Key Resources, Key Activities and Costs (Part 2)

Pulled from a Venture School Lean LaunchPad Lecture, this article sheds some light on common mistakes, or “landmines,” around accessing key resources, activities and costs. The Lean Business Canvas looks at both the revenue and expense side of the startup. The goal is to generate substantially more revenue than expenses. To attract talent, capital (grants, debt or equity)  people have to believe there is a growth opportunity that will deliver profits with appropriate execution.

Common Landmines

License vs. Work for Hire.
The general rule is the employer owns the work product of employees (they’re paid to create for the employer). But if the creator, author is a independent contractor, the independent contractor generally owns the work, and only licenses it to the client. Things get awkward fast when the client wants to hire the author of the website or app and finds they can’t automatically take the foundation of the client’s business and leave. Make sure that any creative contracts with contractors or subcontractors are specifically done as a work made for hire (work for hire). This is an exception to the general rule that a non employee author owns the creative work. A work for hire is owned by the client, exclusively. It’s the independent contractor author that can’t reuse it without permission, or it is infringing on the client’s intellectual property. If you don’t use the magic words, “work for hire” with an independent contractor in the written contract, you will be sorry. For more information, check out: Works Made For Hire and Intellectual Property For Business.

Freedom to Operate.
Too many people focus on the patent without considering the specifics of what the patent permits you to do in business terms. A patent can lie within an existing patent, improving the performance of someone else’s intellectual property. To use your patent, you would need permission of that someone else. Think Venn diagrams.

This is why Intellectual Property attorney opinion letter on Freedom to Operate is so important. You may need to license (pay for) other people’s intellectual property to use your own. Licensing the use of the prior patent would be necessary in the first example. Having a patent does not assure there is a market with a customer willing and able to pay at a profitable price for the benefits the patent claims. A patent may address a viable market, but there are lots of patents for things no one cared enough to pay.

Contribution of IP to the assets of the business entity. An investor will almost always require that the intellectual property (IP) created by the founders be contributed to the business entity’s assets and not allow the creator (say the faculty scientist) to retain personal ownership of the patent or other IP. It is also a frequent issue as to what happens to future IP or innovation yet to be created. Why employ the scientist? Remember the work for hire rule? This is often a three-part negotiation between the scientist, the school currently employing the scientist, and the new commercialization business entity. Everyone wants the incentives to work to create commercial value, but each wants their share of the pie.

R&D Shotgun vs. Rifle. Researches used to searching may have a hard time focusing on the critical path of the business opportunity with the strongest unique value proposition for the best target customer. Investors hate seeing a shotgun R&D approach – trying to do everything at once. Customers can get frustrated with it too. Researchers are prone to say, “We can do that,” when they mean, “We could do that with enough time and money.” And customers meant, “What can you do NOW?” Investors want to see a business model (and plan) focused on getting to revenue and profits. With profits you can do more. But success requires picking the right target and hitting it with a tightly aimed and controlled rifle shot.