The Financial Express

Intellectual properties (IP) strategy for startup success

| Updated: October 13, 2019 20:17:10

Intellectual properties (IP) strategy for startup success

Despite the promise of creating an endless opportunity of growth, as high as 90 per cent mortality rate of startups is a big concern. In creating a blue ocean opportunity, startups are in the mission of taking ideas to market. As opposed to trying to outperform their rivals to grab a greater share of existing demand in a matured industry, they are in a mission of creating new demand--rather than fighting in a jam-packed market space. In contrary to competing in a crowded market space of matured industry, where products and growth are negligible, startups are in a journey in creating an ample opportunity for growth that is both profitable and rapid. Unfortunately, irrespective of the greatness of the idea and strength of the underlying technology core (often emerging one), innovative products of startups invariably enter the market in a primitive form. Such primitive products create very little willingness to pay among a very small group of customers, resulting in loss-making revenue generation. How to turn this loss into profit and create new customers and market is a core challenge for startup success.

Subsidy is required to support the loss-making operation. But it's not a sustainable solution. Rather the underlying technology core should be amenable to rapid improvement supporting the delivery of subsequent releases of better quality versions of the product at lower cost through the endless journey of incremental innovation-gradually turning the loss-making revenue to profit, preferably without increasing the price. The success of a startup depends on selecting suitable technology core and undertaking R&D in creating intellectual assets and integrating them into products and process so that blue ocean emerges out of ideas. For example, to succeed in food delivery, innovation should be more than taking orders with apps and monitoring the progress by looking at smartphones.  In the recent past, dozens of e-commerce inventions in food delivery got patents around the world. It is no surprise that the US and China have produced the majority of these patents. The patents range from refrigeration methods for food home deliveries to web-based apps that allow users to order food online and track their purchases. Chinese inventors have also patented robotic food delivery machines, fitting with the trend in automation innovation. Particularly, for food delivery, patented ideas focus on (i) refrigeration methods that enable perishable foods to stay fresh during delivery, (ii) heating apparatuses that enable restaurant food to retain its ideal temperature, and (iii) ordering methods that facilitate the consumers' ability to order exactly what they want. Despite the high activity of food delivery startups virtually in every major city across the world, patent filing activity highly varies, though. For example, as opposed to the filling of more than 700 food delivery patents in the USA, only a few were filed in India. Such variation in intellectual property front will show significant contrast in startup successes among countries.

Within the context of Schumpeter's theory of creative destruction or Christenson's concept of destructive innovation, startups are in a mission of offering substitution to existing products. To succeed, these substitutions should be of higher quality. And they should also cost less. Ideas around emerging technology core are the underpinning in addressing these conflicting variables simultaneously. Once there is progress in addressing them, competition shows up offering imitation, turning a newly created tiny blue ocean into crowded market space. Such reality demands that startups pursue legal protection around their ideas into intellectual properties. Such intellectual properties (IPs) are vital in making their innovations a stronger substitute to existing products on one hand. On the other hand, IPs play vital role in creating some degree of barrier in the competition space, whether through speed and/or legal measures, or as a combination of both.  

Basically, startups face two major challenges in creating success. The first one is about making the innovation around new technology core a better as well as cheaper substitute, creating a blue ocean. Secondly, they also need to create competition barrier so that followers do not invade into the newly created opportunity easily by imitating. To address these two vital issues, IP strategy is a core building block. It should not be an afterthought. Rather, from the very beginning, they should make IP strategy as an integral part of the winning plan. Their IP strategy should focus on developing a course of action that utilizes the intellectual property to enable a startup to sustainably offer increasingly higher value at decreasing cost, for expanding the boundary of newly created market and increasing market share, and maintaining the position in the competition space.

In the past, developing countries attempted to overlook IP issues, as it was perceived as a barrier to transfer technology from advanced countries. But in the absence of some degree of legal supports to creating excludable space of idea development and appropriation for profit, startups will highly likely fail to reach profit, let alone sustaining profit. But in creating such profit-making space, competition should not be throttled. In the absence of competition, ideas will not fully grow in creating a large big ocean. Many of the developing countries also have very negligible R&D capacity. They are in the process of increasing R&D investment to graduate from low middle-income status. In addition to financing, their capability of turning outputs of R&D into economic growth is also a major issue. It appears that developing R&D capacity for facilitating the IP strategy for startups could be a good beginning in leveraging R&D investment for driving growth. 

The focus on integrating IP strategy for startups with the R&D investment optimisation will likely offer a high yield in monetising IP assets. In the absence of such integration, the conventional model of increasing R&D funds for academic institutions and R&D establishments may lead to negligible or no economic output. For example, economic output in terms of business innovation or startup success of $150 million fund provided to higher education institutions in Bangladesh appears to be minuscule.  Moreover, startup investment itself is getting significantly high, even in developing countries. For example, as reported by The Economic Times of India on April 2018, "Of the total $18 billion invested in startups, $14 billion were in the last year," by 20,000 startups claimed by union commerce and industry minister. 

For turning technology ideas into economic output, startups appear to be a suitable point for developing countries to enter into the innovation economy. For startups to succeed in creating a Blue Ocean of growth opportunity, they need to have a strong IP portfolio. But in the absence of local R&D capacity, it appears to be an insurmountable barrier for them to overcome. On the other hand, R&D fund given to universities and research institutions is failing to create economic outputs out of ideas. The integration of startups' IP strategy with the agenda of developing R&D capacity for fueling economic growth will likely have a strong synergy to create the ecosystem of the idea economy. For creating Blue Ocean opportunity, it's high time to link startup agenda to R&D activities, so that highly optimized, market-driven pathway is created for generating ideas and turning them into economic outputs.

M Rokonuzzaman PhD is an academic and researcher on technology, innovation ands policy.


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