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Address Your Limitations and Reduce Your Liabilities

FastTrac, Kauffman Foundation

In addition to protecting your intellectual property, you need to periodically review another way of protecting your business—analyzing the ability of your company to produce products, deliver services, and create new products and services.

Limitations

Are the limitations in your existing products or services fixable? Do you have the current expertise or staff time to alleviate the problems? What limitations might you find in new products? Do you have the resources to make refinements? How does your business strategy help you take appropriate actions to combat these limitations? Where will the additional staff and expertise come from? How will they be persuaded to join your business? What impact on the financial plan will occur because of additional payroll, costs of new or remodeled production facilities, more raw materials or inventory, or the need for additional cash to carry the business expenses in a growth or retooling phase? All of these factors are related. None stand alone. It is not enough to project new products or services; all aspects of your business will be affected by their delivery and must be realistically calculated and planned.

Imagine being the product manager for St. Joseph’s® Children’s Aspirin when the first studies came out suggesting that aspirin could be dangerous for children and teenagers because it can cause Reye’s Syndrome. Although this type of limitation may be difficult to anticipate, you can increase your chances if you try to brainstorm potential limitations and solutions. Even though the product immediately lost its main market after the medical reports surfaced, in 2000 McNeil Pharmaceutical bought the brand and is now repositioning the aspirin for adults to prevent heart attacks.

Liabilities

Successful entrepreneurs think about liabilities, so that they can overcome them or limit their effect. With the help of trusted advisers, consider potential liabilities inherent in your new or existing products or services and develop strategies to address them. In some situations, liability can be limited by the way you design, produce, package, label, and provide instructions concerning your product or service. You will also want to consider insurance or other forms of risk sharing to minimize the impact on your business should liability be assessed. You may be liable for:

  • Negligent product design or packaging.
  • Inadequate product or service testing.
  • Failure of the product to be safely used for the purpose it is intended.
  • Failure to adequately warn against misuse.
  • Environmental damage.
  • Safety violations.

Liability is not limited to product-centered companies. Any company—service provider, manufacturer, wholesaler, distributor, or retailer—can be liable for injuries or damages to others from the use or misuse of a product. Service companies are also at risk if the services involve any exercise of professional judgment, such as medicine or law. Other services share in liability risk as well, such as fulfillment businesses and suppliers through which failure or inadequate performance can cause severe economic damage to your customer. Carefully evaluate every product or service in terms of its potential liabilities.

Equally as important as identifying a potential liability is outlining plans to protect your business and personal assets against a potential lawsuit. The choice of legal structure is the primary protection of your personal assets. Business assets may be at risk as a result of injuries or damages caused by the business.

Insurance and risk assessment and avoidance analysis can shield your business from catastrophic losses. Trade associations are a good source of liability exposure and protection information. Often, such associations collectively bargain for and obtain group rates for insurance not otherwise available. Consult an experienced attorney and fully understand the warranties both expressed and implied in product or service liability. You should have, at a minimum, a general business liability policy. A good independent insurance agent or risk consultant can help you define your particular needs.

© 2007 Ewing Marion Kauffman Foundation. All rights reserved.

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