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PROVIDE ADVICE TO AN ENTREPRENEUR ABOUT INTELLECTUAL PROPERTY PROTECTION
Locked doors and a security system protect your equipment, inventory and payroll. But what protects your business’s most valuable possessions? IP laws can protect your trade secrets, trademarks and product design, provided you take the proper steps. Chicago attorney Kara E.F. Cenar of Welsh and Katz, an IP firm, contends that businesses should start thinking about these issues earlier than most do. “Small businesses tend to delay securing IP protection because of the expense,” Cenar says. “They tend not to see the value of IP until a competitor infringes.” But a business that hasn’t applied for copyrights or patents and actively defended tem will likely have trouble making its case in court.
One reason many business owners don’t protect their intellectual property is that they don’t recognize the value of the intangibles they own. Cenar advises business owners to take their business plans to an experienced IP attorney and discuss how to deal with these issues. Spending money upfront for legal help can save a great deal later by giving you strong copyright or trademark rights, which can deter competitors from infringing and avoid litigation later.
Once you’ve figured out what’s worth protecting, you have to decide how to protect it. That isn’t always obvious. Traditionally, patents prohibit others from copying new devices and processes, while copyrights do the same for creative endeavors such as books, music and software. In many cases, though, the categories overlap. Likewise, trademark law now extends to such distinctive elements as a product’s color and shape. Trade dress laws concerns how the product is packaged and advertised. You might be able to choose what kind of protection to seek.
For instance, one of Welsh & Katz’s clients is Ty Inc., maker of plush toys. Before launching the Beanie Baby line, Cenar explains, the owners brought in business and marketing plans to discuss IP issues. The plan was for a limited number of toys in a variety of styles, and no advertising except word-of-mouth. Getting a patent on a plush toy might have been impossible and would have taken several years, too long for easily copied toys. Trademark and trade dress protection wouldn’t help much, because the company planned a variety of styles. But copyrights are available for sculptural art, and they’re inexpensive and easy to obtain. The company chose to register copyrights and defend them vigorously. Cenar’s firm has fended off numerous knockoffs.
That’s the next step: monitoring the market-place for knockoffs and trademark infringement, and taking increasingly firm steps to enforce your rights. Efforts typically begin with a letter of warning and could end with a court-ordered cease-and-desist order or even an award of damages. “If you don’t take the time to enforce [your trademark], it becomes a very weak mark,” Cenar says. But a strong mark deters infringement, wins lawsuits and gets people to settle early.” Sleep on your rights, and you’’’ lose them. Be proactive, and you’ll protect them – and save money in the long run.
An inventor with a newly invented technology comes to you for advice on the following matters:
1. In running this new venture, I need to invest al available resources in producing the products and attracting customers. How important is it for me to divert money from those efforts to protect my intellectual property?
2. I have sufficient resources to obtain intellectual property protection, but how effective is that protection without a large stock of resources to invest in going after those that infringe on my rights? If I do not have the resources to defend a patent, is it worth obtaining one in the first place?
3. Are there circumstances when it is better for me not to be an innovator but rather produce “knock-offs” of other innovations?
Case II - Provide advice to an entrepreneur about firing employees
Firing an employee is a messy business. Just the thought of having to recruit, train and manage a new sales soul is enough to keep some sales managers from following through with the task. But holding on to a salesperson who’s not performing or who’s disruptive to the team is guaranteed to exacerbate matters down the road. But how do you know when it’s time to say “you’ve gotta go”? It’s simple, according to Tricia Timkin: “Lack of production, lack of production, lack of production,” says the president of Padigent, a Carol Stream, Illinois, human resources consulting firm for emerging companies.
Dave Anderson, president of Dave Anderson’s Learn to Lead, concurs that performance is one criterion for firing. Anderson, whose Los Altos, California, company offers sales, management and leadership consulting, thinks reps who are “dishonest, selfish or disrespectful” should face the axe.
You may fear firing a rep will cause a morale dip in the troops. After all, someone’s buddy is getting shown the door. But making a tough choice can bolster the spirits of your sales squad. Says Tamkin: “Firing can positively affect morale [because] it sends a message that the company will take strong measures to ensure the success of the organization. Poor performers lower the morale of the team, and they continually break momentum and diminish the credibility of the sales manager.
Before firing, however, steps must be taken to legally protect your business. It’s crucial that the employee has been warned in advance in writing. Coaching sessions with failing sales people will help protect you when it comes time to separate. Tamkin advises that documentation must be developed in advance of the firing, and that when it comes time for the employee to go, the manger should conduct an exit interview. Though firing will never be a savory part of a manager’s job description, it’s short – term pain for long – term gain. “Managers have to realize that when they keep the wrong person,” Anderson says, “there’s more damage to the company than just lack of production.”
Here are some firing guidelines from William Skip Miller’s ProActive Sales Management (AMACOM):
1. Never in your office: if it’s your office, you can’t leave if the employee wants to stay and talk.
2. Short and Sweet: As you walk in the door, say, “The reason I’m here is to tell this is your last day of employment with this company.” Just get it out.
3. Never on a Friday: If fired on a Friday, the employee can’t start the process of feeling good. All he or she can do is stew about it over the weekend.
4. Outside help: If the employee says he or she has consulted an attorney or other legal counsel, stop the conversation immediately and consult your HR department or attorney, whoever helped you draft your company policy.
5. No hanging around: Personal effects can be retrieved, but have the person leave the building.
Advice to an entrepreneur:
An entrepreneur, whose business has stopped growing, has read the above article and comes to you for advice:
1. Gee, these managers discussed in the article are a bit rough. Even if one particular person is not producing as expected, doesn’t this person still deserve to be treated with respect?
2. It appears that the automatic assumption is that the employee is at fault for not performing and therefore should be fired. But shouldn’t the responsibility fall on me as the manager and the system that I have introduced? Maybe the person is performing as well as the situation allows?
3. How am I to build team spirit within my small company when I single out one person for lack of production and fire him or her?
Case III - Provide advice to an entrepreneur about small business investment companies
It started out as a straightforward consulting project for Mahendra Vora and research partner Sundar Kadaya. They were analyzing software trends and perusing market research studies to assess the size of various software markets. But after spending 40 hours looking for information that should have taken 10 minutes to access, the pair concluded that more advanced tools were needed to search the internet and databases of public information. Within months, they launched Intelliseek Inc., providing software to capture, track and analyze information for use in strategic planning, market research, product development and brand marketing. Vora, 39, was no stranger to start-ups. By the time he co-founded Intelliseek in 1997, he already had three business launches under his belt. He sold all three to Fortune 500 firms, providing capital for Intelliseek. His initial investment of a few million dollars supported operations the first couple of years and through two major product launches.
By 1999, the Cincinnati Company was laying the groundwork for its first round of venture capital.Vora had had two years to contemplate his dream investor. Foremost, size did matter: The venture capitalist should have the wherewithal for ongoing financing, but not be so large that it shunned all but elaborate business models. Finding an investor with a broad network of investing partners also was important to the $10million company. “If you become wildly successful and plan to raise $50 million someday, then [the investor] should have access to the big investors. The network is also important because it can [introduce] you to customers,” says Vora, whose clients include CBS, Ford Motor Co. and Nokia. Finally, Vora was looking for operational experience. “A lot of VCs are phenomenal in advising you about what to do, but they’ve never done it themselves,” he observes. Vora ultimately found his venture match in Cincinnati-based River Cities Capital Funds, a small business investment company. While River Cities was not large, it was well-connected and managed by industry veterans with extensive professional experience.
Licensed and regulated by the SBA, SBICs are generally organized and operated like any other venture capital fund. But unlike traditional funds, SBICs use their own capital and long-term loans to small companies. On the whole, SBICs tend to be more risk-tolerant than banks or traditional venture capitalists….Inteliseek’s SBIC banker removed barriers to reaching larger, mainstream investors. Led by river cities capital funds, the initial $6 million investment included capital from the venture arm of Nokia; later investors included Ford Motor Co. and General Atlantic Partners LLC. “once you get a VC like River Cities, it is much easier to get access to bigger VCs,” says Vora. “They can go to VCs and say ‘One of our companies is doing so well, we’re going to put in more money, and you guys should come in’.”
Down But Not Out
SBICs invested roughly $2.8 billion in about 2,100 companies in the 12-month period ending September 30, 2002 down from $4.6 billion invested in 2,254 companies in the same period one year earlier. Like mainstream investors, they have had to adjust to deteriorating economic conditions. “Valuations have come down on deals, and due diligence periods have increased,” says Patrick Hamner, vice resident of Capital Southwest Corp., a Dallas-based SBIC. “People are being far more discriminating in how they invest their capital.”
“The bar has been raised even more for small businesses trying to get capital,” he continues. “As opposed to the overall venture industry, which has had a very marked decline in financing activity, SBICs are down but still active.”
Nor has quality been an overriding concern, even as SBICs engage in riskier deals than their mainstream counterparts. “Part of what has happened with the bursting of the bubble is that the ideas being proposed are based on more substantive models,” says Edwin Robinson, managing director of River Cities Capital Funds. “A lot of the excess is being wrung out the system.” While the venture shakeup has impacted conventional the way some SBICs operate. “During the bubble years, there was probably more of an inclination to overfund,” says NASBICs Mercer. “I don’t mean in the sense that money might not be justified, but to make the unconditional investment. I suspect that what you’re seeing now is a lot more investing on a milestone basis.” For instance, a company that requires $3 million over three years is likely to receive $1 million upfront, getting the rest after meeting revenue and growth targets. Fewer venture dollars, coupled with the banking industry’s reticence to lend to small businesses, has contributed to an overall capital shortage, adds Mercer. “Banks that had been out a little bit further on the risk curve than they probably normally do,” he says. “The banks’ own proclivity and the regulators kind of forced a pullback, so there has been a tremendous pullback in bank credit availability even for small businesses that have had long time banking relationships.”
The SBIC program, meanwhile, is attracting mainstream investors having difficulty raising capital for venture-backed investments. The increased interest bodes well for the small firms that SBICs target: companies with a net worth of less than $18 million and average after-tax earning of less than $6 million for the past two years.
Advice to an entrepreneur
An entrepreneur, who is an owner manager of a small business and looking to raise $4,00,000, has read the above article and comes to you for advice:
1. What are the advantages of going to an SBIC over and above a business angle or venture capitalist?
2. What are the disadvantages and how can they be minimized?
Case IV -Provide advice to an entrepreneur about being more innovative
When Neil Franklin began offering round-the-clock telephone customer service in 1998, customers loved it. The offering fit the strategic direction Franklin had in mind for Dataworkforce, his Dallas-based telecommunications – engineer staffing agency, so he invested in a phone system to route after hours calls to his 10 employees’ home and mobile phones. Today, Franklin, 38, has nearly 50 employees and continues to explore ways to improve Dataworkforce’s service. Twenty-four-hour phone service has stayed, but other trials have not. One failure was developing individual Web sites for each customer. “We took it too far and spent $30,000 then abandoned it,” Franklin recalls. A try at globally extending the brand by advertising in major world cities was also dropped. “It worked pretty well,” Franklin says, “until you added up the cost.”
Franklin’s efforts are similar to an approach called “portfolios of initiatives” strategy. The idea, according to Lowell Bryan, a principal in McKinney & Co., the NYC consulting firm that developed it, is to always have a number of efforts underway to offer new products and services, attack new markets or otherwise implement strategies, and to actively manage these experiments so you don’t miss an opportunity or over commit to an unproven idea.
The portfolio of initiatives approach addresses a weakness of conventional business plans-that they make assumptions about uncertain future developments, such as market and technological trends, customer responses, sales and competitor reactions. Bryan compares the portfolio of initiatives strategy to the ship convoys used in World War II to get supplies across oceans. By assembling groups of military and transport vessels and sending them in a mutually supportive group, planners could rely on at least some reaching their destination. In the same way, entrepreneurs with a portfolio of initiatives can expect some of them to pan out.
Making a Plan
Three steps define the portfolio of initiatives approach. First, you search for initiatives in which you have or can readily acquire a familiarity advantage – meaning you know more than competitors about a business. You can gain familiarity advantage using low-cost pilot programs and experiments, or by partnering with more knowledgeable allies. Avoid business in which you can’t acquire a familiarity advantage, Bryan says.
After you identify familiarity-advantaged initiatives, began investing in them using a disciplined, dynamic management approach. Pay attention to how initiatives relate to each other. They should be diverse enough that the failure of one wont endanger the others, but should also all fit into your overall strategic direction. Investments, represented by product development efforts, pilot programs, market tests and the like, should start small and increase only as they prove themselves. Avoid over investing before initiatives have proved themselves. The third step is to pull the plug on initiatives that aren’t working out, and step up investment in others. A portfolio of initiatives will work in any size company. Franklin pursues 20 to 30 at any time, knowing 90 percent wont pan out, “The main idea is to keep those initiatives running,” he says. “If you don’t, you’re slowing down.”
Advice to an entrepreneur
An entrepreneur, who wants his firm to be more innovative, has read the above article and come to you for advice:
1. This whole idea of experimentation seems to make sense, but all those little failures can add up, and if there enough of them, then this could lead to one big failure-the business going down the drain. How can I best get the advantages of experimentation in terms of innovation while also reduction the costs so that I don’t run the risk of losing my business?
2. My employees, buyers, and suppliers like working for my company because we have a lot of wins. I am not sure how they will take it when our company begins to have a lot more failures (even if those failures are small)- it is a psychological thing. How can I handle this trade-off?
3. Even if everyone else accepts it, I am not sure how I will cope. When projects fail it hits me pretty hard emotionally. Is it just that I am not cut out for this type of approach?
Case V - PROVIDE ADVICE TO AN ENTREPRENEUR ABOUT NONTRADITIONAL FINANCING
When Lissa D’Aquanni created a gourmet chocolate business in her Albany, New York, basement in 1998, she had not only a passion for candy-making, but also a knack for spurring citizen involvement. The former nonprofit executive had worked for women’s advocacy groups, most recently promoting breast cancer awareness. If there was one thing she knew, it was how to rally community support.
Her ability to leverage local resources would be invaluable as she made her business a fixture of her Albany neighborhood. And in no area were those skills as critical as in financing last year, D’Aquanni wanted to move her business, the chocolate Gecko, to an abandoned building three blocks away, she needed $25,000.” Volunteers also helped renovate the building, cutting project costs form an estimated $3,00,000.
Check out D’Aquanni’s unorthodox and creative financing plan: An economic development group, the Albany Local Development Corp., loaned her $95,000 to buy the building. D’Aquanni obtained a $1,00,000 government guaranteed loan from a local credit union to renovate the structure. Façade improvements were funded through a matching grant program to encourage commercial development in Albany. A local community development financial institution used a state program to fund energy-efficient upgrades, including new windows, light fixtures, furnaces and siding. Says D’Aquanni, “ There were lots of different pieces of the puzzle to identify and figure out how to access.”
Conventional financing wasn’t an option. “I was looking at a business that did about $44,000 in sales doing a $260,000 project, and the traditional funders were apprehensive,” explains D’Aquanni, 37. They urged her to rent a storefront rather than buy the rundown building. Undeterred, D’Aquanni met with a neighborhood group to develop her expansion plan. It wasn’t the first time the community had helped out. In 1999, the cashstrapped chocolatier needed molds and a temperer for the Christmas rush. Recalling a strategy she had seen in a magazine, she sold discounted gift certificates to raise capital. D’Aquanni offered customers $25 in free chocolates for every $100 in gift certificates purchase. “A lot of folks mailed them as gifts to friends, family and co-workers,” D’Aquanni says. “ And most of those people ordered chocolates. My customer base expanded.”
Indeed, many entrepreneurs successfully launch a business only to encounter funding hardships as they attempt to grow. The ability to think outside the box, experts say, is critical for firms short on funding. “There are pockets of money out there, whether it be municipalities, counties, chambers of commerce,” says Bill Brigham, Director of the Small Business Development Center in Albany. “Those are the loan programs that no one seems to have information about. A lot of these programs will not require the collateral and cash that is typical of traditional [loans]. They may be a little more lenient as far as credit history goes. That’s one of the key roles we can play-what entrepreneur is going to think [he or she] can qualify for HUD money?
Advice to an entrepreneur
An entrepreneur, who is looking to expand but has limited access to traditional financing, has read the above article and comes to you for advice:
1. I want to find a little pot of gold like Lissa D’Aquanni. Where should I look?
2. I like the gift certificate idea to raise money and build my business. What other types of products do you think that approach will work for?
3. Over the years I have paid a lot of taxes. Should I feel guilty for accessing government – subsidized monies to build my business, or should I feel justified?