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How to compete with the ‘big boys’ in business by creating barriers to entry

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In the last few years, I have been asked many times by clients the same question: “How can we compete with a large company?” My answer to them is always the same: Learn what they’re doing and change your strategy to look more like theirs.

I believe that one of the most important tactics that the “big boys” are using is something all companies can and should do… and it can bring huge impacts for you and your business!

If you want to compete with the “big boys”, you’ll need to learn from them — use your patent portfolio as barriers to entry.

Creating barriers to entry equals OPPORTUNITY!
S&P 500 companies are successful because they have created barriers that make it very difficult for other players in the same business or market to break through, let alone surpass. They are often leading in sheer sales volumes, have locked down supply chains and kept pricing low, or are delivering an unparalleled solution that has created strong brand fans and loyal clients. There are some industry examples where the competition between the top corporations is fierce, such as Apple and Samsung. Each company is trying to develop a game changer in order to disrupt the market and retain those customers, and their status as the industry leader.

Note that a large corporation will never retain its top spot with only a single barrier to entry. They know that the more barriers they create, the stronger hold they have on the market. If you want to play with the “big boys,” you need to be sure that you have created barriers to entry that will truly protect and strengthen your business. Are you sure that you have done that?

Barriers to entry are sometimes common across businesses in the same industry. Most of the large corporations have many similar barriers to entry, such as economies of scale, controlled distribution, product differentiation, reputation, brand loyalty, pricing, marketing and more. The name of the game is to innovate or perish.

To differentiate their barrier to entry from a competitor’s, the large corporations must compete in areas that can be protected beyond business execution. One such area is research and development (R&D). The R&D and patents are used to block the competition by creating key IP that protects a use case or is adopted by standards.

Without going into the details on how this can be done, we clearly know that when a company has the IP that everyone else needs and/or is looking for, then that company has huge value in the business beyond what it is that they sell. A smartly developed patent portfolio will protect your business by being a strong barrier to entry.

“In business, I look for economic castles protected by unbreachable ‘moats’.”
 — Warren Buffett

Have you created true barriers to entry for your competitors?
In my experience, innovators and founders are so focused on getting their idea funded and their product to market that they don’t focus on these questions soon enough. Challenge yourself to really look at this. What barriers to entry have you created for your competitors, and how effective do you think they really are for protecting and growing your business in your industry?

Whether you have consciously created barriers to entry or not, in such a rapidly changing and evolving world, you may be running out of time to protect and grow your business. There is no better time than now to evaluate how well you have truly protected yourself, and what your options are for doing so.

How do you develop a patent portfolio that will serve as a barrier to entry? First, figure out what the true value proposition is that your products are aiming to solve for. This foundational step will allow you to develop an incredible barrier to entry via a patent portfolio. Your aim will be to protect the overall use case, rather than individual designs.

Take some time to truly ponder what use case(s) your products support, and how well they can be protected through patents. The answers that you discover may surprise you. What is actually protectable? What aspects of your business would be difficult or impossible to copy or circumvent? Think beyond just the technology, because it may not necessarily be the technology that you are creating that will be the strongest protector in your patent army.

To me, the most important thing is to build a patent strategy based on the overall business strategy, with a clear understanding of the overall value proposition the business is striving for. If your focus has been on patenting your technology as soon as possible, consider changing your game and protecting your business first and technology second.

High-value patent portfolios don’t just happen. They take a broad range of experts, creativity and a strategic mindset to achieve the big returns that you are hoping to accomplish. Start early. Involve experts. Protect the use case, not just the technology. And stay current… we live in very dynamic times and you don’t want to be left behind!

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Think carefully about a company’s IP before you invest

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What if a business opportunity you invest in gives you dominance in a marketplace as if you had a monopoly? With the right IP portfolio, you can get closer to that reality!

How many investors know that most patents do almost nothing to protect a company’s value? Shocking, isn’t it? The good news is with the right IP, a company’s value can shift exponentially.

I am an inventor with over 40 patents and hundreds of published provisionals. I also have several decades of experience in making ideas profitable for startups and for Fortune 100 companies. My experiences have shown me that patents can exponentially shift the value of a business — both positively and negatively. With the right set of patents, a company can dominate the competition and see almost infinite opportunity. Without those patents, a company can quickly lose its footing and see exponential losses in its value.

Let’s explore how, as an investor, you can be sure the companies you select are on the winning side of that balance. Let’s explore three big ideas:

  1. IP is a big business and time is NOT on your side.
  2. Patents often fail to protect the value of a business.
  3. The Game Changer protects the opportunity, not just your technology.

IP is big business and time is NOT on your side.

Fundamentally, IP is about money. Between acquisitions, litigation, and licensing, billions of dollars flow each year in the US economy alone. Ninety percent of patent lawsuits do not go to trial but are settled outside the courts for licenses. Of the 10% left in the courts, only a few hundred are litigated and about $5 billion is awarded every year. You do the numbers. This is a big business.

How does this affect investors and the world of M&A? Investors care deeply about the business potential of the IP they are purchasing, and the risks they are undertaking of being sued for IP infringement or theft. They spend lots of time looking at the business potential — the marketplace, the potential customer segments, the competition, the supply chain and pricing, and the expense picture. But how many investors pay attention to whether or not the patents associated with their investments actually serve to mitigate risk, protect the business value, and even boost its value? How do they know?

Let’s look at what the “big boys” like Google and Apple are doing. When they look at a potential acquisition target, they consider the revenue potential, costs, competition, etc. But they also look closely at the quality of the acquisition prospect’s IP. They’ll likely value the potential acquisition in one of three categories:

  1. Offer pennies: For companies who have just copy protected their technology, it is often very easy to just create a new version of what the acquisition target is doing without infringing on their patents. An acquirer’s perspective will be, “if we can buy this company more cheaply than we can make this ourselves, let’s explore it, but not at a high price — the risk of infringement costs is very low.”
  2. Offer some real money: If the patents are strong enough to pose a litigation threat, the offer price will likely go up considerably, if the rest of the indicators look strong. In this case, the acquiring company will want to purchase the company to mitigate its own risks of high lawsuit settlements and to put itself in a position to go after competitors, if needed. While litigation is never desirable, licensing agreements and settlements represent big money for the owner of the IP, over and above whatever the ROI is for the product itself.
  3. Pursue aggressively: When the IP has been developed to truly protect the business opportunity, people notice. A strong acquisition team will see that beyond the the company’s profit potential through strong sales and efficient operations, their IP creates a strong barrier to entry because competing in this space will almost certainly involve the burden of licensing fees or risk infringement costs.

Knowing where a target company’s IP fits in this spectrum should be central to your investment evaluation process. And time is not on your side…if a business you are considering is solving a real problem, it is probably not alone. In this fiercely competitive market, you need to make quick decisions or other investors will snap up the goldmines.

Patents often fail to protect the value of a business.
Are you confident in knowing how to evaluate the value of a company’s IP? The fact is, patents often fail to protect the value of a business. In my view, IP value depends on how hard it is to circumvent. If it can be circumvented for under $20 million dollars and/or in less than 2 years, the value of this IP is very low. Just pennies. The only reason to invest in this IP is to use it as a placeholder until you can develop something that is better protected.

As you move toward IP that can be circumvented for $20–200 million and/or in less than 5 years, you’re starting to look at some real value. Here, the value of acquiring the IP includes the value of the litigation and licensing opportunities — and risks — you will inherit if you own the IP.

The goldmine is when an innovation has significant barriers to circumvention. It would cost over $200 million to circumvent, would take over 5 years, is protected by legislation, and/or has been established as a standard. In this case, you can be a dominant player in the market and reap huge rewards from the investment.

Now, take a moment and ask yourself: Do I know how easy it is to circumvent the IP that I own? Do I know the value of the IP I am considering purchasing? The vast majority of patents are very easy to circumvent. Most would land in the “pennies” category, while very few could be deemed a “goldmine”. Be sure you know what you are entering into.

The Game Changer protects the opportunity, NOT the technology.
What if a business opportunity you invest in gives you dominance in a marketplace as if you had a monopoly? With the right IP portfolio, you can get closer to that reality!

The key — the real Game Changer is to focus on the value proposition of the business opportunity, and protect what is common to any solution that could emerge in that space. That’s where the REAL value lies. Take the time to truly understand the use case your target investment is really solving, and make sure that the patent portfolio protects the overall use case, not just specific technology.

That’s right! Don’t worry about protecting specific technologies. Worry about protecting the business opportunity first. Once you have done this, you’ll have all the time in the world to develop and market the specific technologies.

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Abandon objectives and just get the job done

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It was early morning when I got my weekly blog from my business coach. As my eyes scanned the first few lines, my mind began to rebel at what I was reading, instead of accepting it. A quiet “no” filled my mind… then a realization: I was disagreeing with my coach. The focus of the article was on goals, intentions and how to accomplish them using simple, daily steps as opposed to taking the time to develop a more complex strategy. My coach’s suggestion was that a person needs to act quickly by taking small steps towards a goal and then re-evaluate the progress towards achieving that goal along the way. It is only by moving forward that a person can discover the information that will help steer them in the right direction. Waiting for the path to reveal itself causes a significant delay in growth.

Should we try to make constant progress and reevaluate every step along the way?

Let’s think about it for a moment using a maze: Step into a maze with it’s very tall, imposing walls. Begin to move forward, problem solving and strategizing with each step that you take. You may run into roadblocks, get lost or even have to retrace your steps. You have to be creative, think on your feet and consider that your first idea may not be the right one to get you to the end. Is evaluating how far the exit is from your current location helpful? Will it help you get closer to the solution more quickly?

In the case of a maze, the answer is no. A large enough maze can elude someone for a very long time before they find the end. The reality is, most problems in life that are worth solving are much more complex than finding the way out of a maze.

Machine learning likes to define a “fitness” function as an expression of progress towards an objective in the search space. This forces the algorithm to act as an objective function. Let’s visit the maze again. This time with the player being a robot. The robot chooses a direction based on how close it can get to the end goal. Through deception, such objective functions may prevent the objective from being reached. See the maze on the right, the robot enters at #1, the end goal is #3, and the robot gets stuck at #2. While trying to reach the #3 the robot will always get stuck in a location that is close, but any further movement requires the robot to move away from the center which fails the “fitness” function and causes the robot to stop.

Edited graphic by Shmuel Silverman

While methods exist to mitigate deception, they leave the underlying pathology untreated: “Objective functions themselves may actively misdirect search towards dead ends.[1]”

The realization: I need a better plan, or a better strategy.

The objective is to solve a maze of goals: going from point A to point B knowing that without a good strategy, it will be challenging to reach the destination .

In general, for our discussion here, let’s assume that ‘problems worth solving’ are seldom simple nor straight forward, and the majority of simple-looking-problems are most likely deceptive. Not realizing a deceptive problem for what it is can be costly.

Graphic by Nicole Fucile

Can we be spiritual and achieve our goals at the same time?

Eastern spirituality avoids attachment to objectives. While it sounds simple, by itself it is an objective, thus creating a circular dependency. To “abandon all objectives” seems to be a very confusing and random behavior that feels like there is no control over achieving goals. It is challenging for humans to comprehend random. In machine learning, this may be simpler. There is no personal investment in machine learning, therefore if a goal is not achieved it’s okay! This makes it simpler to take risks and try something new — abandon all objectives and see what happens!

Mathematically speaking: To abandon our goals, we need to simply abandon the use of the goal in our fitness function. How does this work? Let’s return to the maze one more time:

Human beings normally adopt the idea to explore the unknown. A robot can do the same, although the goal is to reach the center, let’s ask the robot to continue moving, but always to a place which it has never been before. This is a strategy that does not include the objective as a directive, but it will result in the robot reaching the goal — it may take a long time for the robot to reach the end goal, but the goal will be reached.

Creative Commons

To improve the above strategy, machine learning deploys multiple agents/robots at once and requires each agent/robot to be unique, e.g. always go to where the other agents/robots did not. This allows for a much faster convergence on a correct solution, and it does not include the goal as part of the heuristic. Abandoning goals does not mean there isn’t a strategy or heuristic that leads to a solution. Defining this heuristic is sometimes very complicated and may require time to figure out.

A trickier example is the use of networking to achieve sales goals. The straight forward idea for a salesperson is to network to identify potential clients which could help him/her reach his/her sales goal(s). The salesperson is a ‘go getter,’ while some organizations choose to be ‘go givers’. Those organizations are using a different heuristic. Instead of networking to achieve the business goals, the networking is centered on referring other people and creating business opportunity for others. This approach is very different. It does not include the objective as part of the heuristic but at the same time strengthens relationships and leads to new business creation.

Here’s the bottom line:

Abandoning objectives doesn’t necessarily imply that goals will not be reached, it only forces one to have a heuristic approach that makes every small step along the way easy to make.

For myself I rather choose a heuristic to represent ‘who I am’ and consider ‘what I leave behind when it is all said and done’.

When I founded Multi-Innovation in late 2010, I used this idea to get projects. That’ right — I used giving to get. Today, after many years this is one of the base attributes of my team members that we love to give. It never ceases to surprise me what then comes back as a result of that giving.

[1] Abandoning Objectives: Evolution through the Search for Novelty Alone, Joel Lehman and Kenneth O. Stanley, Evolutionary Computation journal, (19):2, pages 189–223, Cambridge, MA: MIT Press, 2011

Wall of patents

What’s your patent strategy?

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Most startup and mid-market CEOs are having a difficult time articulating their patent portfolio strategy, and an even harder time connecting a patent to their company’s value proposition.

The main reason for this phenomenon is that patents are typically associated with technology and NOT with business strategy. Why is that?

“The strength and vitality of the U.S. economy depends directly on effective mechanisms that protect new ideas and investments in innovation and creativity.” — The U.S. Patent and Trademark Office.

The USPTO exists to protect technological innovation and the investment in those innovations by providing copy protection patents for up to 20 years. But there lies a disconnect, as investment in innovations is part of business, but those patents are not intended to protect that.

The entire industry seems to buy into the idea that by protecting technology you can also protect business investments, only to realize late in the game that this DOES NOT deter your competition.

How does your patent strategy protect your business? Is it easy, hard or very difficult to circumvent?

If your patent can be circumvented, then it is not a question of if it will be circumvented, but when. When that happens, it will bring you little to no value as a result.

In order to create a patent that in fact protects your business, you must start from your value proposition (as opposed to the technology) and determine how to protect it.

Technology is only a means to an end, and the end is the value proposition.

Multi-Innovation strengthens businesses by shifting the focus from being mostly technology-centric to creating strategic inventions that protect the overall value proposition. Using rapid Strategy Development and Execution, Multi-Innovation creates a portfolio of patents that protects a business with its value proposition.

So begs the question: will you exponentially shift the value of your business by leveraging the power of having the right IP? Or, will you continue to reinvent the wheel?