Tag Archives: Patent

How Do You Guide a Company Through a Sale? Five Thoughts

Situation: A company was built on capital equipment complemented by annuity sales of supplies used by the equipment. The company is moving toward automation of technology and offshore production of OEM equipment. An OEM partner will take on the equipment side of the business and the company will focus on automated supply solutions with sales direct to the end customer. The OEM partner has approached the company with a purchase offer. How do you guide a company through a sale?

Advice from the CEOs:

  • It is important to determine the value proposition, both from the company’s standpoint and the standpoint of the OEM buyer. The company’s objective will be to optimize the intersection of these two views of the value proposition — to its benefit.
  • Look at current employees and the technology and determine what to do to preserve their positions and interests. This will become part of the negotiation, but it is essential to have a clear idea of how this meshes with the CEO’s personal priorities.
  • Look to outside experts for advice on exit and succession planning.
  • Determine the CEO’s vision and path of involvement up to the sale. This involvement is negotiable, but should remain consistent with the CEO’s vision during the negotiation.
  • What is the company’s patent position, and the value of the patents in terms of future revenue? IP produces a future revenue stream. Consider the valuation to be in the range of 4 years of IP value.

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How Do You Create Buzz? Six Suggestions

Situation: A company wants to quickly create high profile buzz around a new offering. What have other companies done or seen that could help the company quickly create this type of market presence? How do you create buzz?

Advice from the CEOs:

  • Buzz is hard to measure. It is also difficult to link buzz directly to sales.
  • Getting press, assuming that it is positive, is often called “free advertising.”
    • If a company is paying a professional public relations (PR) consultant, positive press is not free. When PR is successful and sustained, however, it arguably has a better ROI than advertising.
    • Published articles, particularly those by authors not associated with the company, are viewed by the customer as more legitimate than advertising. Additionally, with the Internet, the longevity of these articles can be quite long. The reach extends far beyond publications’ off-line circulation, and search engines make the articles easy to access.
  • Successful companies want to do business with other successful companies. What can the company highlight to show prospective clients that it is successful?
    • Substantiation is critical to getting positive coverage – assure that there is no “vaporware.” Given the power of social media vaporware can quickly destroy an offering.
  • One member of the group suggested that the ownership of patents might generate positive press and social media coverage.
  • Leverage in-house thought leaders.
  • Seek help from celebrities – “Hollywood” investors and individuals with substantial social media followings.

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How Do You Position the Company for Growth? Four Key Points

Situation: A company is completing the design of a new line of equipment which is expected to drive future growth. An important distributor for a company’s principal product – a consumable – also distributes equipment. The CEO is concerned that this distributor may perceive his new line of equipment as competing with their existing line. How should the CEO handle this? How do you position the company for growth?

Advice from the CEOs:

  • Meet with the CEO of the distributor and ask two questions:
    • Can they sell the company’s new line of equipment, as well?
    • Do they have any other source for the company’s consumable product?
    • If the distributor must rely on the company for the consumable, whether they decide to distribute the new equipment line or not, there should not be any risk.
  • The company has a wonderful opportunity to start doing business in a new way.
    • The company has a proprietary consumable and chemistry/formulation knowledge that will be difficult for others to copy.
    • The company now has knowledge of how to design equipment that utilizes the consumable.
    • Proprietary trade secrets may be more valuable than patents, presuming that the company can keep a lid on these secrets. Coca Cola and 3M have never sought patents on their key products. In a well-managed environment, trade secrets have a much longer life than patents.
  • Think about the sales mix in a new way, one that would address concerns about the annuity vs. capital equipment mix as well as improve overall profitability.
    • Focus on turn-key solutions. Use Hewlett Packard as a model. HP makes the most money selling paper and ink cartridges – annuity products; not from selling printers which sell less frequently than the cartridges. A busy office will spend far more on ink cartridges and paper per year than they spend on printers – and at a better margin for HP.
  • Combine the two prior points to leverage the new model.
    • Lease or provide the equipment at just above cost, in exchange for a contract commitment to purchase the consumable for a defined period.
    • Triple the cost of the consumable over time!
    • This should provide a more profitable and sustainable model. Adjust the cost of the ink upwards so that it pays. On a per-piece basis, the consumable at 3x or 4x current cost will still be a miniscule part of overall product cost. Further, the buyer won’t have to amortize the cost of the equipment over their production, making this an attractive option.
    • Concentrate on equipment design and outsource the manufacturing on a modular basis while keeping control of the one or two most critical components.

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How Do You Evaluate an Acquisition? Five Points

Situation: A CEO is evaluating an acquisition which could significantly contribute to his company’s financial position. Patented technology may add value to the deal. The founders of the acquisition target are willing to work part-time to facilitate the transition of their technology to the acquirer. How do you evaluate an acquisition?

Advice from the CEOs:

  • Set a timetable to close the deal or walk.
  • Two key factors in the due diligence process will be strength of the intellectual property and cost of the acquisition long term.
  • Another key factor to evaluation will be how this opportunity fits into the company’s larger financing plan. Currently the company is undertaking a financing round. How much will this acquisition contribute to or distract from the financing round?
    • If this is a primarily a value-add opportunity, will it add to the larger financing round?
    • Can the larger financing round be completed on time while pursuing this opportunity?
    • An option is to negotiate a white label agreement – an agreement that will keep the company in the game while completing the larger round.
    • If the founders are not amenable to a delay, what is the cost in terms of funds and effort versus the larger round.
  • The technology appears interesting, but the timing is bad given your need for the larger financing round. Here’s an option.
    • Go to the founders and start the discussion. Secure a license or hire their programmer. Let the technology go dark until the financing round is completed.
    • There is value here – but do this as a side focus if it’s not too expensive. Assure that the deal includes both rights and the underlying algorithms.
  • Delegate this to someone else in the organization. The CEO’s focus is the larger financing round.

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Do You Expand Production Locally or Internationally? Five Points

Situation: A company has built a very successful specialty manufacturing business in the US. Their manufacturing operations are labor intensive, with manufacturing practices optimized using motion studies and sharing best practices developed on the production floor. The CEO is evaluating whether it makes more sense to expand production in the US or to explore international options. Do you produce domestically or internationally?

Advice from the CEOs:

  • There are trade-offs between domestic and international production. Quality labor is available internationally at lower costs than in the US. However, risks include potential loss of quality control and higher levels of waste.
  • While investigating international production options, focus first on less critical operations where savings from lower labor costs outweigh the potential cost of wasted material.
  • Do not try to move highly controlled operations. These will include critical operations which require both an elevated level of operator skill and close supervision.
  • Before evaluating international options, break down the steps of manufacturing or processing to identify specific subcomponents or subprocesses that could be outsourced at reasonable risk.
    • For example, look at high volume parts where quality and variation in tolerances is less critical. These will be the best candidates for production in a lower cost, potentially lower quality environment.
  • How critical are trade secrets or patented IP to production? In the US and Europe there are strong protections for IP. However, these protections are not as strong in all countries. If production is outsourced to countries with poor IP protection, this may enable IP theft and create future low-cost competition.

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Better to Focus on Cash or IP Protection? Three Suggestions

Situation: A company is resource constrained and faced with a serious trade-off: do they focus on short term cash needs – immediate product improvements that will speed new product iterations to boost sales; or longer term strategic concerns – assuring that they have good IP protection on their technology before they launch new versions? When you are resource constrained, does it make more sense to focus on initiatives that will quickly produce cash or strategic concerns that will protect your future?

Advice from the CEOs:

  • Build two timelines – one for shoring up the patent portfolio so that you can safely build and launch new IP-protected versions of your technology and one for quickly completing product improvements to speed development of new product iterations which will generate cash. Assess both the energy requirements and the dollar risks and implications of each timeline. If you do not have the resources to do both in parallel, this analysis will help you to determine your best course of action. The risk analysis of each timeline should take into account what would happen if another company were to duplicate your technology and get to market with improvements before you do.
  • As a compliment to the above exercise, ask what happens if I don’t do either A or B? Do a SWOT and investment analysis on both. Which is the greater risk – launching with insufficiently protected IP or risking not being first to market?
  • These analyses will help you assess whether it may be feasible to accomplish part or all of either task with dollars in lieu of your own resources.

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