Posts in ‘Business Valuation’

Are you feeling helpless?

by Vijay Peduru, Feb 15, 2010

Going through the same situation repeatedly, unable to control it, and accepting to suffer through it is called Learned Helplessness. Once you understand this important distinction, you can recognize the situation and take action to unlearn it. Vijay illustrates this with an example of an experiment conducted on dogs by Martin Seligson, a professor at the University of Pennsylvania and the author of several books including “Learned Optimism”. more…

Change Management #4 – People: Building a team with Dr. Jekyll and Mr. Hyde

by Gary Monti, Feb 16, 2010

Implementing change in an organization will bring out the Dr. Jekyll and Mr. Hyde personas of the team members. This is part of human nature and if you do not plan for this, you will face serious problems reaching your goals. Your leadership is what will help keep the project on track. Gary provides several tips to help you understand the risk and navigate the terrain. more…

Commitments Change Over Time

by Guy Ralfe, Feb 17, 2010

One of the fundamental requirements for increasing our power and value in the marketplace is our ability to make and keep promises and commitments. A promise or commitment is between two parties. And each of them is locked into their stories viewed through their eyes. Between the time a promise is made and it is fulfilled, situations will change for both parties. It is essential to maintain the story for both parties through time or commitments will fail. more…

Selecting a Business Valuation expert

by Steve Popell, Feb 18, 2010

There are myriad reasons why the owner of a privately held company may want or need to have the company valued. Regardless of the reason, finding the right expert will pay off in the quality and utility of the opinion. In this article, Steve offers the criteria for assessment and gives some tips on how to ground your assessments. more…

Author’s Journey #9 – Cultivating the habits of writing success

by Roger Parker, Feb 19, 2010

Essential habits for writing success are Targeting, Positioning and Efficiency. In this article Roger describes how he put this theory to practice when writing his next book #Book Title Tweet: 140 Bite-Sized Ideas for Article, Book, and Event Titles. more…

Magesh is an accomplished software professional focused on building enterprise value through creative use of technology. Magesh enjoys working with people and is passionate about bringing out the best in everybody to achieve results that are larger than the sum of individual accomplishments.

Tagged as: Action, active garage, business, Business Strategy, Business Valuation, gary monti, Guy Ralfe, Project Management, roger parker, steve popell, vijay peduru, writing, Writing for Business, www.activegarage.com

Introduction

There are myriad reasons why the owner of a privately held company may want or need to have the company valued, including (partial list):

1. Acquiring another company
2. Selling the company
3. Buy-sell agreement
4. Repurchase of minority shares
5. Divorce
6. Partnership breakup
7. Estate planning
8. Probate

Regardless of the reason for the valuation or the urgency of the task, finding the right expert will pay off in the quality and utility of the opinion.  Here are a few tips to help you to make the best choice.

Background Check

Just as in hiring, you accept a resume on face value at your peril.  Always check references and publications.  In addition, go beyond the references provided by the expert.  You can do this simply by asking the listed references for the names of others who may have valid input on the competence and relationship skills of this individual.  These are called secondary references, and will typically be a more reliable source of information than the primary references.  You can even take it a step further by asking the secondary references the same question and, thereby, developing tertiary references.  Some questions you may want to ask will include the following.

• Did the expert communicate clearly on all aspects of the prospective assignment at the initial meeting?
• Did the engagement letter accurately reflect the shared understanding of the purpose of the assignment?
• Was there a firm fee quote, or did the expert work by the hour?
• Did the expert exhibit a genuine commitment to impartiality?  In other words, did the expert indicate clearly that s/he would simply go where the evidence led?
• Was the request for data, including financial, reasonable?  If you didn’t have a particular document or piece of information readily available, did the expert insist on getting it, even if it seemed tangential?
• Did the actual performance of the expert (data gathering, analysis, report, etc.) match up well with what you expected, based on the initial meeting and the engagement letter?
• Was the report clear and easily understandable – even by non-financial people?
• In the case of a divorce valuation, was the expert sensitive to the emotional aspects of the process?
• How did the expert relate to other professionals on the case, such as a Collaborative Practice team, attorneys or mediator?
• If you had to make this choice again, would you select this expert?

Absence of Ego in the Process

There is no place for ego or pride of authorship in the business valuation process.  One way to scope out this aspect of an expert’s approach is to determine if s/he is willing to submit a preliminary report that is open to criticism.  It is always possible that even the most competent expert will over-emphasize or under-emphasize some important data or, perhaps, miss something altogether.  It is also possible that something unexpected has cropped up during the valuation process that was knowable as of the valuation date, but the client(s) neglected to mention same.  The expert should be open to (even anxious for) the client(s) to provide such feedback.  The objective, after all, is the best valuation report possible, not the easiest to crank out.

Fundamental Understanding of What is Really Going On

Fair Market Value (FMV) is defined as what a hypothetical willing buyer will pay a hypothetical willing seller in a hypothetical free market in which both sides have essentially all the information they need to make an informed decision, and neither is compelled to conclude a transaction.  FMV is an appropriate standard of value in many situations, such as probate or any other circumstance in which the opinion will be presented in court or involve the IRS or other federal or state agency.  However, a number of other scenarios call for a different standard of value.

In a divorce, for example, or for a buy-sell agreement for a company with 2-4 owners, investment value is far more appropriate than fair market value.  The reason is very straightforward.  In either of these situations, the objective is not to determine what some outsider would pay for the company, or a portion thereof.  Rather, it is to ascertain what it is worth to one spouse (or one owner) to own a greater share of the company.

Avoid an expert who fails to grasp this critical distinction.

Flexible Fee Schedule

Anyone can charge several hundred dollars per hour.  It is more challenging to provide a fee schedule that offers the client genuine choices.  There are a few key questions in this regard.

1. Will this opinion be offered in court or to some government agency?  If so, an “official” opinion will be required, and will be the most expensive.  If not, does the expert offer an “unofficial” opinion for a lot less money?
2. Can delivering a much shorter report cut the cost significantly?
3. Is there a choice between a broadly based analysis and report and one that considers financial documents only?  Is door #2 cheaper.

In sum, you have a right to expect quality performance from an expert with whom you have an excellent relationship, and for a cost that is commensurate with you needs.  Go for it!
—
This article has been contributed by Steven D. Popell CMC (Certified Management Consultant.) Steve has been qualified as a business valuation expert since 1974, and has published extensively on this topic. CMC, a certification mark awarded by the Institute of Management Consultants USA, represents evidence of the highest standards of consulting and adherence to the ethical canons of the profession. Steve was a 2007 winner Collaborative Practice California Eureka Award for contributions to Collaborative Practice in this state and is a Senior Partner in Popell & Forney, with offices in Los Altos Hills and Pleasant Hill, California.

Tagged as: Acquisition, active garage, agreement, Business Valuation, divorce, estate planning, partnership, probate, selling, shares, steve popell

The Excess Earnings Method is the most commonly used approach to valuing a sole practitioner practice in family court.  In this method, “Excess Earnings” equal practice earnings in excess of the sum of reasonable compensation and a reasonable return on the practice’s Net Assets.  Excess Earnings times a multiplier (reflecting the relative risk of the earnings stream) equals Goodwill.  Goodwill plus Net Assets equals the total value of the practice.

Since Goodwill typically represents the majority of value, the excess of practice earnings over reasonable compensation (what the practitioner could earn if employed elsewhere in the same specialty) is the key element in this process.  Unfortunately, an often substantial portion of practice earnings is counted twice in a court settlement: first, in the valuation of the practice and, second, in determining support payments.  This problem of “double dipping” raises serious questions about the fundamental fairness of the method.

How It Works

Let’s say that a female CPA (the primary breadwinner in the household) earns $200,000 per year after all expenses in her solo practice.  Her firm’s Net Assets equal $50,000, and a reasonable return on those assets would be 10%.  If she were to do the same work for a comparable practice, she would earn $120,000.  Therefore, practice earnings exceed reasonable compensation by $80,000 per year.  Since her practice earnings stream appears to be relatively secure, the multiplier is set at 4.  The calculation of practice value would be as follows:

Excess Earnings          $80,000 ($200,000 minus $120,000)

Minus              5,000 (10% of $50,000)

Equals          $75,000

—

Goodwill         $  75,000 (Excess Earnings)

Times            4 (Multiple)

Equals         $300,000

—

Practice Value          $300,000 (Goodwill)

Plus                        50,000 (Practice Net Assets)

Equals                      $350,000

So far, so good.  But, now, the question becomes how much of her earnings are used to calculate spousal support?  If the entire $200,000 is part of the calculation, $80,000 of that total is being counted twice: first, in determining Goodwill and, second, in setting support payments.

Put another way, she has already “purchased” her community property half of the $80,000 annual earnings stream from her spouse for $150,000 (the value of his 50% community property interest in Goodwill) and will pay for it again as part of spousal support.  Small wonder that many sole practitioners believe that they are getting a raw deal.

Solution

Since the culprit in this situation is the double counting of Excess Earnings, the solution lies in ensuring that Excess Earnings are counted fully only once – either in practice value or in spousal support, but not both.  Importantly, there is no compelling philosophical argument for mandating either choice in all cases.  In fact, practice value and spousal support are often negotiated as trade-offs in community property settlements.

For example, if short-term income is the supported spouse’s principal need, then additional spousal support may be far more important than higher practice value.  This couple may agree on maximum spousal support and a somewhat smaller value for the practice.  On the other hand, if the spouse has a high-paying job, the opposite may be true.  This second couple may agree to a maximum value for the practice (that the spouse can use as an investment or retirement vehicle) along with somewhat reduced spousal support.

The critical element in all this is that each party identifies and articulates his or her principal priorities.  By so doing, they are “enlarging the pie.”  In other words, rather than playing a zero sum game (my win in your loss and vice versa) they collaborate to help one another to achieve their most important objectives.

Conclusion

Double dipping is inherently unfair, because it requires the sole practitioner to pay twice for the same income stream (the amount by which practice earnings exceed what s/he could earn as an employee of a comparable practice.)  An approach that allows the parties to choose the most reasonable and appropriate combination of practice value and support payments will best serve the long-term interests of all concerned.

The couple’s ability to reach agreement on the value of the business (a typically nettlesome issue) will often “lower the temperature” in the room, thereby facilitating agreement on other issues – including non-financial ones, such as custody and visitation.  It’s not often that one gets the chance to take two bites out of such an important apple.  Go for it!

—

This article has been contributed by Steven D. Popell CMC (Certified Management Consultant.) Steve has been qualified as a business valuation expert since 1974, and has published extensively on this topic. CMC, a certification mark awarded by the Institute of Management Consultants USA, represents evidence of the highest standards of consulting and adherence to the ethical canons of the profession. Steve was a 2007 winner Collaborative Practice California Eureka Award for contributions to Collaborative Practice in this state

Tagged as: active garage, Business Valuation, divorce, double dipping, himanshu jhamb, sole practitioner, steve popell

There are numerous reasons why you might want to have your company valued, such as:

• Buying another company
• Selling your company
• Stock option plan
• Stock purchase plan
• ESOP
• Repurchase of minority shares (friendly or adversarial)
• Divorce
• Partnership breakup
• Buy-sell agreement
• Posthumous circumstances

Neutral business valuation, even (perhaps especially) in an adversarial situation, will frequently be faster, cheaper and less emotionally draining than a process involving rival experts, and will offer a far better chance for a negotiated settlement.

Having one’s own business valuation expert can provide a certain measure of comfort, but this system is fraught with problems. For one thing, the valuation process itself is not an exact science. Therefore, there is a high likelihood of disagreement between objective experts. If either expert allows any measure of advocacy to enter the process, the chances for compromise become that much more remote – even out of court.

If a valuation question must be settled in court, the outcome may be influenced as much by the relative skills of the experts as witnesses as by the intrinsic value of their testimonies. Should the more skillful testifier also be somewhat more partial than his or her counterpart, the eventual judgment may be inequitable. Ironically, the feeling of added security that the parties seek when they hire their own experts may be an illusion. Or, worse, it may backfire completely on one party.

Then, there is the matter of money. Clearly, whatever the merits of having two experts, they are at least twice as expensive as one. Moreover, the presence of two experts frequently increases the time that opposing attorneys must invest in attempting to negotiate a compromise or, failing that, litigating the issue.

Any business valuation involves a certain amount of subjectivity – a principal reason for the frequent disparity in expert opinions. As a result, the more subjective the valuation task (the small professional firm, for example) the more appropriate and helpful a neutral process is likely to be. This is especially true if one party has considerably less familiarity with the company and is, therefore, justifiably insecure. If the opinions of rival experts are far apart, how it will be very easy for the positions of the parties, however misinformed, to harden to the advantage of no one.

In order for neutral business valuation to work, there must be at least a modicum of good will between the parties. This does not mean that they have to be great friends, but it does mean that there is a minimum of open hostility and mistrust. There must be a genuine desire on the part of both parties to “work it out” rather than “fight it out.”

In a neutral valuation framework, the objective of all concerned should be fairness and equity, rather than simply “winning.” It would be foolish to expect that either side will (or should) neglect to look out for Number One, with the assistance of respective counsel or informal advisors. Nevertheless, the two sides must be willing to give compromise a genuine chance to succeed, rather than simply relying on grasping and confrontation to protect self-interest.

Beyond a high degree of professional competence, the neutral business valuation expert must have considerable “people” skills. Such an individual must be able to foster trust and confidence from all parties in the very first meeting. S/he must demonstrate sensitivity to the concerns of both parties, and should provide clear leadership in the search for an equitable result.

In this regard, a range of value, rather than a specific dollar amount, can be very helpful. First of all, it is far easier for the parties to agree on a range. Second, once this preliminary agreement has been reached, the subsequent negotiation has a “container” that should go a long way in preventing one side or the other from torpedoing the process by making unreasonable demands. While the expert should stand ready to mediate the final negotiation, respective counsel or others can also perform this function.

In addition, a preliminary report from the expert that is open to criticism will help to alleviate concerns that some factor may have been over-emphasized or under-emphasized, or that something important may have been overlooked completely. If a convincing case can be made that it is appropriate for the expert to revisit one or more issues, s/he should do so cheerfully. Following any changes in the opinion, the final report is delivered. The objective of the expert must be to assist the parties to reach an amicable solution. In this context, pride of authorship must take a back seat to the interests of the parties.

There is one other advantage to a neutral business valuation; namely, the impact on the relationship between the parties after the conclusion of the process. Even if there were some serious differences early on – perhaps causing the need for the valuation in the first place – such does not have to be the legacy for the parties. Quite the contrary, if they are able to overcome such emotions to reach a fair and equitable conclusion, their personal relationship may survive and, even, grow.

It’s worth a shot.

–

This article has been contributed by Steven D. Popell CMC (Certified Management Consultant.) Steve has been qualified as a business valuation expert since 1974, and has published extensively on this topic. CMC, a certification mark awarded by the Institute of Management Consultants USA, represents evidence of the highest standards of consulting and adherence to the ethical canons of the profession. Steve was a 2007 winner Collaborative Practice California Eureka Award for contributions to Collaborative Practice in this state.

Tagged as: active garage, Business Management, business planning, Business Strategy, Business Valuation

This weeks article addresses the strong desire for people to fall into the trap of “I didn’t invent it, it’s not as good as it could be” or “Not Invented Here”.

Both of these attitudes usually have some merit and at the same time are usually flawed.

In an earlier article on when good enough is good enough, I made the point that at some point you have to stop development and ship the product or service, before that you have no knowledge of the viability of your product or service. You have to ship/deploy and get feedback from your marketplace, before that you are guessing.

Proof of your accomplishment is after shipment/deployment.

To that end we must as business owners be aware of the landscape surrounding our businesses, our competition, our customers, and our own needs, and what help is available to us at little or no investment. So the question “do I need to do it all from scratch?” is posed here. What parts can you get elsewhere and will it help you to do that?

For example, Matthew Lesko has made a big business out of publishing a series of books on government available loans, grants and funding, and if it works for you, the cost is very low.

There are professional societies for every profession that are a great source of help and ideas. Surprising though it may seem, you can even get help from your competition.

For the technology crowd there is slashdot and sourceforge; for the science minded products and services there is the IEEE with societies for nearly anything you can imagine and Symetry for the more scientifically minded. I would encourage your to sign up for one or more of these, at least take a look to see what’s there and if it is usable.

All of that said, there are countless places to find help in the marketplace, and as I’ve said in nearly every article I’ve written: in business you need help, and not just any help, you need the best help you can get, and help will cost you, the best help costs a lot.

So take a look around you both physically and in your marketplace and find your help, it may be surprising where you find it. Watch out for the “Not Invented Here” trap in yourself and your employees, it can raise your costs and lengthen your delivery times and thwart your chances of success.

This article was contributed by Thomas Frasher, co-founder of Active Garage. You can follow Thomas on Twitter at tfrasher.

Tagged as: active garage, Branding, Business Management, business planning, Business Strategy, entrepreneur, Entrepreneurship, execution, Leadership, management, Return on Investment

In my previous article I wrote that you need to actively manage your IP Strategy. This article is about how to build that practice.

OK, let’s say that you have created an IP Strategy document and you know what direction your company is going with the development of the company intellectual property. You have a clear concise roadmap that defines the directions and more importantly what areas you are going to stay away from.

Feels pretty good doesn’t it?

And then….the world changes.

Some markets become obsolete, a new product comes out that makes the original problem evaporate, a new service is available that prevents the cause for your product from existing, your market is gone. There is an old term for this: “Sitting On Your Laurels” and it doesn’t work anymore, there is ample evidence that it never worked. The world always changes, as small business owners we all know that and experience it every day. Our marketplace may be less conscious of the facticity of change (note to the unions, and people that want things to return to the same way they were).

How do you manage your IP in the light of these changes?

1. You must be paying attention to you market as if you were your own customer. What would make my need for this product go away? What would make this product better? What do I find annoying about this product or service? Is it hard to use? All of these are reason’s to abandon your product.

2. Are you in a market that is known for a lot of change? (Real Estate, Technology, Investments, etc.) If your business in in a volatile market with lots of change you have additional work to maintain your position in the market place, and even more work to get ahead in that market place. The good news? These markets have a great deal of energy and can support many new products, services and changes that other more established and stolid markets cannot.

3. Is your market saturated with competition? Additionally what is the complexion of that competition, are they bigger, smaller, better funded? Bigger doesn’t always mean better, large companies have more resources, but they are, in general, slower to recognize new opportunities and slower to exploit or even protect those opportunities. Smaller companies are, in general, much more nimble and innovative, however they can get starved for resources and need to scale back their innovation (remember protecting you IP is costly)

All of the above points need to be taken into account when working on your strategy. As a rule of thumb: when you first start working with your IP Strategy you need to take a look once a week, to make sure you are on course.

As you gain familiarity with your market, your customers, their customers and your products and services you will be able to stretch this time out. In the current climate of chaos and rapid change, you need to re-visit your strategy at least once a month. And remember: this is your document, you can change it at will. Indeed, if something is not working, rather than being constrained by it, use it as a tool to make purposeful changes to get back on track.

In my last article I said to create consequences and rewards for working on the IP Strategy. The consequences will manifest themselves for you if you don’t create them, so you must know what they are. The very survival of your company is in the balance.

The great benefit of creating your strategy is that you will have a clear path, that goes where YOU want it to go, and you can change it, powerfully, purposefully and with predictable results.

Get Started!!

Tagged as: Business Management, business planning, Business Strategy, Copyrights, Entrepreneurship, Intellectual Property, technology

In the last article we discussed the need to create a cohesive IP strategy, in this article I’ll discuss the first step in creating your strategy.
Like every article I’ve written on this topic, I’ll remind you that you need help, and you need the best help you can get.

Strategy Creation:
A few guidelines to help things along:
1. Be clear on why you are creating an IP strategy. All reasons are valid, some will work better than others. For example: if your goal in creating an IP strategy is to to tell all of your friends how many patents you have; you may want to think a bit more deeply about what you will do with those assets (make no mistake they are assets if treated right) and how much you are planning on spending to create them. On the other hand if you plan to exploit what you have invented, create a new business, and bring new products to the marketplace, then you are thinking in the right direction for strategy development.
2. Determine the direction you want your IP portfolio to grow into, find your market landscape. For instance; if you are making wire coat hangers and you suddenly come up with a new idea to make them cheaper, faster or in some other way better for the same cost, that’s a great invention in your current market landscape. If, on the other hand you make coat hangers and you come up with a great new telescope design, you may want to think about the new invention within the direction of your market landscape and the way you prosecute that innovation in the marketplace. Is it a different marketplace? The direction component of your strategy helps to keep costs under control. Costs can include nearly everything you can think of, from time spent thinking about the innovation, to the actual patent write up and filing fees, and everything in between.
3. Determine what areas you are NOT going to explore, such as a wire coat hanger manufacturer working on auto parts cleaning machines. It doesn’t matter what limits you put in place but you must at least think about them, and draw limits that suit your situation and remember they are your limits, you can change them any time you wish.
4. Determine when you will start, never when you will stop, and start. Create consequences for not starting, and rewards for getting going. Innovation should never stop, it must be continuous if you are to be successful in the long term.
This all sounds like a lot of work and, that said, it’s not a trivial task. However, as humans, we are what we practice, and our practices define us. Therefore you need to develop a practice of creativity, and a practice of managing your strategy.

So, having read all the above; It’s time to get moving!

This article was contributed by Thomas Frasher, co-founder of Active Garage. You can follow Thomas on Twitter at tfrasher.

Tagged as: Business Management, business planning, Business Strategy, Entrepreneurship, Innovation, Intellectual Property, purpose, Return on Investment, Strategy, technology, www.activegarage.com

In a recent post, we discussed the significant difference between the financial acquisition value and the strategic acquisition value of a privately held company.  Obviously, before you can convert your company into an attractive strategic acquisition candidate, you have to learn just what that means in your industry.  But, how can you do that?  You certainly can’t just walk up to a key acquisition executive and ask, can you?

Actually, with a few important modifications, that’s precisely what you can, and should, do!  Well, not you personally, because it will be important to keep your company unidentified.  Just have a trusted advisor conduct these interviews on your behalf.

Once you and your team have developed a list of likely buyers, design a questionnaire that will take no more than 15 minutes to complete on the telephone.  The questions you ask will largely depend on your industry and the data you want to gather on where these executives think the industry is headed.  However, two questions will be common to all questionnaires, irrespective of the size of your company or its industry.

1. If you were to acquire a company in this industry today, which strategic assets would be most valuable to you?
2. How are these preferences like to change over the next few years?

If your interviewer talks to enough acquisition executives (15-25 should do it) and compiles the responses, s/he will have put together the profile of the attractive strategic acquisition candidate from the perspective of the marketplace.  Next, conduct a “gap analysis” that compares this profile with the strategic profile of your company.  In other words, how does your company stack up on each strategic asset regarded by a number of interviewees as important?  In most cases, your individual strategic asset ratings will fall roughly into three categories.

1. We are in very good shape, and need only fine tuning.
2. We have made significant strides, but we have a long way to go.
3. We are pretty close to the starting blocks.

Once you have made these judgments, you can decide which strategic assets to acquire and/or enhance in order to move your company’s strategic profile closer to what the marketplace has specified.  Consider these possible scenarios.

1. Many interviewees indicate that they would be very interested in acquiring a leading regional company in your industry, but not a local one.  This would suggest that acquiring one or more companies in your industry or, perhaps, merging with a larger competitor elsewhere in your region, would make the equity in your company much more valuable.

1. A number of executives indicate that some important product development opportunities are stalled because the components currently available in the market are technically inadequate.  One or more of these components is within your company’s technical expertise.  This information could affect your strategic product development effort in a very positive and targeted way.

1. You have been planning to expand into a new market niche, and have narrowed the choices to three that appear to be roughly equally promising.  The interviews yield the information that one of these three would be considered very valuable to many prospective buyers.  Case closed.

Once you have made these decisions, you need only incorporate them into an effective strategic plan, complete with areas of individual responsibility, deadlines and standards of performance.  Good luck!
—
This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®- a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate

Tagged as: active garage, assets, Business Strategy, candidate, exitrak, gap, gap analysis, industry, liabilities, market, market niche, marketplace, plan, planning, steve popell, strategic acquisition, strategic planning, trusted advisor

Intellectual Property Strategy

This article is a three part article on the need for a cohesive strategy for creating, developing, protecting and managing your companies intellectual property.

In previous articles I illustrated the ways to protect your intellectual property in the United States by availing yourself to the US Patent and Trademark Office. These articles were the beginning of the process. In this first part of a three part series I will cover the importance of creating a comprehensive Intellectual Property Strategy that will protect your market and your investment. As I have said many times before you need help to do this! And, you need the best help you can get! That said again, lets dive in!

Review of Concepts:

Let’s first review some basics:

1. What is a patent? A patent is a legal monopoly granted by the government to exploit your intellectual property for a specified time. A patent can cover a device, a process or any composition of matter created by a human being. It must
be novel and non-obvious and it cannot have already been rejected.

2. Types of patents: There are three types of patents in the US: Utility, Design and Plant. Utility patents cover most things that have function, design patents cover the outward appearance and plant patents cover asexually
reproduced plants. In the interest of full disclosure I have never worked on an Plant patent, nor do I know anyone that has, if that is your forte’ good luck and you are on your own.

3. What is a copyright?  A copyright is a law or laws that gives you ownership of the things your create. These are generally creative works including but not limited to: books, pictures, poetry, paintings, photographs and the like. The copyright gives you the right to reproduce the creation, distribute, create derivatives, perform or otherwise display publicly the work you have created.

4. What is a Trademark? A trademark is a type of intellectual property comprised of a distinctive symbol, sign or indicator used by an individual, business or other legal entity to help the consumers of the product or service
distinguish between themselves and others.

Need for a IP Strategy:

A cohesive IP strategy provides several things all are protective.

1. A strategy provides the direction for new development

2. A strategy provides the boundaries where your innovation can flourish without the intellectual and more importantly financial distractions can be reigned in.

3. A strategy defines where you specifically are going and also importantly where you are not going.

All these together save your business cash, time and effort while protecting your marketplace, your brand and your time.

Getting Started:

The get started developing any strategy you must first know your ultimate goal, until this is achieved you are working only with tactics, working without purpose; this is especially true when working with Intellectual Property, a mis-designed strategy will lead to wasted effort, resources and lost time.

Strategy must also be discerned from tactics, a distinction that many fail to understand. Strategy is the plan of actions, practices, roles and situations that must be produced to reach the ultimate goal. Tactics are the individual actions, practices, roles and situations that are performed in support of the Strategy to reach the ultimate goal, tactics may include interim goals along the way. That said the first step is to decide on your ultimate goal. Be specific; remember you are designing the future, so it’s big stuff you are doing here. With IP tactics include finding a good IP attorney, organizing your portfolio, determining your product roadmap, writing disclosures, working with developers, working with clerks and writing. All of the above items require you to get help.

Do It!

Step 1. Design your Ultimate Goal (i.e. Create A IP Portfolio for protecting and exploiting …..)

Step 2. List all the tactics needed to achieve that goal. (i.e. contact IP attorney, setup meetings, write disclosure, ….)

Spend quality time on Step 1, this is the most important step. The more clearly you define the strategy the more you will be able to see if your tactics are betraying your intention and you can correct to maintain alignment of your tactics to your ultimate goal.

This article was contributed by Thomas Frasher, co-founder of Active Garage. You can follow Thomas on Twitter at tfrasher.

Tagged as: Business Management, business planning, Copyrights, entrepreneur, Entrepreneurship, Innovation, Intellectual Property, Leadership, Patents, Strategy, technology

Documenting Inventions

In my last article is wrote that a laboratory notebook is an effective method for ensuring that you protect your intellectual property during development. This article comprises guidelines to help protect the integrity of the contents of your notebooks such that the contents are without reproach.

In patent law it is generally the first to conceive of an idea that is awarded the patent, a properly kept notebook is often the first documented evidence of a concept, development or process.

Generally speaking it is adequate to have a small drawing and some descriptive text to document a concept. The lab notebook aids with extending that concept in a protective manner.

Guidelines:

1. Take your notes contemporaneously with your development, as close to the time of your research or lab work as possible.

2. Remember that you are working to make sure that someone with your skill level can recreate what you’ve done, solely from the notes in the notebook.

3. Very few people organize their notebooks efficiently, with the possible legal outcome in mind. Remember: the lab notebook is your first line of defense.

4. If you need to have a blank page for some reason, draw a diagonal line and write “Void” on the line, initial and date the line. It is best however to avoid blank pages.

5. VERY IMPORTANT: IF you make a mistake, do not scribble over it, draw single line through the error and initial and date the line. you can do this for large areas by lining through at a diagonal and, again initialing and dating the line. At no time is it acceptable to remove any part of or all of a page. This will call into question the contents of the notebook as a whole.

6. When spanning multiple pages use “(Continued)” or “(Cont)” at the top of the page to denote a continuation from the previous page. If you are continuing something from an earlier page use “(Continued from page #)” or “(Cont from #)”.

7. Avoid fragmentary notes, make sure you use as complete a description as you can.

8. All entries are either in ink or printed and attached to the page with tape or glue. If attaching a page to the notebook, draw a line across the boundary of the attachment and the page and initial and date the line, this ensures that the date of the attachment is in congruence with the dates in the notebook.

9. Your writing must be legible. If someone else can’t read it, it must be redone. If it is illegible it might as well not exist. Remember you are writing to the future in your notebook, it must be clear.

What To Put In the Notebook:

1. Table of Contents. Leave room at the front of the notebook if there isn’t an explicit table of contents. Keep this up to date. This helps with finding information quickly in the event of a search through multiple notebooks (a very common occurrence).

2. Include a list of your assumptions as you begin.

3. Include any formulae or calculations that are important to your work.

4. Data, drawings, sketches, processes, procedures, notations, corrections, part numbers, assemblies, code snippets, tests, test results, etc. In General your thinking.

All of the above items are relatively easy to maintain once you get the mindset that you are writing to the future, in addition to the present.

Go get a notebook, set down and innovate, create and invent! It’s fun!

Image Courtesy: Paul Watson on Flickr

This article was contributed by Thomas Frasher, co-founder of Active Garage. You can follow Thomas on Twitter at tfrasher.

Tagged as: Copyrights, Entrepreneurship, Innovation, Intellectual Property, possibilities, Return on Investment, Strategy, technology