IP nightmares and how to avoid them
Article Date: Apr 01 2004
Earning money while doing nothing. That surely is what every entrepreneur aspires to. And you can achieve this in a business that’s scaleable and where others can carry out the processes. But you must look after your IP.
Let me tell you a story that I heard at a board meeting recently. A global software supplier had agreed to buy a very sound specialist software business for §110 million. The founders had made it! They were going to get the reward for all their enterprise and hard work over the previous ten years. But during due diligence it came out that another software company was suing the business, claiming that its product had used some of their intellectual property. The price was immediately reduced by…§80million, yes by §80million, not to §80million! All that work gone to waste!
Neglect can kill your business
The anecdote underlines how critical it is to have any traditional intellectual property (IP) that your business relies on defined and protected. If you haven’t taken the right legal steps, it can easily become subject to dispute from others – and intellectual property disputes are expensive, can take forever and may even kill your business.
The whole Sarbanes Oxley compliance octopus that is now gripping corporate America means that the large businesses that you hope may eventually be interested in buying your company will take no risks on you if there is any question of disputed intellectual property.
Earning money on the golf course
But my view is that it’s by paying attention to the more mundane intellectual property that you are gaining as you build your business, that you’ll ultimately be able to get the business to keep you, rather than vice versa.
Why did I start my own business? My reasoning in taking this risk rather than becoming a lawyer, as many of my friends did, was this – law is essentially piece work, and you’ve only got so many hours you can bill, even if the rates are sky high. My friends who are now partners have all done very well, and still make great revenues each year. But they all still work like dogs, and will never make real money.
I prefer the feeling of owning a business that is still making money for me when I’m on the golf course and has a chance to deliver a good capital gain to boot. This works because the business output that generates the revenue is repeatable, scaleable, and once the processes are defined, others can carry them out for you.
Look deep to find your IP
In real life, this ideal appears unattainable to maybe 80 per cent of business owners one meets. In fact many of them are working harder than the lawyers! So what actually needs to be done, and why do so few achieve it?
The task itself is not complex, but it is quite hard. You need to establish what the processes are, or should be, to operate each component of the business, and you need to be able to identify when these change or need to change. Some may be automated and some not, and having the right computer systems may be a big help, although it’s important to remember that it’s the people that run the business, not the computers.
The truth of the matter is that your people know these processes, otherwise the business would not be running. The trouble is that this knowledge (your IP, the secret of how your business works) is all in their heads and yours – it has evolved naturally over time and hundreds of ad hoc decisions are made instinctively on the run about how and why things should be done.
Getting the information accessible to all
You have to get this information out, documented, probably reviewed (you’d be amazed how many silly and unnecessary tasks have built themselves into your business), and finally made accessible, so that anyone with the basic skill-sets to do a job can walk in and start to be effective with very simple induction and training. Once you achieve this, your business has reached a major milestone. It‘s no longer fatally hurt by sudden leavers, or reliant on a few “brilliant” self-starting employees who hold the place together. You can actually fish in the general employment pool and get great results from normal, unexceptional people. They become exceptional because you have provided the intellectual property and working framework in which they can operate and shine. This is cheaper and safer.
So why is it so rare, particularly in businesses that have grown quickly over the last ten years? I think it is a grindingly detailed, long and boring task, and so is counter-cultural to most entrepreneurs.
You’re not the right person to do this
If this is true of you, and you believe in what I’m saying, I think the answer is commit to it, plan for it, but get someone else to do it for you. It’s a different type of person. As you go down this road, that “boring” project may become grippingly interesting as you get to really understand how your business operates and you are involved in creating your very own Swiss watch.
Modern technology is a great aid on this topic, but most importantly in delivering the accessibility mentioned at the start. A key goal is that the same issue or question need never be solved more than once, as it is automatically incorporated into the corporate memory bank, and any staff member who needs to can get at it.
Starting small
The other main piece of advice I have is, don’t get overwhelmed by the scale of the project. Pick an area and start small. As you get your company documentation done, get it on your network, and start a page in all departments with frequently asked questions. Start with ten, then new questions can be posted and the answers provided by the manager, or other staff.
From time to time, review and optimise the answers. This is a most important part of the exercise otherwise your business becomes too rigid and bureaucratic – the opposite of what you want to achieve.
I think the best proponents of this type of culture today are the big international consulting firms, whose asset is “knowledge”. They hire bright, but inexperienced, young people who, properly supervised, can go a long way when plugged into the corporate knowledge bank. We can learn a trick or two from them!
Peter Williams has raised over £13 million of venture capital for companies in which he has been involved. The first company he founded was listed in the Independent on Sunday 100 as the fastest growing UK private company over the previous five years. He sold the business to Reuters. Peter is now an investor and director of privately-funded, VC-backed and quoted companies and runs a mentoring service for CEOs.
