Whether your firm is interested in growth, acquisition, or product diversification having an intellectual property strategy is critical. Intellectual property (IP) is commonly thought of as patents, copyrights, trademarks, and trade secrets, but unique or proprietary data, novel internal software frameworks, and well-documented expert knowledge can also serve as IP, especially in an acquisition setting. In general terms, IP is how a firm differentiates itself from competitors, shows value to investors, and lays a foundation for future growth.
“Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.” (Peter Drucker) Often entrepreneurs, rushing forward with novel and innovative concepts, do not formalize an IP strategy till late in the product development lifecycle, running the risk of being blocked by incumbents or having the ideas stolen at the last minute after burning through scarce resources. Large firms, riding on their market share, can routinely neglect the need to craft their IP until they hit an unseen roadblock. Without an IP strategy, you not only run the risk of being blocked but also fail to capture your firm’s true value.
So once you see a need for IP, where do you start? It starts with a simple question, what do you and your organization want to achieve? Without a guiding light, you can still create IP, for example, a novel device to automatically fold sandwiches, but in the end, does it bring any value to your firm? The creators of your IP need a clear understanding of what you are trying to achieve. Is it building valuations for a potential acquisition or IPO? Is it to penetrate new markets? Increase shareholder value? Each of these has different timelines and strategies for developing IP. “Large companies can afford to file patents on every idea they have. Small companies, we have to weigh our options, do the research. We have to decide where to place our bets. We can’t just cover everything we do.” (Lonnie Johnson) While most large companies can patent everything, it is still better to have a strategy and be selective. Having a large collection of weak and random patents does not increase your firm’s valuation.
The next question is what types of IP are suited for your firm? Patents are the gold standard when it comes to IP. Not only do they protect you from rivals but they can be sold or licensed enabling new revenue streams. But they are not guaranteed, difficult to write, and expose much of your internal thinking to the outside world. Trade secrets or provisional patents (patents that never moved to non-provisional status) can provide you protection but do not block new entrants thus are less valuable to resell or license. The bulk of my patents (over seventy) are focused on protection and have remained provisional, not visible to the outside world.
It is also important to understand that to get a patent or trade secret so will need to consider indirect routes. You may not be able to patent your core concept but paths to and from it may be patentable. Your initial idea could also be altered to a nearly unrecognizable form to be protected or to not run afoul of an existing patent. Flexibility and agility are key. And, often the novel course you may be forced to take will lead to more profitable areas because they are the less traveled ones.
Data is a powerful tool to increase IP for a potential acquisition or IPO as well as to provide clear market differentiation with competitors. It can serve two functions, directly enrich your product and increase valuation without having to reveal any hidden methods or technologies. Two of my most successful IP strategies for startups involved the creation and acquisition of novel data. One focused on highly enriched and linked open-source data, and the other involved creating new data using surveys. A much harder strategy in today’s data-aware environment is to retain some rights to your client’s data after a project is complete. The key to building an internal proprietary database that enhances your firm’s valuation is focusing on what delivers value to your customers. Running a successful series B or C fundraise can be driven by intelligently acquired and processed data.
Two counterintuitive examples of IP are open-source projects and academic papers. If you have an idea you do not want to be patented or cannot be patented, open-sourcing is a good way to protect you from anyone else patenting it in the future. An open-source project can be used by potential competitors but also by your clients, building trust and deepening partnerships. You can keep key components proprietary or integration methods a secret while having the core components open to everyone. This essentially crowdsources your development efforts but in an IPO or acquisition setting you can claim it as your IP. Accemdic paper likewise enables you protection from being blocked in the future, by having a concept in the public domain, and displays the power of your innovation team.
An often neglected form of IP is the expert knowledge of your firm’s employees. If this knowledge is purely in someone’s head it has no value but if you design a data architecture to capture and enrich this knowledge for future reuse, it can prove to be quite valuable. For example, in a prior post, I discussed how a simple feature, more cars than drivers, can in an insurance setting, indicate a hidden driver. Knowledge like this, if contained in a knowledgebase, is IP. While one such feature is not impressive, in sufficient quantities and quality, these tidbits of knowledge provide a wealth of IP for your firm.
Now you need to consider, who is going to execute your plan. Are you going to refocus and train internal resources or hire a new dedicated team to innovate? Both come with risks and rewards. A new team or individual can be disruptive in a new start-up, so chemistry is key. For a well-established firm, innovation teams can quickly become lost if not backed by senior executives. “Leadership is a two-way street, loyalty up and loyalty down. Respect for one’s superiors; care for one’s crew.” (Grace Hopper)
The size of an innovation team depends on the stage of your firm, the need for IP at this time, and other considerations. Small, even one-person, teams can be successful in the short term but as patents, proofs-of-concept (POC), data gathering, and other IP-related work pile up resources can become quickly overwhelmed. What is essential for any Innovation leader is an inclusive and collaborative culture so they can leverage outside resources when the need arises. And, for your team’s efforts to be tied to the product’s core use cases.
IP is about a firm protecting itself and giving fair credit for what it has achieved. Crafting an Intellectual Property Strategy and executing it requires open communication, active listening, and open minds. Also, experience is critical to transition your innovations to externally recognizable intellectual property.