Last month, Black & Decker Corporation announced their acquisition of Vector Products, based here in South Florida, for $160 million (press release). Vector was founded only ten years ago, and has made a name for itself by leveraging its technology strengths in battery charging into a broad line of innovative charging, lighting and emergency-related consumer products. They established themselves as innovators and gained distribution at major mass retailers including Wal-mart, Target, Home Depot and Sam's Club, among others.
One of the key milestones in Vector's growth was their license of the Black & Decker brand for a unique line of emergency-power chargers, inverters and lights. I don't know first hand what went on within Black & Decker's walls during their initial decision-making on licensing the brand to Vector. Whether it was intentional or not, Black & Decker executed a winning strategy of using brand licensing as a tool for open innovation.
Many corporate leaders equate the concept of 'open innovation' with technology scouting and technology acquisition. But it's really much more. Smart companies recognize that open innovation models allow them to create a network of innovators that can explore new categories and technologies for them, prior to the larger company taking on the risk directly. On the surface, Black & Decker's purchase of Vector was a simple accretive acquisition -- to fuel growth. But it's just as likely that Black & Decker was looking to expand into these technologies/categories in a bigger way... and both as a method of hedging risk and shortening the timeline, brand licensing became a smart way to conduct a strategic experiment of sorts.
As large companies look to strategic innovation to create new sources of growth, licensing one's brand to a technology innovator in the category provides the benefit of speed and brand leverage, while minimizing the risk to the parent company. Of course, brand licensing can't be taken lightly either and due dilligence and license managment play an important role. But if your company has the capability and mindset for strategic licensing out of its brands, consider licensing as one of your key potential tools in your 'open innovation' strategy as well.
Conversely, if you're an entrepreneur seeking to license your technology and products to large established companies, obtaining a brand license from a target acquirer provides a great way for both sides to test the waters -- though the brand licensee bears more risk in this model.
Ultimately, brand licensing can be a tool for sharing risks and improving the odds that risk-adverse larger companies can leverage the innovations and technologies of risk-taking entrepreneurs (at least the ones able to bootstrap a licensed venture). For more on this model, see my article in last month's Vision Magazine.