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Evaluating IP: When Does It Make Sense?

Darshan Shah, President, Olixir Technologies

The tendency to automatically perceive a need for intellectual property (IP) protection is an easy one, the thinking being: “If I have a great new idea or technology, I should patent it.” Some assume IP is part of the entrepreneurial process, never really asking the right questions to determine if it’s the right path for them. And some may never think about IP at all.

I see a lot of entrepreneurs who have great ideas but no strategy, business plan, or even a simple analysis into what is required to generate sales and, ultimately, profit. Rather, a more logical approach is to evaluate an idea’s business feasibility, including market research, market needs and requirements, the competitive landscape, and a solid grasp of the revenue streams and costs involved (i.e., the business model). A strategic analysis should be completed that determines the segment(s) of the market that can be dominated by your business idea and where you can erect enough barriers to entry to keep competitors out for a long time. Once that process is complete, if it makes sense to have IP protection, pursue that course accordingly and knowingly.

At Olixir Technologies, which provides shock-protection technology for data storage, our understanding of whether to pursue IP protection came as the result of a dedicated strategic and business planning process, an exercise I recommend all entrepreneurs undertake. I recommend this not only as an overall sound business practice, but as the most important tool in evaluating the merits of IP protection for any given product or technology. The business strategies and eventual model we chose for our company – and the process we followed to get there – helped us understand where IP protection made sense for our company.

When we started Olixir Technologies in 2001, we were responding to trends we saw developing in the marketplace following 9/11. Since that day, there has been a growing focus worldwide on data recovery. Companies have begun thinking about what would happen to their businesses if any number of disasters were to occur. They began asking what they needed to do to protect one of their most important assets: data.

At the same time, we saw a technological trend starting to take shape. Hard disk drives were falling in price markedly faster than their tape drive counterparts (the traditional back-up used for years by large and small businesses alike). However, despite the ubiquity of the tape drive, it is known to be slow, inefficient, and very limited in capacity compared to hard drives.

Initially we saw Olixir Technologies as a system integrator, a company that would simply replace tape drives with disk drives. We knew the right type of drive would be something similar to the type that resides in a PC. But these drives were so fragile – they could hardly take a 2-inch drop without the risk of significant damage. So we were presented with both a problem and an opportunity to overcome the fragile nature of disk drives. We also realized that there were other potential handheld devices where added durability and reliability would have real value to an end user.

With this new proposition at hand, we re-engineered our strategy and business plan, moving from a system integration model to a core technology company, and began assembling engineering teams to go to work on the problem.

This market-driven shift in strategy both to become a leader in ruggedized storage and to leverage our technology drove the decision to tie our new technology to IP. Doing so was important for two key reasons. First, our company was now based on a patented technology that offered a revenue stream, not only based on storage product sales, but also on the greater potential from licensing the technology for other purposes. Second, IP protection is a way to protect the unique idea, which in this case, has business value. It’s important to think about how much you can defend the patent financially and whether your patent is broad enough that others can’t find a way around it.

It would have been much more difficult to develop the technology for licensing later, had we not gone through the strategy and business planning process. We could have just started building storage products. However, with that focus, we might have developed the technology too narrowly. Rather, by truly considering options on paper on how we could build a successful business, we reached a much broader mindset. Writing down your strategy and business plan, and validating it, will help you determine if IP makes sense. If it doesn’t make sense, don’t pursue it. Developing IP is not cheap, and one must budget for expenses throughout what can be a rather long process (it takes two to three years for patents to be issued). Consider whether you neeed to generate revenues in that timeframe to continue the business.

And if you’re small, you also need to decide where you’re going to spend your time and energy. On product development? On sales? It’s easy to jump ahead too fast. Be picky – IP on everything may not make sense. Determine where the real revenue is going to be generated. What business problem are you solving? Have a clear value proposition for the technology. Are you going to offer something that saves time, makes life easier, or saves money? IP should be focused on the areas most important to the long-term sustainability and growth of your business.

In our case, we knew there was a giant and growing market for data backup and portable handheld devices in a robust and rugged capability. Our value proposition offered lower cost to the end user through decreased downtime, significantly higher reliability in restoring data, and a solution to the ease-of-use problems associated with tape drives. We focused on the commercial market first to generate maximum revenue and profitability. We made marketing and sales priorities having equal weight to technology development and, as a result, were able to generate revenues quickly, giving our business a much higher probability for long-term success.

Lastly, one of the biggest keys to entrepreneurial success is having a support system in place to help you grow. Don’t assume you can do it alone. Consider the team you need. You may want to form an advisory board that includes those knowledgeable and experienced in the marketplace you are targeting. Such a team can assist you with strategy, planning, and ongoing review of progress to help ensure your greatest chances for success.

© 2006 Ewing Marion Kauffman Foundation. All rights reserved.

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