Securing a patent for an invention only makes sense if you can leverage it into a profitable product, or you’re adding it to a patent pool that can generate licensing fees. After all, what’s the point of spending money on a patent application—as well as the recurring maintenance fees if you are actually granted a patent—if you’re not going to get that money back, and more?
But let’s take that a step further. It’s one thing to believe that you have a potentially lucrative product on your hands. But businesses founded on great products fail every day, because they don’t have a comprehensive business strategy in place to help keep them on track. Are you prepared for dealing with competitors, suppliers, and customers?
If not, it’s time to start establishing a business strategy for your business and products. Here’s how to start.
The modern concept of business strategy evolved from the principles of application of military strategy, particularly the concept of polarity.
Our current understanding of business strategy evolved in the 1960s from the selective applications of military strategy. In a previous life, I was a military officer, and the strategic analytical tool I most commonly used was based on the concept of polarity, as conceived by Carl von Clausewitz. Clausewitz was a Prussian general who carefully analyzed war, based on history and his own personal experience.
One of his key insights was the role of polarity in war. Polarity has to do with how the objectives of one party relate to the objectives of another. For instance, if two warring factions wish to take possession of the same uninhabited hill, then there is a true polarity. However, true polarities are rare, both in war and business. More commonly, there is an aggressor seeking to move into a territory inhabited by a defender. Usually the offensive interest cedes to the defensive, as the defense will impose a significant cost. Trying to fight someone who has the high ground—literally and figuratively—is inevitably quite costly.
Polarity is particularly relevant to startups looking to enter the market, or established businesses that are considering expanding into a new industry. If you’re a new business entering into a newly created field populated with similarly sized startups, then you have true polarity with them and are well-positioned. But if you’re a new tech firm going up against IBM, then taking even a fraction of that high ground is going to be costly.
The most effective application of polarity in business is Michael Porter’s Five Forces Framework.
In the late 1970s, economist Michael Porter developed and published the Five Forces Framework, a tool for analyzing the level of competition within an industry. The purpose of the tool is to determine the ‘attractiveness’ of an industry—will a new business entering that field have a good chance of doing well, or face significant obstacles to success and profitability? The Five Forces break down as follows:
Industry Rivalry – What is the intensity of competitive rivalry in the industry? Are competitors often innovating new products and spending a great deal of money on marketing? How consolidated is the industry—is there a single goliath, or a large number of competitors of varying sizes?
Chances are that you will not be a position of true polarity with your competitors—rather, you will be seeking to take some of their market share. In this case, assuming you have a solid product that has a competitive advantage, your success will be determined by the effectiveness of your marketing, brand strength, and even your trademarks. If you need assistance with determining how prepared you are in this area, I can help.
Bargaining Power of Suppliers – Is there only a single supplier of materials, components, labor, or expertise which are indispensable, thus making you vulnerable? Or are there many competitors vying for your business, allowing you to play them off one another?
Ultimately, your supplier wants to get paid as much as possible—either by you, or by a competitor. This means that they will often want to ship the goods you need to the highest bidder. The most effective means of keep your costs down and ensuring a predictable supply of goods is to have a non-compete agreement in place that will prevent your supplier from using your competitors against you when you can least afford it.
Bargaining Power of Customers – Beyond simply buying your product or not and the subsequent impact on pricing, customers can make or break you in many ways, as any business that’s suffered the brunt of bad Yelp reviews can attest. Ideally, you want your customers to love your product, and loudly and repeatedly share their joy with the world. However, sometimes IP owners try to impose restrictions on how their customers use their products, as has been the case with Disney and their physical/digital media bundles. Such restrictions are typically unenforceable, and generate negative public blowback.
Threat of Substitutes – How easy is it for customers to use another product in favor of yours? When it comes to food and drink products, it’s often a simple balance of cost versus personal preference. But when it comes to patentable products, patent pools can be used to heavily restrict the ability of competitors to develop substitute goods. This prevents competitors from being in a position of true polarity to you—and if they attempt to do so, you can assert your patent pool.
This is a strategy that requires an in-depth understanding of patent law, and definitely requires the assistance of a patent lawyer—I can provide assistance.
Threat of New Entrants – What are the odds that a new upstart will enter the market after you, doing exactly what you are doing? The chances of this are actually quite low, due to a number of inherent barriers to entry, including those above. Simple economics keeps competitors at bay. A new entrant wants to make money, and will do so in the most efficient way. If their product is identical to yours—and thus probably infringing on your patents—there is no meaningful avenue for them to make money doing what you’re doing.
However, if someone new comes in with a product that is more efficient or better than yours, that’s another matter entirely. Even if you initially dominate your market, with little threat of new entrants or substitutes, you will need to innovate and continue to make the best product possible to remain competitive.
I hope that overview has shed some light on the due diligence that is necessary before bringing a new product to market, or launching a new company. If you are in the process of doing so, it’s wise to have an intellectual property lawyer on your side to better position your business for success. To learn more, contact us by calling (916) 760-8265, or send us a message using our contact form.