016: IP Licensing with Lee LeFever

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This is your time. How can we earn twice as much in half the time with joy and ease while serving the highest good? That is our guiding question here at the Freetime Cafe, your home for heart based business. I'm your host Jenny Blake. Join me for conversations with authors, friends and fellow business owners as we explore ways to free your mind, time, time and team to do your best work. Now onto today's show.

Hello my friends. I am so excited to be here today with kindred spirit Lee LeFever. We are just meeting for the first time but I was reading his book practically jumping on the couch cushions screaming for joy of just somebody articulating free time and business principles of autonomy, sustainability, choice so beautifully as Lee have Lee has.

Lee is the co founder of Common.

Craft and the author of two books Big Enough, his most recent that we'll be talking about today. Building a business that scales with your lifestyle and the art of explanation, making your ideas, products and services easier to understand. Since 2007, Common Craft, the company he co founded with his wife Sachi, has won numerous awards.

They have done they were the original explainer videos and you could see in their early videos Lee's hands and these.

Hand drawn images and they flick them out of the shot and we all know because explainer videos now are a popular way of conveying information. So he and his wife Sachi are.

The brains behind it. They've have over 50 million views of.

Their videos and I can't wait until you hear more about how he set up the business to be have scalable revenue around licensing, membership, subscriptions, library, I mean all kinds of fascinating ways to really scale this business. While he and his wife remain the.

Only two employees employees and they are deeply committed to that which I love working from a little island off the coast of Washington.

Lee, welcome to the show.

Thanks for having me Jenny.

So you I just love how big enough of course is this principle of you and your wife being so committed to being the only two employees and no matter how popular, no matter how much the demand came, you found ways to meet that demand by Creating networks, but you knew you didn't want another employee. And I want to start there because I feel in my bones, I feel pretty clear that I don't want any full time employees ever. But there's a little business gremlin on my shoulder that says, well, you just don't know. Well, you're just afraid. And I have heard other small business owners on podcasts say, oh, wow, once I hired my first full time employee, it was such a game changer. And they just described getting over their psychological issues with, with this. Have you ever had doubts?

Have you ever questioned or wondered, oh, is this just some self limiting thing of not having any employees or are you still so committed and how did you reach that certainty?

Yeah, yeah, that's a really good question. You know, I think that my wife Sachi has been the one that's driven this decision about not having employees since the very beginning. We were fortunate when we started doing explainer videos in 2007 to have a lot of demand. We had a lot of opportunity coming our way and we asked a lot of questions about like, well, what do we want to be? Like, what kind of company do we want to be? And one of the biggest was, do we become sort of a creative agency where we have lots of producers making lots of videos for lots of clients? And that could have happened quite easily, but we saw that that would probably have a personal impact on us, the owners. And we looked around and saw that maybe there's other ways to do that. Because I think part of what you're getting at is that some business models, some businesses require employees to grow. That's just like, if you want a growing business, there's no other way to do it than hiring employees. If you owned ice cream shops or something like that, you've got to have employees to make it work. So I think the way that we looked at it was, well, what if we thought differently about the business? What if we designed the business around the idea that we don't have to have employees? And what we found is that that constraint was something that informed a lot of our business decisions and strategies. Because we could look at something and say, well, if that idea works, we're going to have to hire people, so maybe we should keep looking at other ideas.

This is what I find so creative about your approach, that you did have a services component of your business in those early days, but that clarity around freeing up your time for you and Saatchi and separating your revenue from your time. And then really, I think you have articulated in this book, big enough. So brilliantly scalable, abundant sources of revenue that are not completely a one to one correlation with your time. So you've gotten into things like licensing and creating membership, community and creating a network for referrals. I have found I've gotten into licensing, but I find it's kind of a black box.

Like I've had to interview so many.

Fellow peers who do licensing. It's really hard to get any data to know what to charge. How did you get that idea to license your IP in those early days and even start to downshift and say no to a lot of the kind of bespoke requests from clients?

Sure.

In order to go the licensing route.

Yeah. Well, like so many things with Common Craft, we really pay attention to what people are asking us for, like what we're hearing from fans and customers about what they want. And what happened with Common Craft is when we first started making videos, there was no business model. We just made videos that we wanted to put into the world to help people like our parents understand social media. At the time, you know, this was 2007, so things were still pretty new. And we saw this opportunity to explain something like wikis or blogs in a way that was not technical, that was meant for everyday people. And so we got started making videos that weren't for a client or weren't for anything, you know, that and really money related. But eventually we started getting hired to make custom projects. You know, our second client was Google. We made an early video for Google Docs, for instance. And so for most of our few first few years, we were making two kinds of videos, our own videos that we produced based on what we wanted to put into the world that didn't make money. And then the other one was the kind of video that we were hired to make. And we really loved our own videos. Of course we wish that they made more money, but what happened was teachers and trainers and instructors of different types would email us and say, hey, can you send me the video file? Because I want to put your video in my presentation, I want to put it on my intranet, I want permission to use your video. And it took a little while, but it didn't take long to see like, oh, okay, they're asking for permission. They want a value added product, not just something they can get on YouTube. Maybe there's a business model here. So we started to look into licensing. And I call licensing the business of permission. And when somebody says, how do I get into licensing? I mean there's a lot of different ways. But what we saw early on is if someone is asking permission to use your work, that's an indication that there may be a licensing opportunity there. So what we started to do was used a service that now I would probably use Shopify or something similar. But we used a service that made it easy to embed a button on our website that said download this video file for $18, 99 I think was the first price. And we sold the first video download within three hours. And really since that day, that's been a driving force or at least a safety net. Early on to our revenue was offering our videos in downloadable form with permission to use them in business situations.

Were there terms. So if they paid 18 and they downloaded it, did they ever have to re up that license to use that video?

In the early days we had a three year period. So we would track. And this is one of those things that doesn't scale all that well. But Saatchi loves Excel, so we're fortunate in that I have a mug for her.

I have one called I Heart Spreadsheets.

She loves Excel. So she tracked every purchase and then would follow up with them in the future to ask them to renew. And that was one of the early realizations we had, was that renewal licensing was really the most powerful way for us to earn money. Not only that, but we offered two different licenses from the very beginning. An individual license and a site license, which was for organizations. And that site license scaled from small groups all the way up to huge corporations. Little common craft. Working from our home could be working with a Fortune 50 company to license our videos that they use in training for 50,000 employees.

Licensing wise, that adds up quite quickly.

And were you charging different rates for the size of the organization or was it a flat fee no matter how many employees?

Yeah, it was the size of the organization. So we've always tried to figure out the right way to make tiers in terms of our pricing. And the best thing we can do that applies pretty well to almost any organization is by the number of employees.

Yeah, because there's so many moving parts. And even from the technical side, I kind of love hearing that Saatchi, the spreadsheet was tracking that way because one of the most intimidating things for people, I think, when it comes to licensing is tracking how do you track renewal.

Or who's using it or.

I mean, it sounds like maybe you're somewhat close to the honor system where she would reach out to them and say, hey, are you still using it? Or your license is up have you ever had a situation where you needed to revoke a license and did you worry about how to get the content back or did you do that on the honor system?

We mostly work on the honor system. Yeah. From the beginning, we chose more on the honor system in terms of how we work with customers, with licensing. I think being a two person company, we don't have an army of lawyers that go out and make sure that everything is on the up and up. And part of that is that our customers are generally educators and by and large, they're really respectful of intellectual property, they're respectful of the rules, and they really want to do the right thing. And we've found that the best, most efficient path for us is not so much enforcement, but education. You know, being able to talk to them about, like, what the rules are, why they make sense, and how to work with us. And that's a challenge too. But as a two person company, that's really been the most, like I said, the most efficient way to do that.

I love that was something that I've been trying to wrap my head around licensing for so long. And I shout out to a friend named Stefan Marcus who said that, you know, a lot of companies in my realm with training, let's say they don't call it licensing, that even a lot of the people who want to acquire this content may not use the word licensing because it is kind of a term that can mean different things. And so in my realm, he said, they really call it Train the trainer.

Yeah.

And once he told me that, it made so much sense. Aha. Of course they, I teach. I wrote a book called Pivot and I teach Pivot workshops.

But I can't fly around every team in every office for an entire company like Google.

And so train the trainer allows them teach the material themselves. And I love what you describe so clearly is educating your community and your customers and then that's part of how the honor system functions. That actually most of the time people aren't totally out to get you and.

Rob you of all your ip. They just, they don't know. So licensing as the business of permission and then educating them around what that permission structure looks like makes so much sense.

Yeah, yeah. I think that that was something that took some time to discover, but I think that, you know, as a company, you know, maybe I'm too optimistic, but I think that generally people are good and want to do the right thing and we give them the opportunity to do that. There have been, there have been times early on, common craft Style was something that was copied by a lot of people. It was something new. So people experimented. We mostly found that, you know, when people would email us and say, hey, these people over here are copying your style, they should give you credit that they weren't actually trying to. They were not going to have an impact on our business. They were just experimenting. And we chose to have a sort of soft hand in that case. But I think the intellectual property is like, you're saying, like talking about licensing. That's not something that we really say on our website is we license videos. The business model is sort of not that relevant, I think, to the people that end up using the videos. They want to know how we solve a problem or how we help them be better at their jobs.

We'll be right back just after this.

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In the case of libraries or educators, you know, I love how you then set up a membership community. So it's a. It's kind of like licensing, but with their membership. That's how they get access to your full library and anything new. And then you also had this really interesting approach, I don't know if you're still doing it, where you're licensing your library of individual images. So you even. It's so brilliant how you had the IP of, well, so many things. You have the IP of the original videos you've created. You have the IP of your process.

And your style of the explainer videos that you launched this whole movement.

And then later you realized, oh, actually some people want to use the ingredients that go into these videos, which are the images that you now draw on your wacom, it sounds like.

Yeah, so.

And that those are sometimes providing to. It's almost a B2B relationship of people. Can you explain a little bit more about how that partnership works of selling the individual images?

Yeah, yeah. So that again, came from people asking, you know, they saw that we were using this style that was very consistent, so you could do a whole video or presentation with all the same images. And they were curious if we would ever consider sharing those images. And we thought, yeah, I mean, we've been. They're a byproduct of the videos we're creating. So we have these visuals, we could do something with them. And you know, being an author, and I think maybe some of your listeners can imagine this too, when you publish a book, you're kind of always looking for how can I create, forgive this word, but some synergy between the book and my business and how can they benefit each other? And when the Art of Explanation came out, which was a book about explaining things, it wasn't necessarily about making videos, but it was about the skill of explanation. We thought, you know, the people that read the book may not need these ready made videos about wikis, but they might be interested in using our visuals to start creating their own videos or presentations. So along with the launch of the book, we built a library of what we call cutouts. You know, our early videos involved actually pieces of paper on a whiteboard and made that a part of Common Craft membership to sort of create that connection with the book. And from that point on, that's been a big part of our business is selling the cutouts along with the videos, even though they're, they're very different products. Like they don't really exist in the same world in a lot of ways. But that's kind of just what Common Craft is. You know, you mentioned that as a part of licensing. I think there is kind of an interesting point here that, you know, early on with Common Craft, within the first couple of years, we chose the licensing model as our, you know, what we want to be when we grow up. You know, it's a, it takes a long time and there's, there's, it's not for everyone but just having that orientation that we are making digital products that we can sell and not being hired like we still get, we still, even today, we sometimes we get hired for the right client to make videos. But just making it a part of our core, that we are in the intellectual property business meant that we saw all kinds of opportunities for that to branch out in a lot of different ways. And one of those was with, with the cutout. So we sold them from our website. But then we realized we own these images, we can work with partners. So when video creation software, like what's called Vyond now, it used to be called Goanimate, there's a lot of these browser based animated video companies that popped up and we thought, is this an opportunity or a threat? And we said, well, maybe this is an opportunity. So I reached out to them and said, hey, we have this library of thousands of matching images in a format you can use. How about offering them to your customers, and they agreed. And even today, common craft cutouts are a part of that platform. For a while, we worked with TechSmith and we worked with Elearning Brothers, and there was a number of opportunities there that all come back to this idea that we own that property and that we can do with it what we want. And something I say in the book, which I think, to me it was just kind of a revelation to think about it this way, that copyright is the right to make copies and it's the exclusive right to do that. So that's all we were doing, is making copies. And they happen to be digital and reproducible at almost zero cost. And that, to me, that's kind of a magical business.

I love your clarity around this. And it sounds like you and Sachi have such intentionality at every point you've really sat down.

And I love this question, what do we want to be when we grow.

Up as a business? And for me too, where you could just see the writing on the wall that or the writing on the explainer video that. Just doing these client projects. I realized that what led me to licensing was that I would do this massive custom collaborative build with a client. And then I realized, oh, no, if.

I get more clients, I have to do that all over again. I'll be miserable. Like, no new client will be a.

Big success because it will just feel heavy of how much work I'll have to do.

So why don't I create it all once and then go toward licensing? It is a long term. I think it is more of the long game, in a sense. And you've certainly figured out much more.

Than I have in many facets of it. But I know that in your part, as you describe in the book, you had to say no.

There's this fork in the road where.

You had to say no to a lot of client work as well and be willing to recommend people in your network. I think it's so brilliant that you charged people a small fee to be part of that referral network.

Yeah, that kind of, again, sort of grew organically. It was called the Explainer Network. And being sort of the first movers in the Explainer world, we were, like I said, fortunate to have a lot of opportunities. And we thought it was kind of a shame to have so much demand and not enough supply because we were not into having employees, so we weren't going to grow. And at the same time, other producers who were formerly making all different kinds of videos said, hey, we make Explainer videos too. And we saw that, okay, this is going to grow and they're going to hire people, they're going to get bigger, they're probably going to be able to eat our lunch if we don't watch it. So we used our unique position in the market to go to them and say, hey, look, we are currently getting the demand right now. Pay us a fee and we'll put you on a listing on our website. And then when demand comes to us, we'll point you there, we'll point them to you and other producers. And that, to our surprise, worked for many years, was like a little marketplace for us. It didn't last forever, but it definitely worked.

I just recently heard the phrase coopetition.

Yeah.

And I think you and Sagi embody that so well because at different points you were worried, is this giving away our secret sauce? Even in the book, is this giving away, you know, our unique process that creates these unique videos? And I love how at every stage, and it sounds a lot, with Sachi's encouragement too, you realized actually it's okay to share and that is going to create value.

And in a way you're finding all these different intersection points or partnerships with.

Your quote, competition, which I think you and I and Sagi all operate in a more abundance mindset of just how do we merge these things and have.

These mutually beneficial relationships?

Yeah, yeah, there's some really kind of interesting parts to that. So I don't think I said this in the book, but I think a lot about the idea that the Internet is just really, really big and that before the Internet there was more of a scarcity model in business where it's like a zero sum game where if I get a client, you lose a client and vice versa. But with the Internet, there's just a never ending supply of potential business out there. And it's not about beating your competition so much as it is finding the right niche and finding the right market and being able to be flexible and agile. So I think that when it comes to competition, we're aware that things represent competition to us, but it's not something that's a part of our strategy is to beat the competition so much as it is to, to be very intentional about our market.

And part of this too is that the book is called Big Enough. It's not about dominating the business world. And part of that as a work from home husband and wife team is realizing that our personal lives and our personal spending and our personal orientation about money is connected to the business. That if we have a personal life that we want to travel the world on a billion dollar yacht, then the business has to perform at a level that supports that. Whereas if we can be happy and satisfied at a life that is what we want and a lifestyle that we want that maybe doesn't have the yacht but has nice things and we are happy, then that doesn't cost a lot. Then the business doesn't have to be huge, it doesn't have to make, you know, a million dollars a month because we don't require that to, to, to be satisfied. So that's part of the perspective too.

You and I share that sentiment that no amount of money is worth being miserable or impacting your health or your.

Relationship, your marriage, your home.

It's like there is no number for me that's worth. Because we don't know how many days we have on this planet. So.

And there's, there's a lot of research that says that, you know, that. Well, in the book I mentioned some research that says that money matters up to a certain percent. If you're a family that is struggling to get by, money definitely matters. But over, you know, in this study it's like $200,000 a year. The marginal returns of happiness start to wane that like the next. If you reach 4000-0080-0000-1200,000 or 1.2 million, I guess per year, your happiness doesn't keep going up. It's that hedonic treadmill idea that your happiness changes as it goes and it's not often fulfilling over time. Jason Fried at 37signals, a well known entrepreneur, has said that every business is a lifestyle business. There are people whose lifestyle is impacted by every business and I think that they've been really great at being really intentional about how their business has grown as well. But we really do believe that, that, you know, we had a point in our history where we realized that our, that working from home, being a couple, working from home and that if our business didn't make us happy or worse, made us miserable, then it could also impact our relationship and it could impact everything in our lives. So at that point, what's it all for? Like why would we go down a road risking being miserable and feeling trapped when you know, we might be able to find other ways to do that? I am a huge fan of that sense of freedom and having time as a resource that's within your control, whether that's free time or time that you put towards other things, I think is really important. I just feel like that these days people are so Busy. And there's some people who see it as sort of a strange badge of honor to be so busy, just wall to wall busy all the time. And there are some people who get off on that, I guess. But I like to think that in the future people will see that they can optimize their lives, whether it's the jobs they have or the work they do. To see that time is something that has value, that can be managed and that can be designed around, and that it's something that actually produces joy in a lot of different ways. It's a very flexible medium in that way. And I just hope that people see that you can be rich with time. You might not have a Lamborghini, but the people that have Lamborghinis often wish they had more time.

Yes. And as you described that the people who. You could be rich with time and rich with money.

But be careful.

If you're rich with money and you don't saddle yourself with a bunch of.

Obligations like you gave the example of.

Well, all of a sudden your second.

Country home needs repairs and the car.

Has to go into the shop and it ends up being this complex management of burdens on our mind in time.

Yeah, definitely. I've talked to wealth managers who've said that they spend so much time with people who grow to be extremely wealthy and their lifestyle just explodes with things, and they spend that the last half of their lives trying to simplify, trying to figure out how to get their time back, how to get things back under control. And I hope people maybe will. We'll skip the middle part and just see that there's value and happiness and joy in being more constrained in how you think about your life and if you have success, how that success translates to your time.

And your.

Your book is such a beautiful story of that.

And even where it ends up, I won't give it all away.

Speaking of your book, you and I also share something in that I'm going.

Rogue with my third book and going hybrid publisher.

I don't even know if I'll have.

Announced it on this podcast yet. So if they get to this far in the show, you'll learn something new. I worked with Penguin for my last book, a Portfolio specifically, and I know.

You worked with Wiley for your first and you went hybrid with Big Enough.

That's right.

Walk us through your decision, because there we go again.

Opting for freedom and agility.

Yeah, it really is like that. Having worked with a major publisher, I had a great relationship with Wiley. I really liked those guys. I Think we did great work together, but part of the common craft ethos is independence and owning what you create and having creative control. And hybrid publishing gave me an opportunity to work with people who were industry pros, who could be, you know, the best editors I could ever get anywhere, that sort of thing, yet still maintain the decision making. The only part of that that's a little bit more of a risk, as you know, is that in hybrid public, well, in normal publishing, the risk of success lies on the publisher they're making. They're making a bet on you as an author to sell enough books to make money. With hybrid, it's your money you're paying for. In most cases, I believe you're paying, it's your money that's on the line. So you have the bottom line that you have to try to break even on. So that's another bit of risk. And I like hybrid publishing.

I think from my perspective, the major publishers are still the very entrenched, very well connected, very kind of like they are the industry in a lot of ways. So I think that the hybrids are getting there, they're getting those distribution relationships, they're getting everything set, but they don't have quite the weight of the major publishers just yet. So that's just what I see right now.

Yeah, I feel like, because I did end up creating a whole proposal and had a meeting with portfolio and I feel like, okay, I wrote myself a.

Book proposal now I wrote myself an advance check because what listeners might not.

Know is the difference. Self publishing is you go find every single resource you need all on your own. Hybrid publishing, there are houses who have teams of people who have even come from traditional publishing. But as you said, Lee, we own the rights. And I'm finding something so thrilling and energizing about owning the rights to the ip. But also the success, like every book I actually sell goes back into my.

Pocket, you know, and I'm not there yet.

But I'm really, I'm kind of happy to have that creative control and also to move faster and make all my own decisions and creative decisions. And yeah, it just feels really exciting. Even though you're right, there's still a.

Small piece that I know people will.

Say, who, you know, who's your publisher?

As the first question.

And that's okay. I'm proud of the publisher. I'm not going to reveal it yet.

Because who knows what I'll share when.

But yeah, yeah. Oh, that's great. I'm happy to hear that. I want to keep up with that.

Yeah.

Yeah, I mean, the rev share part of it does is nice too. That was one of the reasons to go to think about Hybrid is, you know, you have the potential to make more on each book.

For me with Pivot, I've sold so many copies, but I still haven't earned out the advance. So it's just kind of in the background. Whereas we'll see with this next one.

And Lee, your book is a big.

Inspiration for how well you've articulated these values. And I love the rework guys as well. The co founders, Jason Freed, David Hannemeier Hansen.

Yep.

So every time there's a book you. We both reference Paul Jarvis, Company of One. Every time there's a book that just draws these lines in the sand like it is okay to go your own way. And it is something to be proud of and celebrated. And we can share ideas with each other about how to do that and just resist that pressure to grow just for the sake of growth. With which business can be done differently now with the technology and resources available to us now.

Yep, yep. That's. That's the big message, I think.

So, Lee, if you could give listeners.

Permission, what would you give them a permission slip for?

Wow, that is interesting. I think that, you know, you mentioned there. I think there is a sort of cultural imperative in business that you're not doing it right unless you've done it the way it's been done in the past. Like business school, you know, supply and demand. All the things that have been the cornerstones of business, I think still apply. But I think that I would give people permission to forget the way that things have been done in the past, that the Internet has opened up a million different paths, and that we all have new opportunities to choose a path that's not necessarily based on some academic perspective or some tradition or Jack Welch or whatever else, and find a path that actually matches the person that you are and the values that you have. And I think that's a hard thing because there's a lot of pressure not to do that.

There really is. And it's like, oh, if you're not optimizing for growth at all costs or profit, oh, then you're not a business.

Yeah, yeah, you're not doing it right.

So I love this. I love this.

Permission to forget the way things have been done in the past.

And I'll add to your permission, like.

Permission not to read the playbook of.

A billion dollar unicorn.

It's like all these business folks are on how did Amazon, how Google works, how all these companies. How Netflix rules. No rules rules. Well now we have big enough so.

You can go read these playbook Big enough. Please do I like what Jason and David reworked. They say we're in the Fortune 5 million.

Yeah, totally.

Like that's my style. I don't care if I'm in the Fortune 500. I'm in the Fortune 5 million.

That's right. That's right.

Yeah.

Awesome.

Leigh, this has been so fun. Thank you so much for being here and for leading the charge on all.

These creative ways to scale while staying delightfully tiny.

It's my pleasure, Jenny. Thanks for having me.

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Thank you.

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