Category Archives: Resources

When should startups pursue a patent strategy?

[Editor's note: This is a guest post by Bob Stratton and Andrew Currier of PCK IP  about patents and patent strategy for Canadian startups. And while "traction is the new IP", this is one very cost effective strategy for startups, but is it the right one for you? ]

Seriously, patents? Are patents really an effective strategy for startups? It’s an almost Shakespearean dilemma for founders, to patent or not to patent.

There is a real tension between the long term benefit which must be balanced against the short term need to manage cash burn carefully and the management time required for a successful patent program and the immediate need for focus on getting product out the door.

Understandably, early in the corporate development lifecycle most startups choose to focus on building and shipping product and growing traction and revenues. We’ve heard that traction is the new IP. There are unintended consequences to this decision, that founders need to be aware of that have impact on the business down the road.

The refusal to even consider patents can be left for another conversation.

We present an analytical approach for founders to consider performing an upfront analysis of: “Are patents an important part of my business plan?? and “When do I start pursuing a patent strategy?”. Here are some starting points.

Timing is Critical

There are a couple of unpleasant patent facts that we must be considered:

  1. If you disclose the invention before filing a patent application, you lose the ability to patent it in most of the world.  (A short list of countries, including Canada and the US, forgive your prior disclosure for as long as a year, and let you still file a patent application before the expiry of that year);Prior disclosure is an issue because you may have to disclose your invention to a variety of people such as investors, potential customers, suppliers, etc. – who refuse to sign a non-disclosure agreement.It is also an issue because your successful launch of your product/service is a disclosure.
  2. The first inventor who files an application at the patent office blocks any subsequent inventor who files for the same invention.First to file is an issue as someone else can beat you to the patent office, at best blocking you from filing your application and at worst blocking you from running your business.  It actually happens that two or more people independently invent the same thing at roughly the same time, especially in the tech space wherein technological advances may suddenly enable a new product or business.

In view of (a) and (b), pretty clearly the correct answer is to file “as soon as possible”, but patents cost money and start ups, in particular, should defer expenditures as long as possible until their valuation has increased, to make raising money less expensive.  Again the short term and long term are at odds with each other.

Patents Cost Money, Defer or Spend?

So, what do you do?  It depends? Or there is no easy answer. It requires a founder to be able to use their experience and interpret the market signals to make informed decisions about spend.

Our suggested set of analytic steps is:

  1. Determine which aspects of your product/device/system/business might be patentable.
  2. Determine which of those aspects might be worth patenting from a business perspective.
  3. Determine when those patentable aspects will be first disclosed.
  4. Determine when you can afford to file patents.
  5. Compare 1, 2, 3 and 4 to identify critical dates (disclosure of invention vs. available funding) and decide what to file and when.

Unfortunately steps 1-5 sound simple, but of course there is a fair amount of dependency upon specific fact situations.

For example, you may have several possible inventions identified at step 1, but whether they provide a commercially significant advantage to your business (step 2) will vary widely and can be hard to predict given that your goal is to create an entirely new market and how that market unfolds is not predictable with complete confidence.   You may also require some professional advice to help with step 1, as it is not always straightforward to identify developments which are patentable from those which are merely clever.

For step 2, some inventions may have a limited useful lifetime: e.g. the first implementation is web-based, but you expect that most of your revenue will be generated from a custom mobile app – once you can build and deploy it.  So, you may forgo protecting the web-based version to save the expense, knowing that you are leaving the possibility of web-based competitors in the future. Other fact-specific scenarios abound.

Depending on the outcomes of steps 1, 2, and 3, step 4 can be made somewhat easier by deciding upon an appropriate filing strategy to manage the trade-offs between expenditures and protections.  For example, you may decide to limit the countries in which you file for patent protection and/or you may decide to “beat” a disclosure by filing a provisional patent application, rather than a complete application, to reduce immediate costs.

You may also identify, at step 2, different classes of inventions: i.e. – those which are fundamental to your business and which should be patented as broadly as possible/reasonable and those which are mere “nice to haves” which can be deferred or allowed to be lost to manage costs.

Seek Informed Advice

We believe that the patent analysis is really just an adjunct to the kind of big-picture business case analysis that is necessary to achieve long term success.  Founders must know their market and have the vision to see that their startup investment has a real potential of a long term payoff.

Founders are already faced with complex crystal ball gazing business decisions such as: What is my product road map? What investment do I need? Who should be on my management team? How can I monetize my product? Who is my competition?  Where founders don’t know the answer to these questions they seek out a number of excellent, unbiased resources to help them.  A patent analysis can be added to the other analyses both at the outset and at each milestone, and the results fed back into the planning process to best manage the path to immediate and to long term success.

Reach out to Andrew or Bob for a conversation about your startup.

A Perspective on Investor/Mentor Whiplash

CC-BY-NC-ND AttributionNoncommercialNo Derivative Works Some rights reserved by nocklebeast
AttributionNoncommercialNo Derivative Works Some rights reserved by nocklebeast

The other day Fred Wilson posted an opinion and some tips on Investor/Mentor Whiplash. He took the position that that is a big problem for accelerators as well as early stage and seed environments. Brad Feld took this as a bit of a misunderstanding on accelerators, he insists that TechStars creates an environment where early stage companies can learn to manage the whiplash. Brad Feld states:

I disagree with Fred. It’s not a big problem. It’s the essence of one of things an accelerator program is trying to teach the entrepreneurs going through it. Specifically, building muscle around processing data and feedback, and making your own decisions.

On the surface this seems correct. A problem (one of many) new founders face is the overwhelming barrage of mentorship (good and bad) and information mixed with the inability to filter. An accelerator should be able to provide the environment where a strong group of peers with some guidance can help to build the “muscle around processing data and feedback.” In the last 6 years I have noticed that is a common problem founders face and their ability to manage it is important to their success. It wasn’t until I experienced the whiplash myself a 2nd and 3rd time that I fully appreciated the damage it can do even if you are prepared for it.

Generally what I tell early stage founders:

  • Only talk to customers once you have something to show them — but that shouldn’t take you a long time, don’t go heads down for months. Asking people what they want and not focusing on something specific they can touch/feel is a path to busy work and infinite sadness.
  • Avoid the mentor parties/socialization. Find two (or three) good people with opposing views and bounce specific data off them but only when you have done something that requires fresh eyes to advise you how to interpret the results.
  • Focus on what isn’t working when getting feedback from mentors. Founders need to be positive but you need to focus on the bad things when talking to your close mentors that have been through it already. If they can’t help you with the tough stuff why are you spending a lot of time with them?
  • Don’t expect a direct answer. Experienced mentors know you are the best person to run your company, not them, and they have developed a way of not telling you what or how to do things but instead challenge you to figure it out in a positive way.

Whiplash from mentors doesn’t just happen in startups, it happens everywhere people are giving you advice or have something to gain by influencing the decisions you are about to make or the opinion you develop on something.

Being prepared and learning to manage the whiplash isn’t just the essence of accelerator programs, it is the essence of education that culminates in the top level you can achieve to filter information – a phd program. At the phd level the filter muscle is almost too strong but that is a topic of a whole other blog post.

The scary thing for entrepreneurs is that accelerator programs are too often run by people that don’t know how to effectively educate people and/or they have something to gain financially by the decisions founders make.

I think this *is* a big problem in accelerators. I wonder if the ability to teach that skill to founders (or select founders that already have that skill) is the difference between a successful accelerator (which is really only TechStars and YC) and one that isn’t (pretty much everyone else)?

[Editor's note: This post was originally posted on Jesse Rodgers' Who You Calling a Jesse blog on July 31, 2013.]

Making the business case

I have spent a lot of time in Halifax in the past year. I have been out for HPX Digital and for 2 workshops with Toon Nagtegaal (LinkedIn). It has allowed me the privilege of hanging out with Atlantic Canadian entrepreneurs. I’m going to try to spend additional time in Moncton, Saint John, Charlottetown and hopefully St. John’s (but a road trip like that will require additional planning and spousal support).

My next 2 trip are very different. The first is another workshop with Toon. The second is to attend Atlantic Venture Forum (still working on travel plans).

We are looking for startups that are “at the point where you have to push your business or business idea to the next level”.

The Workshop

Subset of PhaseMap by Toon Nagetaal

The workshops with Toon are interesting. You can read Peter Moreira’s piece on the workshops. The workshop is a Thursday to Sunday ordeal. It’s called an Investor Readiness Workshop. The goal is to put companies through an artificially intense meat grinder and focus on building a stronger investment presentation. The goal is to walk through your business plan, your assumptions, and your traction. Toon provides his guidance from his experience funding companies in Europe and North America. I provide my experiences as an entrepreneur and what I’ve learned living for a short period of time on the other side of the table.

The goal is to provide Atlantic Canadian founders practical advice about refining their business plan. It revolves around Toon’s PhaseMap methodology and software tools.

The PhaseMap methodology helps define and articulate a business case around 4 questions:

  • Do customers need and want my product? = Value Proposition
  • Is there a market, big enough and ready to pay now? = Market
  • Do customers wan to buy from me? = Positioning
  • Can I deliver? = Execution

Why?

  • Learn how focusing on your customers pain is the key to defining your value proposition, market and position. Practical real world, in the trenches advice about raising financing from both sides of the table
  • To provide the team with methods and tools they can use to learn more about customers and product/market fit.
  • Provide individual feedback to startup teams throughout the session, both to guide the iteration and strengthening of their startups and to provide strong group learning

Who?

Ideally, founders either written a business plan, started the investment circuit, and/or generated a few business models or a Lean Canvas or two. The target audience is companies that are actively raising investment capital. The focus is on how to make the case for your business. How good is your business case and how well you are able to present it? These are the crucial factors founders will learn in how to convince others of the quality of your plans.

How much?

Update: I’ve been informed that if companies are willing to cover their own travel expenses, the good folks at ACOA are willing to make exceptions for companies from across Canada.

The workshop is sponsored by ACOA. If you are a founder based in Nova Scotia, Newfoundland, PEI or New Brunswick you are eligible for ACOA sponsorship. The ACOA team has informed me that the workshop is open to any Canadian startup willing to cover their own travel expenses to the region. The fees are divided between the founders and ACOA. Fees for founders are $750 for up to 2 founders to attend. This covers hotel and food costs. The remaining fees are covered by ACOA.

When?

The next workshop is June 6-9, 2013 in Halifax.

Attend

It’s a fun, intense weekend that is designed to help startups and founders.

  • Program is open to all Canadian controlled privately-held corporations