Everything changes as your startup grows.
Your team changes. Your finances change. You refine your products. Your customers change. You improve your customer experience. Your brand grows.
Your intellectual property needs to change and adapt, too.
Intellectual property refers to the formal legal tools you use to protect the way you turn your ideas into reality. You protect your technology and products with utility patents. You protect your brand with trademarks. You protect your creative literary and graphical works with copyrights. And you keep the rest confidential as trade secrets. This allows your IP assets to protect your competitive advantage.
Regardless of the current stage of your business, you must plan ahead for how your IP asset mix might change as your business grows. We refer to this as an IP roadmap.
It might be helpful to look at the various ways legal needs change and intellectual property rights adapt as a company grows.
Take, for example, an ecommerce company who is developing their first product. They start with an idea that they keep secret for as long as they can. That's a trade secret.
Then they decide to engage a team to help them do market research. They engage another team to help design the product for manufacturing. They might engage another team to help them raise initial investment funding. As the business expands its team, both internally and externally, it increases the possibility that someone on the team might be careless with its secrets. So it puts agreements into place that obligate others to keep their secret information confidential.
The ecommerce company also recognizes that it wants to be careful with the brand it chooses. This can include their company name, their online store name, their product names, their taglines, and their logos. So they perform trademark clearance searching as part of their brand name selection process. This advances them from the world of only trade secrets to also include formal trademark registration. Their IP portfolio mix now includes both trade secrets and trademarks.
In parallel, the company wants to protect its novel product designs from being copied and released faster by a larger competitor. So the company researches and files a patent application to formally protect against idea theft and infringing actions. They realize the product will likely be refined over time, so they try to anticipate how the product might grow for bigger and different market segments. They also look at how to protect against infringement at various stages of the design, manufacturing, distribution, and end user product journey.
The company also generates sales copy, product images, promotional videos, and other unique marketing collateral to use in its social media feeds and online sales platforms like Amazon. They want to protect against competitors or copycats using their materials, or really similar materials, because that would lead to decreased sales for the company.
At some point in this process, the company also starts building an internal team beyond its core founders. This means hiring employees and giving them the autonomy to help run aspects of the business. Some employees are over product development, so you want to make sure the company owns the designs they create. Some employees help create internal processes to manage customer interactions and complaints. Some employees develop the brand identity of the company.
In short, everyone is really busy working on their part of the business. At the same time, the business as a whole should make sure that it tracks and owns all of the IP that is generated by its employees.
All of these moving parts in a growing business complicate the company's ability to adequately protect its IP rights. And the types of protection that are appropriate for a business change as the business advances through different maturity or growth stages.
Successful businesses all progress through the same basic stages of maturity:
- First, someone has an idea for the business
- Second, in a business built on innovation, one or more innovators determine how to turn that idea into a viable business revenue model.
- Third, one or more founders create the business organization
- Next, product development leads to an initial product offering
- Then, the business establishes a baseline of customers
- As product sales grow, the product design is often refined in ways that help generate more product sales into the same market segment
- Eventually, the business decides to expand into additional products and/or market segments.
Along this journey, the internal team grows and changes. Also, a business might seek investment funding to speed up the development, sales, or expansion processes.
As a business progresses through this journey, their IP asset mix is likely to change, too.
Here's a general example of the IP mix shifts that can happen as a startup grows into a more mature business.
In this example, the business starts out with ideas and trade secrets (or the potential for trade secrets if they put formal programs in place. As the business starts to grow, it might pursue patents to protect its technology. It will also start to put in place contracts or agreements with its suppliers, distributors, and such. At some point, the business wants to formally protect its branding with trademarks. It also might pursue copyrights for various types of creative content.
Over time, the shift in the IP portfolio creates a more balanced mix of trade secrets, patents, agreements, trademarks, and copyrights.
Absent an acquisition, no company starts out with a broad mix of IP assets. Businesses and startup teams have to build up their portfolio one asset at a time.
There are different types of value in building your portfolio. The obvious value is in owning the actual assets on your balance sheet (although, ironically, some of these don't make directly to your balance sheet).
The other type of value is through diversification. Like a stock portfolio, there are ways to maximize the return on investment by optimizing the diversity of your investments. In this way, diversification provides better returns and lowers risk around those pooled investments.
From a practical perspective, this should be obvious, too. A founder’s reliance on a single patent is binary--it is either worth something or worth nothing. But as that founder builds a team and creates a larger IP portfolio around an operating business, the IP portfolio is a manifestation, or a protective shield, of the various parts of the business that exist to drive value to the founders and other stakeholders.
Having a bigger IP portfolio doesn't necessarily cause more revenue. But having a bigger IP portfolio is more likely to correlate to a better operating business because there is more IP to protect throughout the various levels and functions of the organization.
What should a founder or business take away from this article?
Think of your IP portfolio as a dynamic opportunity to cultivate IP that tracks the stages of your business. Proactively plan ahead for how you'll get through each stage of your business and what your optimized portfolio might look like at each stage.
Here are the 6 steps the US Patent & Trademark Office (USPTO) uses to determine whether your invention can be patented.
Here's a mix of stories, links, and information related to IP Strategy. We curate interesting articles from around the world and share them with you here.