The Way I See It… by Michael C. Volker
It’s easy
for Tech companies to neglect their IP assets
Most
technology companies get started because their founders have a vision based on
some intellectual property (IP) that gives them a market advantage. It is on
this IP foundation that they develop the products that, in turn, generate
revenues from customers and profits for stakeholders.
If the IP
meets the criteria for patenting, a company can enjoy a monopoly until a
competitor comes up with a superior solution or until the patent runs out. For
most companies, though, patenting may not be viable. For example, the
costs/benefits may make patenting infeasible, the degree of protection may be
questionable or the IP may simply not meet patent qualifications. In these
cases, the advantage of being in the market first or having IP that can be kept
proprietary by keeping it a trade secret, gives a firm its competitive
advantage.
I’ve seen
countless examples of companies that start off with a technological advantage,
i.e. some hot IP that pays off in terms of corporate growth and
prosperity. While reveling in corporate
profits, they may forget what got them there in the first place: their IP. In
time, their IP will no longer be hot. Others will encroach on their turf. What
will they do for an encore?
Early stage
technology companies have a revenue picture that closely resembles that of a
typical product life cycle. Indeed, the company and its product are, at least
in the early days, synonymous. In the same way that a product life cycle curve
tapers off, a company’s revenues will decline. The only way to avoid this is to
ensure that there are always new developments in the pipeline so that new
products are brought to market before current ones enter their decline stages.
While this may
appear obvious, many young, growing companies fail to practice it. They
continue to make incremental improvements and cost reductions but are they
looking ahead towards entirely new technologies? And, even if they wished to,
how would they do so?
The answer to
this lies in their origins – i.e. how they got started. Were they a university
or corporate spin-off or the result of innovative genius? Whatever the origin,
these links must be maintained and new ones cultivated. An on-going investment
in IP development is a necessary condition for growth.
One need look
no further than the income statements of the larger, better-established
technology firms to appreciate their commitment to research and development.
Canada’s top spender on R&D, Nortel Networks Corp, spends over 13.2%
of its revenue on R&D. British Columbia’s PMC Sierra Inc, last year
ranked in fifth place in R&D expenditures at $203 million, or 32% of
revenue.
Even the
largest R&D performers leverage their investment in IP by establishing
links with research centers, universities and industry consortia. For smaller
companies, links to universities and other institutions are of even greater
importance. Not many emerging companies can afford to spend millions of dollars
on the development of their IP.
Ideally, tech
companies should spend as much as possible on R&D while still giving a
satisfactory return to shareholders. Companies have tended to cut back too much
on R&D in order to improve on corporate earnings. While this may look good
in the short term, it may be very damaging in the long run. A good strategy for
a company is to obsolete its own products - before its competitors do!
Enlightened
Info-tech companies can take a lesson from their biotech colleagues who clearly
understand the importance of keeping their R&D pipeline full.
We're lucky to
have organizations such as the B.C. Advanced Systems Institute who
address this very concern by building bridges between companies and university
researchers. Most research organizations and government labs now have tech
transfer offices that are keen to engage companies in the task of
commercializing their IP.
The way I see
it, while it may be easy for tech companies to neglect their IP assets, it’s
equally easy to get access to that vast natural resource – the intellectual
capital of our publicly funded research institutions.
Michael Volker is a high technology entrepreneur and director of Simon Fraser U's University/Industry Liaison Office. He oversees Vancouver’s Angel Technology Network and is a director of the BC Advanced Systems Institute and the Vancouver Enterprise Forum. He may be reached at mike@risktaker.com.