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STRATEGY

Paying Homage to Royalty

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You are convinced that your new invention is destined to be the bedrock of a new company. If so, ask yourself these questions: Do I want to own 60% of a company that has to clear all the market hurdles from scratch? Or would I be better off, for example, with a 10% royalty on the top line of a licensed product that is being pushed through the distribution channel by an entrenched competitor?

"Most new ventures are products, not companies," asserts Bill Sahlman, a Harvard Business School professor. "Unfortunately, most entrepreneurs are blinded by their obsession with control."

Sahlman suggests that the quickest and most lucrative route to success may be to farm out the sales and marketing responsibilities to another company that already has coveted contacts with targeted customers. Your product still gets sold--and you still realize a profit.

Last updated: Jan 1, 1998




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