episode of hourly to exit. So this is the first in a three part series about licensing your expertise.

Erin Austin: So it follows a wonderful interview that I had in episode 84 with Pamela Slim. So Pam's agency specializes in the design and development of certification and licensing programs. So if you go back and listen to that one, if you haven't already, it gives a great overview and the different types. Of licensing and certification programs for you to consider the challenges and opportunities and some of the minimum requirements.

Erin Austin: And so when you go back and listen to that, you will see that as much as we, we love talking about licensing, you know, I love talking about it. It is not, uh, you know, the traditional licensing and certification program is not for Everyone. So for instance, you may not have the right audience to do a licensing program.

Erin Austin: You may not, you know, want to maintain the infrastructure. It's not a one and done. You have to, you know, uh, make sure you're tracking all of these things, getting paid for them, increasing the, uh, the, um, you know, making sure that the materials stay up to date. Uh, and so, or you may not have a fully fleshed out process, you know, If you're going to license something for somebody else to deliver your expertise, you need to really have that very well codified.

Erin Austin: That's something that Pam talks a lot about as well in that episode. So there's a number of reasons why a traditional licensing or certification program. Isn't for you. So this series is going to talk about some edge cases where we can still take advantage of creating leverage in our businesses through licensing.

Erin Austin: Even if it isn't through what we may see, you know, on the interwebs about, uh, what a certificate certification or licensing program is. So this week I'm going to talk about licensing when you provide bespoke custom services. So we've already determined that because of the nature of your services, that traditional licensing or certification program doesn't make sense.

Erin Austin: You know, your clients demand a custom, a custom solution that is specific to their needs. They don't want something off the shelf and you Get paid the big bucks to do that, and you enjoy it as well. So instead of changing what you do, which is to provide those high volume custom services, we're not changing what you do.

Erin Austin: Instead, we're going to change how you sell what you do. So what does that mean? I'm going to start with an example. That involves Microsoft. And so this is something I did not know about the origin of Microsoft until I read it in the book. Good strategy, bad strategy by Richard Ramelt. And so he tells the story about how Microsoft came to be the behemoth that it is.

Erin Austin: So I'm just reading an excerpt here. When the largest computer company in the world. Oh, by the way, I think I need to preface this that it was IBM. It was work for IBM. That is the beginning of Microsoft as we know it. So this reference to the largest computer company in the world is a reference to IBM.

Erin Austin: All right, here we go. When the largest computer company in the world comes knocking at your door in 1980, asking if you can provide an operating system for a new personal computer, you say, yes, we can. And be sure to insist as Bill Gates did in 1980, that after they pay you for the software, the contract permits you to sell it to third parties.

Erin Austin: You might just become the richest person in the world. Now, the way that is written isn't quite. Accurate. It wasn't that IBM owned it and they got to sell it. You can't keep selling the same thing. What you can do is you can keep licensing the same thing, assuming you retain ownership. So what happened in the Microsoft IBM relationship is that although it was custom, I mean, There is a new personal computer create a operating system for my, uh, personal computer.

Erin Austin: So it was made, it was commissioned by IBM. And, but instead of having that typical language that we see in client agreements, that the client owns 100 percent of the deliverables, uh, as a work for hire instead, Microsoft retained the rights in the, uh, what is. was then, um, I think it was called the IBM DOS, but became the PC DOS.

Erin Austin: They retained the rights in it and they could then license it to other hardware providers. At the time, hardware was king and so IBM obviously undervalued the software. But the point is, What IBM needed, the solution that IBM needed was a operating system and they got the operating system. So there is an example of a custom commission deliverable where you retain the rights and then are able to license it to other clients.

Erin Austin: Imagine that seems kind of impossible to you. I mean, you know, lightning only strikes. Well, it does strike more than once, but what's the likelihood of it happening again? But I want you to consider where we are now in as a, as an economy. And there's a lot of, there's been a shift from ownership to access generally in businesses.

Erin Austin: There was a time when you always had your own server, and now many things are in the cloud. There was a time when all of your platforms that you ran your business on were custom developed, and now people are using SASSes. Even the largest corporations are using SASS. You know, in our personal lives, Uber and Lyft instead of owning a car, and of course, why buy the dress when you can rent the runway.

Erin Austin: So there is generally a movement towards access as a way from ownership and obviously in a digital world that makes it even easier. You know, back when, You received your software on a disk, so you owned it. It was, it's different than now when you can just access it. So there's lots of ways where we can look at what's happened in the last 40 years, 44 years.

Erin Austin: Um, So that would encourage more access versus ownership. So when I look, talk about, you know, SAS and, you know, renting dresses instead of buying them, I know that they aren't, you know, the bespoke professional services that you provide. But I want to look at two cases where we can have bespoke services, but still apply.

Erin Austin: The Microsoft lesson to what we're doing today. So the first scenario is when we license a custom solution to the client instead of selling deliverables to the client. As you know, every marketing and business coach will tell you your clients want a solution. They want results. They don't want deliverables.

Erin Austin: They don't want inputs. When you're creating a proposal, you're talking about the benefits, not about, you know, your certifications and, you know, you've got a degree from here and there, but it's that they're going to have this great result if they work from for you with you. I'm going to do a super shallow dive into value based pricing just because I think it creates a nice analogy to this structure.

Erin Austin: Um, and again, it's very shallow. We love value based pricing. Do the deep dive, go to Jonathan Stark or Alan Weiss for the deep dive. Um, but I'm going to just use a few analogies as we talk about this type of, of licensing scenario. So when we are creating a proposal for our custom services, you know, the first thing we need to do is understand what our clients objectives are.

Erin Austin: Jonathan Stark talks about the why conversation to make sure you understand what the client actually needs versus what the client wants. Similarly, Alan Weiss talks about the questions for establishing business objectives. These are, you know, what would you like to accomplish? What would be the difference in your organization?

Erin Austin: If you're successful, what aspects of your business are keeping you up at night? If you had to set priorities now, what three things must be accomplished? So to further quote, Alan White, Alan Weiss. Self interest is most affected by results, not tasks, outputs, not input. That is why deliverables are only a commodity that will be comparison shopped by most buyers.

Erin Austin: A report, a training session, a coaching regimen, these are simply tasks. performed, but improved morale, faster customer responsiveness, and more effective leadership are highly valuable organizational outputs. That is what your clients pay you for. So the fee should be based on future improvement, not on past technique.

Erin Austin: So some of the things that your clients future desired future state, are higher productivity, lower attrition, improved image, greater market share, greater profit, you know, happier customers, you know, you get the drift. So let's say, take a more specific example. You have a client, their cost of acquisition is three times the industry average.

Erin Austin: Obviously, greatly affecting their profitability. You've gone through your Y conversations and done their, your assessment. And you can see that the, their off boarding process is the problem that it is not set up to encourage upsells to get repeat business and to encourage referrals. So what will your proposal look like?

Erin Austin: Will your proposal look like, okay, I'm going to, you know, do some training sessions and I'm gonna leave you some reports. And, or is your proposal going to say, I am going to, you know, increase upsells, you know, by this repeat business by that referrals by the other, you know, that is. What you are selling them.

Erin Austin: And so instead of selling the deliverables, instead, you're going to sell them access to the custom solution that you create for this client to get those upsells, get that repeat business, get those referrals. So you have created it in response to their specific circumstance. But once you have the solution in place.

Erin Austin: Do they need to own it to get the solution to get the desired outcome? Or do they just need access to it to get the desired outcome? So, as with the value based proposal, You can present these options to your client of how they want to get the desired outcome. If there is no actual value, and I mean, not not kind of default value, I'll call it default value of owning anything of everything.

Erin Austin: But there isn't an actual value in owning the solution. If the client can. Get 100 percent of the transformation that you have promised by getting access to it, then this is a possible place to have a license. So, here you have the win win. The client only pays for the rights to the solution that it needs.

Erin Austin: and you get to build a valuable IP library of solutions that you've provided that you can use for other clients in the future. Now it's obviously the client will be very concerned about Making sure they have access to it. So that is where your license agreement comes in. You have that license agreement that clearly states you have a non exclusive, of course, perpetual worldwide license, um, irrevocable license to use the solution.

Erin Austin: That they can create derivatives from it. They don't want to worry about if they want to change something later that they have to come back to you that they can use it with other subsidiaries. They don't want to have to worry about it. If they acquire a company, they have to come back to you. So you give them.

Erin Austin: This is one of those instances where. Uh, you want that license to be as broad as possible so that the client can do the same things with that license solution that they could do with the own solution, except that they would have it non exclusively. I encourage you, I will put in the show notes because I'm not going to think off the top of my head.

Erin Austin: I did a LinkedIn live where I talk about. Um, Downside of a very broad license, um, in your preexisting materials to your clients. Um, but in this instance, because you have created it and they paid for the development of the solution, it is appropriate for it to be broader. So I know that's a lot to digest.

Erin Austin: I'm gonna keep this one short cause I know there's a lot to digest in this, in this episode. But the point here is that we read, we need to help the client understand what their needs are versus what their knee jerk wants are, and that they can get the entirety of the transformation with a license and that they're not going to run into problems in the future.

Erin Austin: Um, then that can be a great option. That is a win win for you and your client. So, this Solution is not going to work for every single service. If you provide highly creative services, let's say you are an advertising agency and you write, um, advertisements for your clients, you know, the client is going to be the only person who has access to that, right?

Erin Austin: They're going to want to own it and they're not going to want anyone else to be able to use it. However, uh, you know, if we provide transformation to our clients, then that Is a different matter, you know, I mean, we could say that the, the ad agencies, maybe. And I don't know, because I don't know that agencies, but maybe what they are.

Erin Austin: actually providing their clients are just deliverables. I don't know if they actually promise transformations. They just promise a really cool, slick ad campaign. And maybe it works, maybe it doesn't, maybe it tanks your stock price in some circumstances. But, um, so that is a very deliverables based Business and so if you have a very deliverables based business, it might be problematic.

Erin Austin: But if you have a solutions based business, then this is a is a possible option for you. All right. Now, let's look at another scenario. Let's say that you. Do you have solutions that incorporate the client's proprietary information? So I'd like to share an example from a participant in one of my workshops.

Erin Austin: So she is a futurist and she provides very sophisticated analysis of what the state of the world will be in 10 to 15 years. To pharmaceutical companies because they have very long research and development cycles. So to paraphrase Wayne Gretzky, the pharmaceutical company wants to skate to where the puck is going to be and not where it is today.

Erin Austin: So she receives from her clients, very valuable, confidential, proprietary information that she can use to, you know, decide what to do. What direction she needs to research. So, um, you know, she would know she's doing the research because they're looking at, you know, what type of joints people want in the future or what type of, um, uh, um, a diabetes medication you'll need in the future.

Erin Austin: And so she will know proprietary information. And so obviously. Yeah. The client will continue to own that proprietary information, and she will not be able to use it with any other clients. However, a lot of that research would not be proprietary the client to the client. For instance, if. She is giving a report on what the climate will look like in 10 to 15 years, what the geopolitical forces will be, what immigration patterns will be.

Erin Austin: That is not specific to the client. It does not involve any of the clients proprietary information. So even though the only reason she researched an area, so I have this example here that I made up that, um, if she researched, you know, the likelihood of a unified Ireland in 15 years, and the only reason she looked at that is because the client asked about it because they have something that they're planning to do with Ireland that makes more sense if it's unified than if it's not unified.

Erin Austin: But even though that is commissioned research, because the only reason she did it was at the client's request, the, the, the resulting the results are not specific to the client. So, rather than assigning all of the rights in that research to the client. She would license that portion of the research that's not specific to the client, um, does not utilize the client's proprietary information.

Erin Austin: They would get a license to that part of the research. So, now she retains that research, you know, that she's done about, um, you know, the likelihood of Ireland unifying, you know, North and. Is it this Republic of Ireland and North Ireland uniting? In the future, she retains that she can license it, you know, another client comes along and like, Hey, that we want to find out about United Ireland.

Erin Austin: Um, she can pull that out. It does not take, she's not selling deliverables. So that doesn't change the cost or the value to the client of that research. And therefore, um, but she does not have to do the research over again, therefore increasing her profits also. Maybe over time, over the course of several years, she would have created a database of research that she can then license by subscription to other companies that would not be able to afford her very high six figure, six figure database.

Erin Austin: fees. And so there's a number of ways that even when you are providing high value commissioned services to still incorporate licensing into your business. So that is all I'm going to ask you to chew on for today, but I really want you to use this as a, a spark to help you think about how, even though you have very highly customized, um, Uh, services, how you can incorporate, uh, licensing.

Erin Austin: So take this, you know, some time to look back at maybe the last, you know, half dozen clients that you worked with, were there opportunities in there for you to retain rights in some or all of those deliverables that you would then be able to use. In future engagements, things that were the client would get 100 percent of the transformation, whether they own the solution or were licensed perpetual non exclusive rights to use those solution.

Erin Austin: Or if there are parts of the deliverables that are not. Uh, the do not involve clients, proprietary information, and that could be of use to others in the future. So I welcome your questions about this. I know this was a lot to wrap your head around. I welcome your questions and your comments as my thoughts about this also continue to evolve.

Erin Austin: Thanks again. See you next time.