Editors Note: Andrew J. Sherman is a Partner in the Washington, D.C. office of Dickstein Shaprio Morin & Oshinsky LLP and is co-founder of Grow Fast Grow Right Enterprises (GFGR), LLC, a provider of educational and advisory support to growing companies. This column is the latest in the Entrepreneurial Spirit series done in parternship between WRAL Local Tech Wire and the Council for Entrepreneurial Development.
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WASHINGTON,CEOs and business leaders in and around the Research Triangle may be guilty of a very serious strategic sin: the failure to properly protect, mine and harvest the company’s intellectual property.
From 1997 to 2001, billions of dollars went into the venture capital and private equity markets and the primary use of these proceeds by entrepreneurs was the creation of intellectual property and other intangible assets. In many cases, five years later, however, emerging growth and middle market companies have failed to leverage this intellectual capital into new revenue streams, profit centers and market opportunities because of a singular focus on the company’s core business or a lack of strategic vision or expertise to uncover or identify other applications or distribution channels. Investors and tech executives may also lack the proper tools to understand and analyze the value of the company’s intellectual assets.
In a recent study by Professor Baruch Lev at New York University, only 15 percent of the “true value” of the S&P 500 was found to be captured in their financial statements. This gap in understanding points out the critical need for a legal and strategic analysis of a portfolio company’s intellectual property portfolio.
To begin uncovering hidden value, entrepreneurs and senior executives of growing companies should go through the process of an intellectual property audit. The intellectual property audit will examine the company’s intellectual asset management (IAM) system (if any), ensure that the intangible assets of the company have been properly protected and most importantly, will serve as the starting point for the strategic planning exercise which will be focused on identifying ancillary applications and markets for the company’s intangible assets, which could create new income streams and profit centers for the company via licensing, joint ventures, strategic alliances and even business format franchising.
The intellectual property audit and strategic planning process based upon the audit results will increase shareholder value by ensuring that the highest and best uses of the company’s intangible assets are pursued — which could also be part of the turnaround or restructuring plan of a troubled portfolio company or which could serve at the core of the value proposition in positioning a portfolio company for sale.
Intellectual Capital consists of human capital, intellectual property and relationship capital and is the key asset for driving business growth in all types of economic conditions. The biggest challenge that many entrepreneurial companies face is how to keep growing in a slowing economy. For many years, companies of all sizes and in many different industries did not understand how to harvest their intangible assets and traditionally viewed these assets more passively as a way to defend market share instead of proactively viewing these assets as a source of new opportunity.
IP Strategic Planning
The strategic planning process will help uncover opportunities for growth. Key questions include:
By making the company’s intellectual assets the focus of its strategic planning, new opportunities are likely to be identified. The entrepreneurial company’s technology might be licensed into non-core, non-competing applications or industries, its distribution channels might be used for new products and services which are co-developed with others as via in-licensing transactions, its internal software management tools might be licensed to others within the industry (provided that competitive advantage is not lost), its employee training programs might have applicability or uses to third parties, its geographic expansion plans might utilize a business format franchising approach in order to preserve working capital, etc. In summary, there are many different ways to approach intellectual capital leveraging.
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Andrew Sherman will lead the upcoming Grow Fast Grow Right Enterprises’ Business Growth Strategies Event on Wednesday, Jan. 25, 2006, from 8:30 a.m. to 3:30 p.m. at the Jane S. McKimmon Conference and Training Center on the campus of North Carolina State University in Raleigh, NC. The Council for Entrepreneurial Development is helping promote the event. For more information or to register, visit www.growfastgrowright.com
