Author: Simon Rowell

Product Development Issues

The next stage in commercialisation after ideation is the development of the product from the idea to the market stage. Product development is the process that takes that idea through a series of stages until the concept emerges at the end of the process as a completed product ready for the market.

At the development stage of the product life cycle, you must ensure that the idea will meet your potential customers’ expectations as well as design, resource and manufacturing requirements.  While planning for all the potential outcomes and risks in advance is essential, the process should be iterative – testing ideas, designs and such like against prospective customers, challenging your own assumptions about the product, how it might be used, what is important, and such like.   The main focus should be on working with a team of designers, manufacturers or product development experts in concert with a key group of prospective customers as a constant sounding board, to produce prototypes, test prototyped product, and source and price materials. New 3-D printing technology can provide for a cost effective way to rapidly prototype different versions of your product.

There are many different intellectual property issues which might be considered or created during the process of development which includes patents, trade marks, copyright and trade secrets.

One IP-related concern which should be kept top of mind in product development is the importance of confidentiality.  It is best to avoid public disclosure of new ideas until final decisions around patenting and other IP issues have been made, so as to not negatively impact the patentability or trade secret status of the new product or process.  International patent laws for example, in varying degrees from country to country, prohibit the valid patenting of inventions which have been disclosed to the public in advance of patent filing.   As well as the need for appropriately timed confidentiality around projects in the earlier development stages, if IP protection for a particular project relies in whole or in part on trade secret protection, it will be necessary to document and maintain long term confidentiality around the ideas or information in question.

It is highly recommended to consider using non-disclosure agreements to cover external product testing and other third party involvement in product development projects, to minimize the triggering of public disclosure timeframes and otherwise minimise the risk of third party misappropriation of your IP.

Most inventors or developers lack the full set of skills or resources that are required to do 100% of the product development work themselves, so they must engage third parties.  It is critical to be careful to use written contracts that explicitly deal with the issue of IP ownership to avoid unexpected consequences – the last thing a new venture needs is a question over the rightful ownership of the underlying IP.  In cases where a number of research partners are required to bring a product or technology to fruition, a joint development agreement should be drafted which clearly defines the relative contributions of all the parties involved, as well as where the resulting new intellectual property will be held.

Decisions will need to be made around whether to seek to intellectual property protection for one or more aspects of the new product, and when exactly that protection should be sought.  Filing a patent application sets in motion a timeline which is critical with few options for extension.  At the end of the timeline are some significant costs if you seek international patent protection, so it is important to match these costs with expected revenue or investment rounds in your budget timeline, to ensure smooth coordination of IP strategy with market entry.

Navigator Partner Simon Rowell has over 17 years of experience as a lawyer and patent attorney and established the Innovation Liberation Front to help protect entrepreneurial business to protect and commercialise innovation.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Government Support for Start Up Sector

Australia in its latest budget axed several start-up funds and among the victims of the budget reform are the Innovation Investment Fund (IIF) and Commercialisation Australia (a $213 million grants program for start-ups), two important pillars of a support system for Australian technology and innovation.

IIF was established to seed venture capital firms and innovative Australian companies. SEEK, one of Australia’s most successful companies was an early beneficiary of the program.

Likewise, Commercialisation Australia – a government initiative offering funding and resources to businesses, researchers, and inventors looking to commercialise innovative intellectual property – will also be killed. Commercialisation Australia has so far supported over 500 companies with grants in excess of $200 million. These changes are of particular concern to SMEs and development-stage companies that access and rely on these funds.

So what do these changes mean? Well, at a time when it appears Australia’s mining boom may not always jack up its economy, reduced access to Government start-up funding risks losing big thinking start-ups that may well go on to become larger industry players supporting local employment, research and development, and economic benefits.  This is particularly so when access to venture capital funding in Australia is also more difficult than in other larger markets, such as the US.

Commercialisation Australia and the Innovation Investment Fund have been at the receiving end of a lot of criticism. For example, two of the three groups that received government support through the Innovation Investment Fund in the last funding round failed to match it with ­private funds. The solution is not to abandon these initiatives but rather work to improve them.

The New Zealand government has identified innovation as a key to economic growth and is trying to bring in policies to support innovation.  The government established and funded Callaghan Innovation and now it’s reaping the benefits as Callaghan Innovation continues to provide New Zealand’s start-up economy with research and development grants to local technology businesses. R&D spending is up 18.9% over the past two years and New Zealand’s high-tech manufacturing companies are spending on average 8% of revenues on R&D. It is expected that ICT sector in New Zealand will be the biggest contributor to the country’s GDP by 2020.

The NZ government also announced two new tax measures in its 2014 budget to help drive start-up research and development. While the Australian government in its latest federal budget has reduced the R&D tax incentives at the same time the New Zealand government has provided businesses with a $60 million tax break on research and development spending over the next four years.

The New Zealand government provides a number of initiatives for new start-ups.  There are a number of different programmes and schemes available, ranging from business start-ups and growth grants to support for charities, researchers, scholarships and much more.  So companies can get to their next milestone without getting watered down by too many angel investment rounds early on. Some of these initiatives are:-

  • R&D Growth Grants – aimed at businesses experienced in research and development in New Zealand, to support an increase in investment.
  • R&D Project Grants – designed to support businesses with smaller research and development programmes and those new to R&D.
  • R&D Student Grants – to support undergraduate and graduate students to work in a commercial research and development environment, bringing greater capability into New Zealand businesses.
  • NZTE Capability Development Vouchers – NZTE Capability Development Vouchers are available to businesses to use as partial payment towards the cost of capability development and training.
  • Financial guarantee products for exporters – The Export Credit Office (NZECO) sells a range of New Zealand government backed trade credit insurances and financial guarantees that mitigate credit risk, and can assist exporters or their international buyers’ access to credit.
  • Incubators – The NZ government through the Incubator Support Programme helps boost growth and success of New Zealand start-up businesses through a range of services and funding.

There will always be debate over how much and the ways in which support should be given to start-ups by central government.  What is reassuring is that government has identified innovation and the creation of new businesses as a key economic driver and has taken action to bolster the sector.

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China trademark law changes

The bilateral relationship between New Zealand and China has grown to become one of New Zealand’s most valuable and important. As a global and regional power, New Zealand’s second-largest trading partner, China is important to New Zealand as a bilateral, regional and multilateral partner.

The New Zealand–China Free Trade Agreement is a bilateral free trade agreement signed between the People’s Republic of China and New Zealand in April 2008. It is the first free trade agreement that China has signed with any developed country, and New Zealand’s largest trade deal since the 1983 Closer Economic Relations agreement with Australia. The New Zealand-China FTA was signed on 7 April 2008 in Bejiing, and entered into force on 1 October 2008, after ratification by the New Zealand Parliament. The provisions of the agreement are expected to be phased in gradually over 12 years, fully coming into force in 2019.

Over time the FTA will result in elimination of tariffs on 96% of New Zealand exports to China, and is projected to lift New Zealand’s export revenue from trade with China by between NZ$225-$350 million per year. Overall China is one of the biggest markets for New Zealand business with many planning to eventually enter the Chinese market.

One of the mistakes that many NZ businesses commit when entering the Chinese market is failing to register their trade marks adequately there before they enter the market, resulting in loss of brand value and brand recognition, or worse, they are prevented from using their own brand in that market.   Brand owners should consider registering the plain word version of the their mark, plus the Chinese translation/transliteration of that mark in Chinese characters, as well as any logo that they will use in China.

Here’s a look at recent changes in the Chinese trademark law in an effort to bring it more in line  with international laws.

On August 30, 2013, the Standing Committee of the People’s Congress passed the draft text of the third revision to China’s Trademark Law, which enters into force on May 1, 2014. The amendments are considered to be the most significant ones since the first promulgation of the Chinese Trademark Law in 1982.

The new Trademark Law endeavours to align the Chinese system with those in foreign countries by introducing multi-class applications (Article 22) and allowing for registrability of sound marks (Article 8). The multi-class system should ease the administrative burden in trademark portfolio management and bring down the costs of registering and renewing trademarks.

Bad-faith applications (e.g. a potential distributor registering the brand of the manufacturer) are rampant in China and are a major concern for foreign brand owners. The new Trademark Law introduces a number of provisions that strengthen the trademark regime against such applications. One of the articles stipulates that the registration and use of trademarks should follow the principles of honesty and trustworthiness. This general principle originates from the General Provisions of the Chinese Civil Law and is a ‘catch-all’ provision governing trademark applications and use. However, this principle is not stipulated as one of the grounds for opposition (Article 33) or invalidation (Article 45), and so we wonder how it will be applied in practice.

Another interesting new provision is Article 15(2), which prohibits the registration of a third party’s unregistered mark that has previously been used for identical or similar goods if there is evidence showing that the applicant has clear knowledge of that third party’s mark through contractual, business or other relationships.

The time that it takes to complete a trademark application or other proceedings such as opposition proceedings is notoriously long in China. The new Trademark Law sets out specific time limits for the Chinese Trademark Office (CTMO) and the Trademark Review and Adjudication Board (TRAB) to examine cases. The examination of a trademark application must be completed within nine months and no extension is allowed. For reviews of refusals, invalidation on absolute grounds, cancellation and reviews on cancellation, the time limit is nine months, with a possible extension of a further three months. For oppositions, reviews on opposition and invalidation on relative grounds, the time limit is 12 months, with a possible extension of a further six months. This is a vast improvement on the current practice; the only question is whether the quality of decisions will be compromised by such quantitative performance targets.

The new Trademark Law goes a long way to improving the situation for foreign brand owners seeking protection in China.  However, the new law also introduces changes that might not work to the benefit of brand owners. For example, under Article 35(2), if the CTMO rejects an opposition, the mark will proceed to registration. The opponent may then file an application with TRAB to invalidate the registered mark. The opponent can no longer file a review of the CTMO decision with TRAB to prevent registration of the opposed mark. This could cause great difficulty for brand owners who are unsuccessful in opposing a bad-faith application, because they then run the risk of trademark infringement if they use their own marks in China. Furthermore, under the new Trademark Law, a plaintiff unable to show use of its mark in an infringement action may not be awarded any compensation (Article 64)..

We set out below a summary of these and other key changes to the new Law.

  •  Sound marks and multiple class trademark applications made available
  • The new law clarifies that conflicts between registered trademarks or unregistered well-known trademarks and trade names, i.e. company and business names, should be handled under the Unfair Competition Law, not the Trade Mark Law.
  • Increased fines, compensation, and statutory damages against infringement.  Assessed damages can be multiplied up to three times where the infringer acted in bad faith or the circumstances are serious. No further details are given as to what “bad faith” or “serious” means in this context.
  • Oppositions: Only the owner of a prior right or an interested party can bring an opposition on relative grounds or for misleading use of a geographical indication, but anyone can bring an opposition on absolute grounds.
  • Bad faith applications: New provisions have been added to prevent registrations of trademarks applied for in bad faith.
  • Well-known trade marks (WKTMs): Protection for WKTMs will only be provided on a case-by-case basis, and only when necessary to determine the case, e.g. when there is a claim of infringement involving dissimilar goods or services.
  • Shortened trademark prosecution times.

Any business that sells or is considering selling into China should consider the following actions:

  • Conduct a trade mark search in China to check that no one has applied to register your mark there, remembering to search for the Chinese character version of the mark too.
  • File trade mark applications in China covering the word mark, the Chinese characters for the word mark as a minimum, and the  particular logo used in China if funds permit.
  • Utilise the Chinese characters that represent the mark on invoices and other commercial documentation bound for China so that you can establish use of the Chinese character mark in commerce in China, if your registration is ever attacked for non-use.

Image courtesy of Feelart / FreeDigitalPhotos.net

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The Importance of Business Planning for New Ideas

Some would argue that creating a business plan at the stage where you have just conceived your idea for a new product is premature.  So much is unknown at this early stage.  However, I would argue that even at this early stage creating a business plan is essential, to ensure you do not waste limited resources developing or protecting an idea having no commercial merit.  A good idea does not make a good business.

A business plan covers what you intend to do with your business and how it will be done. The process of writing down what is involved in bringing your idea to reality requires dealing with the why, what, who, how, where, when, and how much of your venture. Writing a business plan forces you to take a deep look at your idea and how you will turn it into a business. Doing so helps you recognize areas that need rethinking or support.

A good business plan follows generally accepted guidelines for both form and content. There are three primary parts to a business plan:

  • The first is the business concept, where issues like industry, business structure, particular technology, product or service, and different strategies to make the business a success are discussed.
  • The second is the marketplace section, which describes and analyzes potential customers – who and where they are, what makes them buy and so on. Here competition and product positioning are also described.
  • Finally, the financial section contains the income and cash flow statement, balance sheet and other financial ratios, such as break-even analyses.

A good business plan provides a host of benefits, not least of which is convincing the inventor organisation that the idea is worth developing and then helping to procure funding from potential investors. It provides an organised outlook to the business proposition which increases the chance of obtaining venture capital and bank loans. It also helps identify and mitigate potential problems as it should address all areas of risk in starting and running  the business.

As information is researched about the different aspects of the business plan, one may learn that suppositions initially made about development costs and timelines, marketing budgets, cost of materials, licensing and permitting, labour costs, real estate or leases and other critical business aspects are incorrect. Learning this before sinking time into further development is a no-brainer.

A business plan should also provide a strategic intellectual property plan. The IP component of the business plan assists in a number of distinct ways.  It should set out the various ways in which the competitive advantages described in the business plan might be sustained long term using IP as a barrier to entry.  It should also address one of the key risks in any new business venture, which is whether the business has “freedom to operate” – that is, can it execute the plan without infringing third party rights?  For a start-up company seeking early funding, showing potential investors that you have at least thought of these issues may be the difference between ending up in the “investigate further” pile rather than the “no” pile on the first review.  The plan should specify key IP deliverables and propose a schedule for their completion. In this regard, the business plan provides an objective standard by which the activities of the business may be judged. It may also facilitate budgeting by identifying projected costs.

An effective strategic intellectual property plan will therefore prompt the development, acquisition, maintenance, and exploitation of intellectual property assets. Each piece of intellectual property should be viewed as something that furthers company goals and confers value to its owner.

Without understanding how any new idea translates into a viable scalable business, investing in further research and development, or in IP protection, may be premature.

Image courtesy of patpitchaya / FreeDigitalPhotos.net

Intellectual Property and a Russian Free Trade Agreement

Emerging trade relations give rise to various concerns the not least of which is the differences in legal systems between trading partners.  In particular, the regimes for intellectual property protection can significantly differ across different countries. With New Zealand reportedly poised to sign a Free Trade Agreement with Russia in 2014 we need to take a closer look into Russian intellectual property law to understand what opportunities or traps it may hold for New Zealand businesses.

Russia’s intellectual property legislation was largely formed in the early nineties. In September 1992 the Federal Law On Trade Marks, Service Marks and Names of Places of Origin of Goods; the Patent Law; and the Law on Legal Protection of Computer Software and Databases; the Law on Legal Protection of Topologies of Integrated Microcircuits were passed. This was followed by adoption of the Law on Author’s and Adjacent Rights in July 1993. These fundamental IP regulations are the basis for recognition and protection of IP in Russia.

The Russian Federation is deemed a signatory to a number of international treaties and conventions that deal with intellectual property rights. These include the Paris Convention on Industrial Property, the Nice Agreement on Classification of Goods, the Budapest Treaty on Micro-organisms and the Patent Co-operation Treaty (Washington), the Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms (Geneva), and the Madrid Agreement on the International Registration of Trade Marks. In 1997 Russia adhered to the Protocol Relating to the Madrid Agreement on the International Registration of Trade Marks.

Intellectual Property Rights is high on the agenda for trading with Russia for many countries. There are high levels of piracy and the sale and use of counterfeit goods are widespread. Overall IPR laws are not as strict as in the European Union, and work is still underway to align Russian Patent and trademark laws more closely with WIPO and TRIPS standards. In this respect Russia established in March 2013 specialised courts for dealing with cases involving IPR.

When considering business in Russia, the protection of IPR should be high on the list of concerns. Ensuring IP ownership in Russian collaborations, conducting freedom to operate searching to avoid potential infringement issues, and protecting key brands against piracy must be addressed to avoid expensive and potentially damaging consequences.

First and foremost, it is necessary to ensure that the company’s means of identification (in particular, its trademarks) are protected against misuse by third parties and potential infringement. In this regard, it should be noted that, in the Russian Federation, protection is only afforded to trademarks that have been registered with the Federal Service for Intellectual Property, Patents and Trademarks (Rospatent) or registered in accordance with Russian international agreements. If a trademark is not registered in Russia and is also not entered in the international register of the International Bureau of the World Intellectual Property Organization (WIPO) with trademark protection extended to Russia, the trademark will not be protected. In this case, the risk arises that any third party may register an identical trademark in Russia and potentially block your product being exported there. For this reason, prior to entering the Russian market, it is necessary to register the trademark with Rospatent or to submit an application to expand the geographical scope of protection of a trademark entered in the international register to include Russia. It is also advisable to check whether the trademark is duly registered with respect to all of the goods and services that are manufactured and/or rendered by the company. Furthermore, given that the Cyrillic alphabet is used in the Russian Federation, for the effective protection of a company’s means of identification, it is also recommended to additionally register a Cyrillic version of the trademark.

Inventions, utility models and designs are also recognized and protected within the Russian Federation if they have been registered with Rospatent or are valid based on international agreements of the Russian Federation. It is recommended for companies who may export to Russia to check whether any pending PCT patent applications can be extended into Russia.

Finally, the company must not forget about the information comprising its trade secrets. This information should be covered by a trade secret regime as contemplated in the law on trade secrets, with all necessary steps being taken in order to ensure the confidentiality of the information. Otherwise, such trade secrets will not be protected in Russia.  Precautions should be taken with potential Russian partners, such as confidentiality agreements and practical secrecy measures, including physical security, visitor log books, restricted access areas, and such like.

When entering a new market, there are so many steps to be taken and so many financial and legal issues to be weighed that intellectual property is very often an afterthought. At the same time, mistakes made in intellectual property management and protection can be very costly, and it is advisable to consider intellectual property rights in advance of entering the Russian market.

Image courtesy of Paul Martin Eldridge / FreeDigitalPhotos.net

 

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You are never too small and it’s never too early to protect your IP

It frustrates me when I hear business owners say “we are too small to worry about IP”.  When you are small you are at your most vulnerable.  When your brand is very new, you may not have established sufficient reputation to defend it by suing others for passing off or breach of the Fair Trading Act, which will require you to prove your goodwill in the geographic area in which the infringer has started operating.  If you take the simple and inexpensive option of registering your brand as a trade mark, you do not have to prove goodwill.  You can prevent anyone anywhere in New Zealand from using the same or a similar trade mark in relation to the same or similar goods or services.  Imagine starting a new lawn mowing business in Auckland that you hope to franchise, but finding when you go to set up your first franchise territory two years later in Wellington that someone had started a competing business there under a very similar name about six months after you started in Auckland.  Unless you can prove you had a significant reputation amongst a section of the public in Wellington more than 18 months ago, your franchise plans will be ruined.

It also annoys me when people say “it’s not worth protecting IP if you cannot afford to enforce it”.  Ninety percent of IP disputes never get anywhere near a court, and are resolved relatively quickly and without great expense.  Usually a cease and desist letter pointing out the infringer’s faux pas will catch the infringer like a possum caught in headlights.  Without the formal IP protection, the dispute would be far more difficult and costly to resolve.

Unfortunately, many New Zealand entrepreneurs also make the mistake of waiting until their innovation has proved itself commercially before they seek patent or design protection.  A fundamental requirement in most countries for obtaining a valid patent or design is that the innovation is novel, which means not known, used or published prior to the date you file the patent or design application.  So business owners that offer their amazing new product for sale before they seek protection for it will shoot themselves in the foot.  There are some limited grace periods of up to a year in countries like the United States, Canada and Australia, however in many important markets (including Europe), you will have very little chance of securing protection.

So, make sure you see your patent attorney before you put your product on a website or offer it for sale or even talk to potential customers.

Can’t afford IP protection?  Can you afford not to have it?

IP isn’t as expensive as many people believe.  It is also possible to delay some of the more expensive international filing costs for many months.  In the case of patents you can delay up to 30 months or more using the Patent Co-operation Treaty system.

Let’s use protecting a new invention as an example.  I would first file a provisional patent application in New Zealand.  This will cost me around $5,000, maybe less.  That provisional application buys me 12 months before I have to consider completing the New Zealand application, and file corresponding applications into international countries.  Immediately prior to the 12 month deadline, I would complete the New Zealand application and file a Patent Co-operation Treaty application (PCT application), which effectively covers in a single patent application about 180 countries for around $12,000 – $15,000.  The PCT application buys me another 18 months, before I have to file individual complete applications in each international country of interest, and I can at that time elect to file into only one or all 180+ countries.  As soon as I have filed my New Zealand application, I have the deterrent and marketing effect of being able to say “patent pending”, no one can see my patent application until it is actually published around 18 months after filing, and I now have an asset that I can talk to potential licensees about.  So for under $20,000 I have created a new asset that may well form the foundation for an ongoing revenue stream to my business.

Of course, unless I actually go ahead and complete the PCT application in a particular country, there will be no rights in that country.  Completing the application in each country is where costs can increase quickly.  However, before the 30 month mark you should have a very good indication of whether this new product will be successful, and you should able to raise the capital required to complete your patent application in the appropriate countries.

Without the patent application, and the granted patents that will ultimately result from it, my new invention would likely be copied extremely quickly and I wouldn’t have any chance of stopping it.  Even if the pending patents deter or delay one competitor, then I would say they have paid for themselves.  If someone does infringe the patent, then you at least know you have someone very interested in using the invention – and a probable candidate to become a licensee of your technology.

IP doesn’t always have to be about stopping someone from using your technology – in fact, it can often make far more sense to let others use your IP in return for a royalty under a licensing agreement.

Image courtesy of Gualberto107 / FreeDigitalPhotos.net

 

Applying lean start up principles to corporate innovation

“Lean Startup” is a method for developing businesses and products which was first proposed in 2011 by Eric Ries. The Lean Startup takes its name from the lean manufacturing revolution that Taiichi Ohno and Shigeo Shingo are credited with developing at Toyota. “Lean start-up” favours experimentation, over-elaborate planning, customer feedback over intuition, and iterative design over traditional “big design up front” development.

Ries claims that startups can shorten their product development cycles by adopting a combination of business-model hypothesis-driven experimentation, iterative product releases, and validated learning. Ries’ overall claim is that if startups invest their time into iteratively building products or services to meet the needs of early customers, they can reduce the market risks and sidestep the need for large amounts of initial project funding and expensive product launches and failures.

The same principles can be applied within large established corporations to speed up and better target their new product development processes.

The Lean Startup Method

In his book Eric Ries gives the five basic principles of the Lean Startup as:-

  1. Entrepreneurs are everywhere. You don’t have to work in a garage to be in a startup.
  2. Entrepreneurship is management. A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty.
  3. Validated learning. Startups exist not just to make stuff, make money, or even serve customers.

They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.

  1. Build-Measure-Learn. The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.
  2. Innovation accounting. To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startups—and the people who hold them accountable.

He has divided and explained these principles under the topics of “Vision”, “Steer” and “Accelerate”.

“Vision” makes the case for a new discipline of entrepreneurial management. Ries identifies who is an entrepreneur, defines a startup, and articulates a new way for startups to gauge if they are making progress, called validated learning. To achieve that learning, startups—in a garage or inside an enterprise—can use scientific experimentation to discover how to build a sustainable business. Similarly rather than investing time in planning and research culiminating in an intricate business plan, entrepreneurs accept summarizing their hypothesis in a framework called a business model canvas. This simply describes how a company creates value for itself and its customers.

“Steer” dives into the Lean Startup method in detail, showing one major turn through the core Build-Measure-Learn feedback loop. Beginning with leap-of-faith assumptions that cry out for rigorous testing, to learning how to build a minimum viable product to test those assumptions, a new accounting system for evaluating whether you’re making progress, and a method for deciding whether to pivot (changing course with one foot anchored to the ground) or persevere. Basically he says that lean start-ups use a “get out of the building” approach called customer development to test their hypotheses. They go out and ask potential users, purchasers, and partners for feedback on all elements of the business model, including product features, pricing, distribution channels, and affordable customer acquisition strategies. The emphasis is on nimbleness and speed: new ventures rapidly assemble minimum viable products and immediately elicit customer feedback. Then, using customers’ input to revise their assumptions, they start the cycle over again, testing redesigned offerings and making further small adjustments (iterations) or more substantive ones (pivots) to ideas that aren’t working.  This is perhaps one of the hardest mindset shifts for established corporations seeking to adopt a lean approach to innovation.

In “Accelerate,” techniques that enable Lean Startups to speed through the Build-Measure-Learn feedback loop as quickly as possible, even as they scale, are explored. Ries also discusses organizational design, how products grow, and how to apply Lean Startup principles beyond the proverbial garage, even inside the world’s largest companies. Here lean start-ups practice something called agile development, which originated in the software industry. Agile development works hand-in-hand with customer development. Unlike typical year-long product development cycles that presuppose knowledge of customers’ problems and product needs, agile development eliminates wasted time and resources by developing the product iteratively and incrementally. Through this process start-ups can create the minimum viable products as tested.  Corporations need to learn to operate on “good enough” data, rather than completed data, and to expect and accept failures as healthy parts of the innovation process that provide opportunities to iterate on the original idea, or to pivot away from it.  It may also be necessary for the corporation to adopt different measures than the traditional financial measures visible in profit and loss statements and balance sheets – including cost of customer acquisition, customer lifetime value, churn and viralness – to truly value the impact of their innovations on the organisation.

Image courtesy of Zirconicusso / FreeDigitalPhotos.net

 

Innovation in culture and the importance of Intangible Asset Management

Businesses that claim innovation as one of their corporate values need to look closely at whether they are paying only lip service, or whether innovation is truly ingrained in their organisational culture.

At the heart of building an innovation culture is the organisations approach to intangible asset management (IAM). Intangible assets include more than just intellectual property such as patents, trade secrets, designs, copyright and trade marks; in addition there are things such as goodwill, know how, human capital and brand recognition.

Businesses holding themselves out as innovators should have a well defined IAM process, addressing identification of intangible assets, capture and cataloguing of intangible assets, regular review and management of the intangible asset portfolio, extracting value from intangible assets and systems for recognising and reporting to the Board of Directors the value created by these IAM processes.

Comparing the market capitalisation of listed companies to the book value of their physical assets shows intangibles account for anywhere between 60% and 80% of total value. If actively managing intangible assets is not a priority for the Board of Directors, that’s a fundamental problem.

Great companies will treat intangible asset management and intellectual property protection as a strategic issue requiring proactive management at the highest levels.

Suzanne Harrison and Julie Davis in their book Edison in the Boardroom (http://suzannesharrison.com/writing/edison-in-the-boardroom-2001/) categorise companies’ approaches to IAM according to five levels in a value hierarchy.

Level one companies view IP as a defensive legal asset, used to shield their patch from competitors, and leave management of IP to legal counsel.

Level two companies concern themselves most about managing escalating costs of establishing and maintaining IP portfolios. IP is still regarded as a legal asset, most likely managed by an in-house lawyer or financial controller.

Level three companies view IAM as a profit centre, a major attitude change where IP is viewed as a business asset, not a legal asset. IP is seen as potentially contributing significant growth through proactive strategies like licensing. Usually companies at this level have a dedicated IP function.

Level four companies integrate the IP function throughout all departmental processes. Rather than being a standalone function, IAM is fully integrated in much the same way that quality control is integrated into a manufacturing organisation.

Level five companies operate in a visionary manner, embedding IAM into their cultural fabric. The few companies that operate at this level anticipate technological revolution.

At what level does your organisation currently operate?

Most New Zealand companies operate at level one or two, with little prospect of attaining higher levels due to a lack of understanding of intellectual property as a business asset amongst corporate leaders. If “innovation” is listed as a key corporate value in your organisation, but there is little in the way of IAM processes, or intellectual property is managed in a silo distinct from other functional departments, then you revisit your list of values, or start taking action to move up Harrison and Davis’ IAM value hierarchy.

 

Image courtesy of Chaloemphan / FreeDigitalPhotos.net