I just attended a presentation at the MIT Entrepreneurship Center led by Al Burnett, the general council for Vecna Robotics. He had some interesting things to say about intellectual property (IP) and how it could be effectively used in very young companies.

The short of it: get some patents, and do it as cheaply as possible. Don’t worry too much about the quality of the patents, the claims, or the enforceability.

Why? Well, patents are only enforceable when they come along with litigation (read: very expensive.) If you are a young company, or a small company, you lose whenever litigation occurs. The solution, therefore, is to avoid litigation entirely.

In that sense, patents are not a protection against people trying to use your technology. They are actually protection against people trying to bring suits against you. And when it comes to law suits, patents beats no-patents.

This is how they work. If a company files a suit against you for infringement on one of their patents or technologies, there is a good change that they are a competitor of yours and they are fighting you because you are stealing their market share. A patent is something you can fire back with to say, “I’m not going to lay down and take it from you.” Patents are negotiating chips that you can use to protect yourself from underhanded attacks.

Patents have some other key benefits too: (1) They make your company look more attractive to potential acquirers. They indicate that you are serious, you’re technical, and you know what you’re talking about. (2) They make you look tough when you are being evaluated by competitors. In this sense, more patents are better. A single patent will make you look casual, but several will make you look like a real player.

The end result: get patents, but get them on the cheap. They need to be written well, but not that well. A big company can tear anything apart, so don’t invest in trying to make patents bullet proof. They won’t be.

Photo by Senator Mark Warner

Startup companies all grapple with the same issue at first. They are trying to find that magical product offering and marketing effort that will be the turning point which causes revenue to skyrocket. Well, Clayton Christensen et al. have been researching successful startup companies to determine exactly what conditions typically exist right before that turning point.

What he has found is that companies typically experience a marketing breakthrough immediately prior to their phases of rapid growth. This marketing breakthrough is the discovery of the key “job to be done” that customers have for which they “hire” the product they are purchasing. This breakthrough represents a shift away from the ordinary marketing mind set.

Most companies complete their marketing segmentation in one of two ways:

1. Customer Segmentation - Customers are grouped by a set of observable characteristics that correlate with the value of the product to them. A commonly used customer segmentation is psychographic segmentation. For example, one psychographic segment might be wives who like expensive, luxurious handbags.

2. Product Segmentation - Products are grouped according to various categories along a spectrum of cost and functionality. For instance, consider Toyota’s assortment of sedans and trucks: corolla, camry, avalon, tacoma, etc.

Christensen’s latest research suggests that perhaps an alternate mind set might be useful. Instead of matching the product to the customer type or product category, match the product to the job the customer has when he or she goes looking for the product.

For example, consider a store selling milk shakes. Traditional marketing strategies would suggest matching the qualities of the milkshake to the preferences of the customer. This, however will result in the averaging of a wide variety of different preferences resulting in a vanilla, one-size-fits-none product. On the other hand, if the product is matched to the job the customer has for the product a different strategy emerges.

A little ethnographic research will reveal that one of the main reason people purchase milkshakes in the morning is so they have something interesting to do in their cars during their commute. (Believable, but hardly intuitive.) The “job” that the customer has is for something fun and entertaining to occupy him or her on the way to work. Once armed with this information, it is possible to make killer product decisions which greatly increase the value of the product to the customer. In this case, the thickness of the milkshake can be increased so that the milk shake takes longer to drink. Chunks of fruit can be added to the drink so that periodically … thunk … a fun and interesting piece of fruit flies up the straw. Also, a quick serve line can be added so that customers can get their milk shakes in a hurry when they are running late.

The point is this, if you are able to discover the “job” that your customer is hiring your product to do. You will be in a much stronger position to capitalize on improvements that can increase the value proposition of your product. If not, you run the risk of tailoring your product to fit the wrong market, or worse creating a one-size-fits-none vanilla milkshake.

I had an opportunity to speak with Clayton Christensen about starting companies and he had some startling things to say.  According to Christensen’s research there are essentially two ways to start a viable company:

(1) Use innovation to get out in front of the industry leaders and sell-out to them quickly before they crush you.

(2) Innovate in a way that allows you to compete with industry leaders on cost.  Start by focusing on low-margin products (e.g. rebar in the steel industry).  Build your company slowly by moving up-market as quickly as possible.

(If you’re not familiar with Christensen’s work on disruptive innovation, I refer you to his website http://www.claytonchristensen.com/ )

If you start a company selling low-margin products, you can compete against industry leaders by taking over the low-margin end of their business.  You will not face serious competition from them because they will rationally exit the market to improve their product mix as they focus on the higher margin areas of their market.  Over time, you can build your business further my moving up-market into higher and higher margin areas.

The take-away here is that there is a completely non-intuitive method of developing your beach head marketing strategy.  Consider low-margin products over high-margin products to improve your chances of success by providing your business with better protection against competitive response.