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 email@example.com.