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Our special mini-series at the “Law & Business” Podcast with the Nessa Group continues. We have heard that you have an idea – you probably have multiple ideas. Here is how a business consulting group handles ideas from the beginning.
Anthony Verna: (00:03)
All right, everyone. Thank you for listening to episode number two of our special podcast mini-series with the NESSA group. My name is Anthony Verna. I’m an IP lawyer and I handle branding issues along with Justin Tripodi, when we are a part of the NESSA group. We’ll start over here. Jim Huerta say hello.
Jim Huerta: (00:23)
Hi. Hi, I’m Jim Huerta and I’m one of the managing partners of the NESSA group.
Anthony Verna: (00:27)
Thank you very much. Barry Kolevzon please say howdy to our audience.
Barry Kolevzon:
Howdy.
Anthony Verna:
I like his literalism. Our patent agent is Wil Jacques.
Wil Jacques:
Hi everybody.
Anthony Verna:
And, of course, the aforementioned Justin Tripodi.
Justin Tripodi:
Present and accounted for.
Anthony Verna:
All right, lovely. So, let’s talk about having an idea. I have an idea, which means I really have a solution to my problem. Justin, can I make this a business?
Justin Tripodi:
Maybe.
Jim Huerta:
Good answer. There’s, there’s a lot of things that need to be taken to account on. If your idea to a problem that you have is, is it a problem that a lot of people have? Is the market, as I mentioned in episode one, is it large enough for you to invest your time and potentially your money into taking the solution to market? You could do your research, you could talk to people within the industry to begin your process of learning and then you have to understand your process of well, what is going to be the cost and timeframe for me to make this idea reality.
Anthony Verna:
One of the things that I would say about talking to people in the industry is make sure that you don’t blab about what you’re looking to do because now you’re going to set off some, some statutes, which we’ll get to in a minute or two. But Jim and Barry, what advice would you have for the person who has an idea, has a solution to a problem in terms of talking to industry people and getting that experience that’s needed without blabbing about it and turning this into a business?
Jim Huerta: (02:09)
You know what? Years ago, one of the things that I thought was important was to, if someone had an idea, was to test the marketplace. What I mean by this is not tell the people what it was, but talk about a disruptive kind of technology that could affect people in general just to see what their reaction would be and to see that maybe there was something there. I mean, and I’ll mention Wil and I experienced that many years ago when we worked together that there was a way we were doing that we were getting the demand coming from the people who might be interested in being customers as opposed to from the top down saying, I have this patent isn’t it great? No, you had to start getting a demand where people were saying, you know, I heard this conversation and I liked that and how can I help make that happen? Or what is it going to mean to me? So, I think the idea for me would be start feeling out if you have something that has demand and I’m not sure when I say the word disruptive I say that cause it’s in vogue to say that now.
Anthony Verna:
Buzzword alert.
Jim Huerta:
I don’t know what that really means. You guys will probably correct me on that but…
Anthony Verna: (03:19)
Yeah, go ahead, Justin.
Justin Tripodi:
Yes, I think, I think when you talk about a solution, there could be a lot of different reasons why it’s a solution. It’s an absolute need that you or a large group of people have or it could be more as a luxury or an entertainment property. And a lot of times you don’t know exactly how your solution becomes a product until you begin to test it as Jim mentioned in market and a lot of very successful companies now do not start off with their initial focus. Twitter was not a real time news source when it first started. They went through several iterations that they only learned and progressed upon when they got feedback from customers. Instagram is very much in the same boat, the first product they launched with, which was built by their engineers in a back room thinking they had the greatest things to slice bread flopped in the marketplace.
Anthony Verna:
And weren’t early users are really maybe non-users mocking Twitter and Instagram. I mean I remember when people would say, Oh, are you going to do this on Twitter? Oh I’m going to get a latte. And I’m like, you know, I’m in line getting a latte, I’m in line for lunch. And like Twitter was totally useless cause that’s all people did. And same with Instagram. I mean I have trouble understanding how to use Instagram from a business standpoint. So I wind up putting up pictures of food on Instagram and, but isn’t that what Instagram is mocked for all the time too?
Justin Tripodi: (04:38)
Well, Instagram today is actually a great marketing channel, especially for consumer marketing, anywhere from lifestyle and cosmetics to even productivity tools. I now see…
Anthony Verna:
When I say I struggle, it’s because we provide services and not a good. So I’ve got client, I’m sure we all do. I’ve got clients who are killing it on Instagram because that product is that visual.
Justin Tripodi:
But I think we deviate a little bit. As Jim alluded to and I said before, and I’ll go back to even Thomas Edison with his creation of the light bulb. There is a difference between an invention and an innovation. And invention is something new and innovation is something new but is being demanded by a large audience. And at the time, the light bulb was an invention. It wasn’t innovation because frankly, not enough people had electricity in their household to utilize the light bulb. So when you’re looking at should I turn my idea into a solution and we’ll touch upon a lot of these areas. Yes, you do want to look at the size of the market, how you can position your product uniquely in the market. Could you get some kind of intellectual property protection behind your idea? And then you do over the course of this journey in this research have to figure out, well, what is my path to success if I do think this idea can become a business.
Anthony Verna:
Well, gee, Justin, that sounds
like what’s my business plan? Woo. Oh, I think we’ve been here before. But guys, let’s talk about that because I want to talk about that before we talk about IP again because before somebody speaks to me about intellectual property and I know Wil has the same philosophy. The first question is, what’s your business plan? So, I’m taking this idea and turning it into a business plan. What are some thoughts about making it full, making it existing, making it something that can be implemented? Barry, go ahead.
Barry Kolevzon: (06:35)
I think when people start a business, they’re so anxious to get started. They don’t sit down and say, talking to themselves, what do I need to do this? Most of them don’t do it. They just keep going. And the Gianna is a friend, bring them on board. I like him, right? And he’s an idiot.
Anthony Verna: (07:00)
Or he’ cousin Vinny. But that goes to lack of industry experience that I think of a lot of entrepreneurs and small businesses have. So how do I build that into my business plan that I’m not going to just, just bring whomever on that I can, that I can understand from that plan standpoint so that then I can implement it as a business owner that an expert has to come in when I need X, Y, or Z.
Barry Kolevzon: (07:27)
Well, that’s right. Well, there are different degrees of experts. And a good a person to do this is somebody who’s had experience, has gotten success out of it, maybe not the greatest success, but got success out of it. And that is something that we have in our group because we’re multitasks and if we need help, it’s very easy for us to get in touch with somebody else, you know, pinch him, wake him up and help out. But you gotta get the person who’s starting the business and they don’t know much about it. They have to find people like the NESSA group. And we can handle this. And I tell people that we handle pretty much all the areas of a company. Different people with different expertise.
Anthony Verna: (08:30)
Jim, what are you telling a small business to build that business plan better?
Jim Huerta:
Wow, that’s a loaded question. I have a question. I will fit with people and I’m kind of a I guess I am linear when it comes to the way I think, I believe that the foundation is the basis of success. So
what I tell any of my clients, and people who I’m mentoring cause I’m doing mentoring often enough, is that you have to be able to make me feel that, you know what you’re taking me into what is the path or avenue you’re taking me into? And once I’m finished talking to you, I want to see more of that path. I know we always talk about business plans the way you started. And a lot of times people say, I just want to do an executive summary and that’s good enough. I’m here to tell you that yes, you might be able to pull that off because there’s new models of executive summaries that are very colorful and very visual, but do not kid yourself that you’re not going to get into the nitty gritty. And that business plan needs for you to really go in and look at the bricks, how they laid, how the concrete laid. And each one of those pieces of the business plan needs input for people who know what they’re doing.
Wil Jacques:
The web is a dangerous thing.
Justin Tripodi:
It is a dangerous.
Anthony Verna:
And Justin let’s get to you, I’m sure you’ve got thoughts on that. And what do you want to see, after you have thoughts on this, what do you want to see from a business owner say about marketing in a business plan as well?
Justin Tripodi: (10:11)
I mean, marketing….No business nowadays is if you build it, they will come. This isn’t the Field of Dreams, right? You need to understand how you’re going to get consumers. And that rests with both your marketing and sales plan and at rest for a lot of online direct to consumer businesses with the experiences you’re creating for your customers. And I always like to say experiences online kind of rest at the intersection of marketing and technology. There’s technology nowadays that can completely deliver interactive experience experiences to captivate your audience. The challenge is what marketing for both traditional and digital. There’s so many different channels you can be on. So when I look at someone’s marketing plan, I want to understand how they’re going to get a customer, what channels are going to be on online and offline? Who are their top customers that they’re going after? How are they going to reach them with a content marketing strategy? Are they layering it with public relations? Are they layering it with influencer marketing? So a full multi-facet and integrated marketing strategy that shows me as a potential advisor and investor that they actually understand how to get a customer.
Jim Huerta: (11:21)
I want to add to that. I think that’s , Justin, you’re right on target with that. One of the things that I find, I think we’ve all found that when we go to these different events and we’re listening to people doing pitches, I’m sure you guys… you and Wil.
Anthony Verna:
Then I hear pitches all the time.
Jim Huerta:
The first thing they start talking about is how technically expertised they are and how technically brilliant they are and not once do they tell me how does your brilliance help me as an individual and I think that’s one of the areas I know you and I have discussed up before, Justin, you’ve got to tell me you need this because this is going to change things of your life. I’m not astute enough for you to tell me how to do an algorithm and how you program an algorithm. That’s not my cup of tea. I don’t know that but the minute you tell me what it means to me, then all of a sudden you got my attention and that doesn’t mean for any, any person that you talk to, investors are looking for that, too. Investors want you to talk English to them.
Justin Tripodi:
Let’s position this around startups looking at investment. That’s an area that a lot of us sit in and the landscape for a C to series a capital has changed considerably over the last 15 years in the early two thousands, two very smart maybe experienced guys, but a sound business plan can raise a couple of hundred thousand if not a million to build their product because the cost of technology come down over the last 15 years.
A lot of investors, even seed investors, angels actually expect you to have a working prototype in market before that first round.
Anthony Verna:
It’s almost as if the innovation or business creation cycle has moved up a stage for everybody.
Justin Tripodi:
Much more burden is put on the founder to have a functioning or a functional prototype in market to validate that there is some kind of consumer demand. Whenever you’re going out for your first round of funding, you have the most approved, therefore you are the most risky. And that’s why it is harder to get your seed capital in the door and as much as you can do to mitigate that risk, whether it’s do a sound business strategy and growth plan, not just a business plan, not just the document, but actually the words in the document that shows this is how I’m uniquely positioned, this is how I’m going to make money. This is my business model and this is how I’m going to get customers and to provide an investor comfort or what I like to say, the warm and fuzzies that his money’s actually going to provide a return. The better off your business will be for success.
Jim Huerta:
I second that. That’s wonderful.
Justin Tripodi:
Well, thank you.
Anthony Verna: (13:51)
So now that we have at least some ideas on a business plan and putting that together, Wil, let’s start with how you and I would take that business plan and get some IP protection out of it. So, first things first somebody comes to you and they have this product or, or algorithm or whatever it is. What, what do we need to do? First thing to think about patent protection?
Wil Jacques:
Well, you should do a search of course.
Anthony Verna:
Yes. Number one. So, what are we looking for in a patent search?
Wil Jacques:
You are looking for similarities. You’re looking for ideas like yours that may have already been disclosed, which would say that you’re not going to get a patent. So, anything that exists in the world of the prior art would negate a patent ability of your idea.
Hence because it’s already out there. Correct. Right, right. But it goes further than that. I, you know, it’s a kind of transactional thing to look at. Patent searches is just that I want to see whether or not there is something out there that is similar to what it is I intend or the same as what I intend. You want to take your entrepreneurs just one step further and you want to see the landscape of what potentially might be available as well. So, you’re looking at gaps, you’re looking at white space, you’re looking at green space, and a patent search can provide that as well.
Anthony Verna: (15:25)
And I think that’s an important thought because when I first started practicing law at my first firm, it really was that transactional philosophy here, find what’s there, draft the opinion letter and just move on to the next thing and make sure that your patent search to make sure your patents search finds everything that’s related to the span and then move on. What I what I like about your philosophy, Wil, is that it’s much more broadly like, yes, you have to do that, but there has to be a broader level than that as well.
Wil Jacques: (15:57)
Well, otherwise you could derail your enthusiasm, you could derail the business. So let’s just say it’s, it’s the difference between one claim element that would distinguish you from the prior art. You find a piece of art out there that says, Oh my gosh, I’m not going to get a patent. But as I tell folks, maybe it is the bane of also having an MBA, you know, to kind of look at it that way. But when they come to me and let’s say we were blocked by patent, then I go, well if there’s a patent out there, maybe we should take a look at that patent and part of your business plan doesn’t become, you know, getting a patent around your idea, which has already been disclosed. It may actually include in licensing the patent that already exists that’s sitting there potentially in your way. What percentage of patents are ever really commercialized?
Anthony Verna:
The ongoing theory is that it’s somewhere around 4 to 5% of patents are commercialized and that number comes from, well, one, we know IBM is still the number one patent filer in the United States. So a lot of those ideas are just thrown against the wall and never come to really fruition from a commercialization standpoint for a million different reasons. But IBM is still throwing all of these ideas against the wall hoping that something sticks. But also number two is that a lot of small businesses file a patent because they know it’s a good idea to get a patent and they don’t have this underlying philosophy that all of us are talking about today of putting together that business plan and after a while it just of fails.
The one thing that comes to mind right off the top of my head as an example is the fidget spinner device. Like that was a patent 20 years ago and when did it become a fad after the patent expired and anybody could just go ahead and make it because the person who put it together didn’t know how to deal with it. Justin, I know you had a thought here.
Justin Tripodi: (18:14)
I did one. You’re absolutely right with IBM and Google. I mean they have dedicated people. All they do is prepare filings for patents all day. And if you guys go to any of these past searches, I like to use Justia patents, J U S T I A patents.com. Shout out to them. If you search Google, IBM, you’ll see the same guy’s name on a lot of their patents, especially recently. I always thought that was interesting. But from a business plan point of view, especially if you’re trying to raise money, what having IP behind you does, as we said before, is create some kind of asset on the books. An investor can look at that and say, well, if all else fails, maybe they’ll collateralize the IP on. I’ll take ownership if they can’t return my investment to me, whatever the terms are of your agreement. But that is a possibility. Anthony, if I could just go back to the marketing question you asked me? First, two important metrics that I forgot to mention that should be included in a business plan is your cost of customer acquisition, how much it’s going to cost you to get the average customer and the lifetime value of that customer. Those are true to very traditional metrics or KPIs. If you need to know what a KPI is go back to episode one.
An investor, whether it’s an angel or a VC is going to look for.
Anthony Verna:
Sure. So, Wil, taking all this information, how do you get it done and make sure that this is something that’s protected. If it’s something that can be protected.
Wil Jacques:
Let’s see if I understand your question.
Anthony Verna:
I’m just saying how do we then go, how do we know that we’re able to go from patent search, the green light on filing a patent and then actually having something in our hands that says this is what the product is. This is what our invention is.
Wil Jacques:
You may not know that until years later to be to be quite honest with you. So, you have to be willing to make your best guess based on a disclosure that you have.
And again, reviewing the, the landscape or viewing the patent space of all that art that has come back to you and saying this was my original idea, the patent search still validates my original idea. Let’s file that patent. But be aware that as you filed that patent time starts to move on. So, you have to kind of recognize and continue to look at the marketplace. Here’s an interesting thing most entrepreneurs don’t understand or even people who file for patents that you know that patent searched it, you may rely on to make your early decisions is based on assets that haven’t been published until 18 months after they were filed. So they are already aged by the time you see them in publication, so your quote unquote patent searching also has to depend on your ability to do CI. And that is those experts, those professionals that are a part of your team, that go to the meetings, they meet with people at other venture meetings or whatever. You have to keep your ear open to see where the technology may be headed, what people are thinking, and then bring that learning back to help you pivot. Pivoting meaning you may need to file additional patents in order to potentially secure your space.
Anthony Verna: (21:55)
So we call that, we call that patent fencing. So, let’s talk about, or one of my professors was on CBS calling it patent thickening, but I prefer fencing. I like fencing. Let’s, let’s talk about that for a second. What’s your philosophy on filing multiple patents then on one particular product or set of products or however that product is defined?
Wil Jacques: (22:21)
Oh yeah. Well there, there are two ways to answer the question. And my colleague, Justin just alerted me to one aspect of how I might answer that question. So, part of your portfolio may include utility patents, which covers the actual inner workings of the technology itself, right? Another part of your patent filing for that same product, the same product space may be design patents. So, design patents are ornamental. They may in fact only. Well they do in fact only cover what something looks like. But a lot of people have recognized that what things look like in the marketplace has a kind of temporal or feel kind of utility to them. And so they grow in terms of just how they look, but they almost have utility. So that’s another part of your portfolio that you will file around.
The other thing, which is not necessarily in favor these days because of a precedent into court, but there’s still some room for people called them business method patents. I still called them process patents to processes, algorithms, processes, to the extent that they are still subject matter eligible. But that’s a-whole-nother discussion. The other to answer the question in a different way and then in this case I’ll just stick to utility patents is yes, you do want to file potentially multiple patents, but they don’t necessarily get filed at the same time. They get filed because as you move down your product build, your business development, you start to learn things and if they are new, then you have to file what we call continuation and parts in order to again, build this beds or build this this portfolio of I have a protectable ideas around your product.
But again, as you said, you don’t know that until you’ve moved down the road.
Justin Tripodi:
Well, I’m glad you mentioned that and I think it would be useful for our listeners to know, especially for the early stage founders, given the theme of this episode being I have a solution. How do I turn it into a business? When should they start thinking about IP?
Anthony Verna:
I always say from the very beginning.
Justin Tripodi:
Taking into account that most early stage founders have very tight budgets that need to be put towards maybe marketing, probably technology, maybe some other legal components of their business. So they’re bootstrapping. Yeah. As a bootstrapping entrepreneur, when should I start thinking about and pursuing some kind of intellectual property?
Wil Jacques:
Okay. So, let me… There are a couple of questions being asked there. But you know, again, no hubris intended, but you have to have some money. Okay? You, if you’re going to be in business, if you’re going to pursue a commerce in America, you have to have some money.
Now, does it mean you have to have a lot of money? Maybe not. So maybe in your search, which for simple products… I won’t give a dollar range, but let’s say, it’s about a thousand dollars. Okay. So, you want to get your search and then you may take advantage of things like a provisional applications, which I don’t like, but they may be less expensive. They may provide you a timestamp, which gives you a year before you have to file that regular patent. So, it gives you an opportunity to actually even put the product into the market and stamp it as patent pending. You know, and maybe you generate some dollars, maybe you don’t. But you know, it is, I think it’s more of a business mindset than an IP.
Jim Huerta:
I think it’s a deterrent to, well when you say patent pending on the product that you potentially competitive, see that at least they know that there’s something going on that they have to be real careful how they approach it.
Anthony Verna:
The other, the other question, the other way to, to look at this is that if your product is not ready, the market, you could also set up a series of nondisclosure agreements with your advisors, your factory or prototypers whoever might be in that line until you’re ready to put it on the market. So this way it’s a trade secret. Now, even though end products are not trade secrets, it’s not an end product cause it’s not for sale yet. So this way you can keep it as a trade secret and then maybe get yourself, build yourself some time this way, but you have to put the security protocols into place as well. Justin, go ahead.
Justin Tripodi:
I’m glad you said talking about your product. I know, when in my younger days, and I think we all fall victim of this is you, you keep everything close to the vest and you’re not asking the right people the right questions because you don’t want to give away your secret sauce.
Well, one, you know something I always kid around my brother with his, if you think you have a unique, neat, unique idea in this multi-billion person world, slap yourself because someone has already thought of that. A lot of it comes down to execution. It really does and the way you perfect execution is by getting feedback on what you want to do and yes, you should certainly have NDAs in place, nondisclosure agreements in place for the right individuals, but you should figure out a way to talk about your idea, your business without giving away the secret sauce. Know what questions you can ask that are a bit leading to get some answers and to qualify some of the assumptions you’re making. And if I could just ask Wil one more question. I think it’s relative. Thank you. One response I’ve gotten some from some individuals who I’m recommending that they file IP is, I know I need it and I can probably afford it now, but I don’t, I don’t have the money to defend it if I need to. So therefore, I don’t want to get it. What would you say to those individuals?
Wil Jacques:
Stinking thinking.
Justin Tripodi:
Stinking thinking. Did you trademark that?
Wil Jacques: (28:39)
It’s insurance. I understand we can’t always make decisions based on the inability to fund them. As Anthony alluded to, you’re gonna have to find people you trust. I’ll go back to something that doesn’t necessarily speak to the IP world, but, Oh my gosh, who’s the book? You know, the gentleman that I’m talking about, he’ll come to mind in a minute, but what I’m trying to suggest is that you have to build that team around you, that team of trusted people, and you’re going to have to share that idea. And in some cases, they may even have to fork or share in some piece of the dollars in order to provide that early protection. To actually go out into the world as a small entrepreneur, you’re not an IBM, you’re not a GM, you’re not a general electric, and that your idea won’t be usurped is fool’s play.
Jim Huerta:
I think one of the things that getting back to Justin’s point is that you really have to keep this close to the vest as possible, which you repeated. But I do have a question. Please correct me if I’m wrong. I think a lot of people approached, the whole idea of an idea intellectual property as opposed to intellectual capital, I. E. a corporate secret. Tell us what you think Wil is, where do you separate those two and how do you separate?
Wil Jacques:
I think I might’ve missed a very important point even to Justin’s question. So, there is again, I always make the separation. There’s the business and how it is I intend to make money, my team, my market, you know, my cost of acquiring customers and then there is the technology that potentially drives that business.
And so at these venture meetings, that a lot of our clients go to, in order to try to raise money, your charge is to present your idea, at least the technology part in a black box. And so you don’t need to necessarily discuss, the inner workings of the black box in order to necessarily convince or get interest from the venture community or from the business community or even from customers could probably care less. Most of them don’t know how their products work per se. They just know it does what they need them to do. And so when you present your idea, you present the technology in the black box, the input is what the resources, the team, the people, the output is Mr. Investor, if you put in a dollar, you’re going to get five out. Now, if that’s something that interests you, if the market interests you, if, if the idea, you know, around a product interests you, now the NDA potentially becomes stronger. And even I say if you built that kind of relationship your NDA is only as good as your ability to sue if people decide that they’re going to violate it.
Jim Huerta:
You know, Wil, you used a, a word that I’m not always fond of in business and that’s trust.
Wil Jacques: (32:07)
You just haven’t lived long enough.
Justin Tripodi:
I am a jaded New Yorker. I’ve had successful business relationships. I’ve had non-successful business relationships. I think we’re at a time right now new businesses are spinning up all the time. Partnerships are being formed without longstanding relationships behind them. And there is this blind trust and that needs to be put) there, that shouldn’t take you away from putting the right agreements together, have the right vesting schedules together, which is how someone will accrue, invest their equity over time. And more importantly, it’s important to tackle complicated situations as they arrive and not push you off necessary decisions or conversations that need to be had. Because that’s when resentment starts to form. And that’s when I’ve seen a lot of businesses fall apart very quickly, even after investment money has come in the door. So, there is certainly an element of trust, but make sure you have the right agreements and success milestones in place. And there’s a quote I heard a while ago, which I love, which is when a business first starts, everyone wants to fight over the equity that they deserve, but it’s really the journey that shows who deserves what equity. So always keep that in mind that relationships can change over time given people’s situations personally and professionally, and don’t be afraid to have conversations. Pursue any changes that you think are purposeful for the success of the business.
Anthony Verna:
Let me and Justin, you’re right, we are, we are running out of time for this episode, but let me leave you with this thought on ideas, um, from the trademark world since we haven’t had a real chance to talk about that in this episode. We can all agree that the craft beverage industry has exploded in the past decade. Well, in 2015, we saw the most trademark infringement lawsuits and trademark challenges between craft breweries, wineries, and distilleries. And then in 2016 was the most trademark infringement lawsuits and challenges between those companies. And then 2017 was more than that. And the reason for that is, is so many people are coming to the same ideas independently from a branding standpoint. And if that’s true from a branding standpoint, that’s going to be true from the utility and invention standpoint as well. Alright, I’m Anthony Verna. Thank you for listening to episode two of the special podcast mini-series with the NESSA group. We look forward to having you for episode three, which we start talking about specific case studies. Thank you very much.