Situation: A company sells specialized components to a large manufacturer. The manufacturer is building a new product and, for this product, is requiring that all suppliers be approved suppliers. The company sells other products to this manufacturer and is in process of becoming an approved supplier, but the manufacturer wants to start using the company’s components for their new product now. As a work-around, they have asked the company to teach someone else their IP until they are approved. Would you share your IP with another company? How important is it to protect your IP?
Advice from the CEOs:
This is a creative request from a large company to a smaller supplier. Absent a legal requirement that suppliers must be approved – not the case here – they are simply trying a bureaucratic ploy to get you to release your IP. Your component is necessary to them and they can’t get an equivalent component from anyone else. If they want your component for their new product, and want to release the new product on their internal timeline, insist on a waiver for the new policy until you have become an approved supplier.
Stand on principal. This is your IP and it is proprietary. If another supplier, a potential competitor, has the IP to do what you do, you don’t need to train them. If they need your IP to make the components you need to protect it.
Ask the manufacturer to put you on the fast track to approval supplier status. This is faster than teaching someone else your process.
Escalate this within the customer company until you find an audience.
Bottom Line – don’t give away your secret sauce. This request is unreasonable. Unless, of course, the other company is willing to give you satisfactory compensation for your IP.
Situation: A company has been very successful, but one customer represents over 60% of their sales. To grow, the company needs to diversify its customer base. How do you reduce dependence on one large customer, and what are the risks involved?
Advice from the CEOs:
The key to getting new customers is to dedicate time and resources to the task.
Consider hiring a sales professional – a commission based “hunter” who has experience landing big accounts. You may pay this person a hefty commission for brining in new business, but diversifying your customer base can be worth it.
If there is shared ownership of technology co-developed by the company and client and the client does not wish to pursue markets beyond its strategic focus, is it feasible to negotiate rights to pursue this business?
The larger client will pursue their own interests, not those of the smaller vendor. Perhaps a win-win can be worked out, but it may be difficult – particularly if the client is concerned that use of the technology in other markets could have a negative impact.
Caution. The easiest way for the client to defend itself from a perceived threat is to sue and bury the smaller vendor through legal expenses. Regardless of who is “legally right,” deep pockets can win through attrition.
Consider recreating the opportunity. Create your own adjunct proprietary product with your own software or design talent and use this to expand your horizons.
Be aware, the large client can still sue if they believe that your proprietary product impinges on their rights.