From ideation to monetisation
“Ideas without execution are hallucinations.”
It’s one thing to have an idea; it’s another to put in the time, resources and ingenuity to make it a reality.
In this webinar by the Outcomes Business Group, three panelists share their insights on taking an idea to market.
Through their own entrepreneurial journeys, the speakers illuminate the less glamorous world of record keeping, red tape, financial modeling, strategising and risk-taking that underlie all successful ventures.
Welcome to “How to use innovation to pivot your business”. It’s been a quite an interesting journey for a lot of people in business over the past month or six weeks with quite a lot of changes going on in the marketplace, with a lot of unknowns and we planned to have this as an event that we’re going to run at out office and as it turns out it wasn’t going to happen, so we’ve turned it into a livestream event and actually the ironic part about all this is the principles remain exactly.
I think one of the things that has happened as a result of COVID-19 is that people are now starting to dig deep to identify where the opportunities are within their businesses right now, and I know one of the guys who emailed us in advance was talking about intellectual property within their own business and how to take advantage of it and how to turn it into a pivot point within the business.
So I’m pretty excited about today. We’ve got three experts on the call. We’ve got Nigel Letty who’s one of our senior coaches, but is also an entrepreneur who likes to do start-up stuff and has a fair bit to do with innovation.
We’ve got Michael Cooper who’s an IP lawyer and basically his profession is helping people quantify and bring their IP to market.
And we’ve got George Mirabelli who’s on the call with us as well. He’s a funding expert and he’s one of those guys who loves red tape and loves to go and knock on the government’s door and say I got an opportunity to get some funding. So he’s going to be talking about how you can actually get some extra cash into your business.
So it’s going to be a pretty interesting presentation today with three different presenters sharing their thoughts and ideas. I just want to make sure everyone’s got their chat box open on the right hand side. That’s where we’re going to get you to communicate any questions that you might have. As the presenters are going they’re going to be presenting on the screen they’re going to try and keep track with the questions, but please put any questions or comments that you have into the chat box because if they miss them we’re going to bring we’re going to have a Q&A at the end.
We’re going to have each of the presenters going for about 20 odd minutes. They’re going to be as interactive as possible. I’m going to jump in and ask questions if I read them in the chat box. So don’t assume the presenters are going to be staring at the screen reading questions. I might just jump in and sort of help them so we get the most out of this.
The one thing I found with these sessions is it’s easier to be a fly on the wall and just record the session and listen the info later but it doesn’t always happen that way. This is your opportunity to talk to these guys, ask questions and to work out how you can leverage the knowledge they have. So without further ado, I’d like to introduce our first speaker, Nigel Letty.
Now I’ve known Nigel for quite a number of years and for those who don’t know who he is, he actually started the Bicycle Superstore several years back and he’s always been entrepreneurial and a few years ago he just joined us as a coach but he still runs a bike store in the background. So he’s constantly got his brain taking over, he doesn’t know how to sleep at night. He basically loves business more than he loves sleeping. I don’t know why he does that but it’s very interesting to hear what he’s got to say, so Nigel you on the call? Can you hear us?
Yes, definitely. Hopefully you can hear me too. I have unmuted.
How’s San Francisco?
Well, I don’t know if the situation with coronavirus is any better over there? In fact, I think it’s a whole lot worse. So maybe I’m a happier where I really am. But we are playing in the virtual space. So that’s all good.
Did you want to kick off with your with your presentation and let’s get this show going.
For sure, yep. Look I’ve had a lot of thoughts around this as we’ve been preparing it and the first thing I’d like to do I’m just going to quickly share a little bit of my background. I’ve built 22 businesses over 35 years and they’ve been in a whole lot of different areas: importing, wholesaling, manufacturing, retailing and franchising. In doing that I found that you always have to think a little bit outside the square if you’re going to be successful. I’ve got a passion for innovation and creativity and that’s something which was driving me to join George and Michael in on this chat today.
Okay, while I’m very used to playing with Zoom on the sessions that I host. I will say this is the first time that I’ve been doing it in this way. So if I have a few typos, so to speak, you’ll excuse me.
Daring to be different is what makes such a huge difference to your business. I call it the “me too” mentality: thinking different; being able to come up with solutions that solve people’s problems that are outside the square; providing services that are either better than the competition; developing a product that will be better value or better in performance; and other areas because when I say product, I don’t mean a material thing in some cases. I’m sure that there’s a lot of people who are involved with the IT industry who have made a lot more money out of their inventions than creating a physical product.
So the question comes along with what if I have a great commercial idea? Coming up with the idea is the start. Sometimes you’ve already got that idea that you have in your business that you’re using and it’s providing a solution, but you’re actually not getting any leverage out of it because the idea could be so much help for so many other people and when you think you’ve got some real value in that idea the risk is that you don’t share it with other people because it could be stolen, modified. You know, you don’t get the value of the thing that you produce.
Now, I had a first-hand situation and this was my first invention and some of you may have even bought what’s called the converter bar and used one in the past. In 1991 I handmade a converter bar and I was welding them together. It looked like the converter bar on the left and I sold 352 of them in the end. And I know that because my royalty check was $352 and the cost of me doing the design registration and the legal side to protect it I thought was probably more than what I actually made out of that invention.
What people did was that they took it to China, designed a modification of that, enough that the design registration were certainly not going to hold up. I didn’t have the money for patents. I didn’t know about how I could get support to protect it. I didn’t know about an awful lot of things. So out of 352 that I sold, I reckon there’d be about 3.5 million that have been sold in the years after. I only wish that I had the knowledge of how to protect it and how to make sure that I could have got a financial return out of my idea in the first place, but I wasn’t smart enough.
So before investing in the idea, what are the risks? The risk is that you go in and put a whole lot of money into it and it never gives you a return and I suppose that’s business in itself. There’s plenty of times when you’ll have a crack at something and decide that it’s not going to work and you have to walk away but that is part of business. You have to try. One of the things which probably isn’t considered by a lot of people is the distraction to your core business. Sometimes people believe the grass is greener on the other side and their focus should really be on their core business not on these other things. So have a third party evaluate whether it is a distraction or there is real value in your idea. And how do you work out what the cost will be and whether there will be a return on investment? To me that is all about financially modelling the opportunity and well, the cost outlay and the return on investment.
So I have a case study firsthand right now, which is a project that I have called Unholy Sox and my goal is to build a million-dollar turnover business in 12 months from a five thousand dollar investment in a sock design that has Kevlar threading, is still comfortable and it won’t get holes in the toes or the heels.
And to take that to market I had to do a whole lot of analysis on the investment and how to take it to market so I could do the volume and get the return. But how do I finance it? How do I work out whether it can be done? How do I protect the idea? There are loads and loads of those questions which need to be answered before I go spending a fortune on getting the idea out into the market. How do you protect your intellectual property? What’s included and what you should protect? What is the cost of protection? The brand, the product name, the design, the function – I had this experience with Michael only recently where I sat down with him and I said I’ve got this idea and I want to call it Unholy Sox and he said well first you need to find out whether that name is even available and it isn’t so I’ve got to come up with another name. I’m still struggling so I haven’t sorted out that first thing. Imagine if I’d gone straight out to market and done a massive preparation without actually finding out that I couldn’t use it. The next part is if I’m going to do this, can I get help financially and in the right direction the right advice from people. So over to David now as an introduction for George who is going to be our next speaker.
Thanks. Thanks for that intro Nigel. I suppose what Nigel’s just gone through is some very specific products that he’s actually innovated as ideas. Today, we’re going to be talking about a few different ways that you can innovate within an organization. One of them is the one that Nigel just described was literally do I have an idea that I can make money out of? The second one is going to be talking about internal innovation, which might be not even visible to because what I find is most people run their business their way, and one of the things we’re going to be touching on today is that way of running business something that you can actually identify and quantify and turn into intellectual property. But before we do that our first presenter for today’s going to be George Mirabelli. For those who don’t know George, George has been around for a little while and he’s a very diligent entrepreneur in business with helping people understand how they can source funding. So what we need to do is we need to understand where funding is available from the government. How we can access it and whether it’s actually going to support us in our development of our intellectual property. So I’d like to hand over to George. Bringing George to do some slides and can you? You there George?
Good afternoon, everyone. Thank you for that introduction Nigel and David. Can everyone hear me? All good? So I’ll be talking about how to accelerate innovation with government assistance.
So my background is as a product development manager with over 20 years’ experience. I’ve been claiming the R&D tax incentive since it was called the 150% R&D offset. I’ve introduced it into many companies over the years and I’ve got a lot of experience in software development and manufacturing, so I bring that all together in my R&D tax incentive consultancy.
My background is in many sectors: I’ve worked with radar systems; communication systems; insurance systems; digital video recorders for trains and buses – you see them every day if you take the trains – web and smartphone applications; and I’ve worked in Australia and in the US over the years.
Today, I’ll be covering a number of funding options before I get started on the main slides. I will mention that I won’t be covering the current business support fund that’s available in Victoria due to coronavirus. If you’d like to find out more about that, you need to contact me separately. It’s not in the slides being a short-term thing.
The main things I’ll be talking about is the Entrepreneurs’ Programme, the R&D tax incentive, the Commercialization Accelerator, and the Export Market Development Grant. So the Entrepreneurs’ Programme is particularly important because it helps you get things going and that is to build up and innovate within your business. And so we’ll be covering that in more detail. It’s a great program to get advice and funding. Experienced consultants from various companies around Australia come together and one of them will be selected to come and make recommendations on how you can improve your business. It’s just great to talk to somebody who has a lot of business background. It’s a bit like talking to someone like Nigel but with the idea of getting some funding.
The R&D tax incentive is fantastic for maximizing your R&D dollar. You’re going to be investing to develop something and making the most of that funding is really important. We’ll be talking about that one in quite some detail in just a moment.
The commercialization accelerator is a great opportunity for go-to-market strategies. If you’re doing your R&D, you can apply for the commercialization accelerator while you’re doing the R&D before you start selling the product and it provides assistance in go-to-market.
The Export Market Development Grant, many of you will know it as the EMDG, is particularly important to cover today because it helps you protect your intellectual property and to go global. So you’ll see how that dovetails together with what Michael’s going to speak about in just a moment.
We will cover a lot of ground in this presentation. Two things to keep in mind. You’re not going to get all the details so please contact me to discuss any particular details that you need further information on but also keep in mind that what I’ll be recommending and talking about is general information and you’ll need to seek tax-specific advice to your circumstances.
The Entrepreneurs’ Programme is particularly interesting because you can use this to help improve your business. You can go back every five years and get more funding. There’s a great video on the business.gov website to help you find out more about it. Basically, you just need to spend $20,000 and Entrepreneurs’ Programme will put in another 20 to match the funding and in total you’ll spend up to $40,000. So you don’t have to spend all of the 20, but whatever you do spend up to 20 the Programme will co-fund.
You can do this in the medical sector, manufacturing, IT and many other areas. It applies if you’re turnover is 1.5 million to a hundred million and you just apply online. An advisor gets assigned to you. As I mentioned before there’s some really good advisors in in Victoria and I can help you specify the right advisor if you’d like to get that assistance. That advisor then comes in spend some time with you and then provides a report with five recommendations – could be more but they generally try and get at least five. And then you engage a provider to carry out those projects and then include it in your tax return. What’s interesting here is that as you’ll see later that if you want to be part of the R&D tax incentive you need to be compliant and one of the projects that you could do under this Programme is to become R&D-tax incentive compliant. So essentially half the cost of becoming compliant will be covered by this program.
Within the Entrepreneurs’ Programme there are other areas: the acceleratoring commercialization or go-to-market grant that I mentioned earlier. An advisor is assigned to you if your turnover is less than 20 million dollars and that person will help you look at your novel product, process or service and work out how you’re going to go to market outside Australia. Now, they’ll provide matched funding up to 250 thousand or 1 million dollars depending on your company structure. Most of us won’t try and spend that much, but in essence you’ll get up to 50% of the project paid for with matched funding. The product has to be in the R&D stage and not on sale yet. And basically you can use this to take any of the R&D that you can think of as Nigel pointed out earlier. You take the idea, convert it to a product and then this will help you go to market.
On the entrepreneurs’ website, you’ll also find something called The Innovation Connections. It’s worth having a chat with them. They’ll assist you to determine which funding program is best for you. But in essence, the other alternative would be to contact a grants expert, someone who knows the wider grants than just the Entrepreneurs’ Programme and that person may be able to help you find other things if you need help with that I can direct you to an appropriate grants expert.
Now the EMDG or the Export Market Development Grant is the Go Global Grant. In this one you need to spend at least $15,000 trying to go global. You keep lots of records of the costs that you incur and how you apportion them between simply traveling to a location to review some kind of manufacturing facility versus trying to open up the market in that same location you need to apportion the costs accordingly. You can apply and get a refund up to a $150,000. It does depend because every year there’s a pool allocated to the EMDG and that pool is divided by the number of people applying and then divided up accordingly. So you may apply for $70,000, but if there’s only $40,000 left when divided by the number of applicants, you may not get all of it.
You can apply up to eight times over time. And you can include things like site visit costs, overseas representation, samples, trade fairs, promotions, advertising, etc. Interestingly, overseas representation could allow you to put someone on the ground that’s local and help you open up that market. Interestingly, one of the things that it does cover is the registration and insurance of eligible intellectual property expenses. So this grant is a way of paying for Michael Cooper to shore up your idea and make sure it’s protected properly.
Now the R&D tax incentive is one that’s available to everyone spending at least $20,000 on research and development. Now $20,000 in research and development isn’t that hard to spend because it includes everything from your management time to the staff that actually get involved in doing the R&D. So you can easily clock up rent, etc. into $20,000, but if you’re performing eligible R&D you can claim. Now the key word there is “eligible”. So we’ll be talking about what eligible means in just a moment. It’s designed to accelerate innovation. You invest what you can and obtain up to a few 43% tax offset. Most companies use that to allow them to spend more on their R&D, but you could use it to help you with cash flow as well. R&D is eligible if it meets the AusIndustry and legislation definition. In essence what it means is that the R&D needs to be creating new knowledge. We’ll talk about what new knowledge means in just a moment.
It’s important to keep lots of records in order to be compliant. It’s one thing to do for the R&D, but you won’t be able to claim it properly if you don’t keep the records. The records need to be kept so you can find them for up to five years because they can look back up to five years when they do an audit and we’ll talk about audits in just a moment. It’s best to obtain guidance on how to do the record-keeping so that you start off on the best foot.
Now to do your R&D, you need to be using what they call a systematic progression and what that means is that you have to come up with a hypothesis, conduct experiments, evaluate the experimental results and then repeat. Now what this means is that as you can see there, the terminology used is generic terminology, you’ll need to translate that means in your particular company. But in essence what it boils down to is that you need to identify experimental activities that will prove your hypothesis. You need to go through a systematic progression, which basically means you take the hypothesis, do the experiments, observe the results, evaluate and iterate through that and iteration is important. If the R&D was successful the very first time, then the likelihood is that it wasn’t eligible R&Ding.
And make sure that you’re generating new knowledge and we’ll discuss that on the next slide so you get the full gist of what that means. In essence, there’s core R&D and supporting R&D. These two types of R&D are really important because the core R&D is the part that is actually the new knowledge. But in order to do that R&D, you may have to modify your production line, you may have to go and do tests throughout Australia of the product etc. Those are all supporting activities that help you do the R&D and those supporting R&D activities are also claimable.
Ultimately, the important thing here is to keep detailed documentation of the eligibility and how you arrived at that. The proof of actually doing the R&D. There’s been a number of court cases where they’ve had to do an audit to find out that people couldn’t actually prove that they did the R&D. So keeping the records is really important. So you can understand that such a generous program requires stringent compliance.
You need to keep records of how you apportioned your costs and how you allocated them between normal business operation and R&D activities. Careful record-keeping can increase your claim and you can increase it by 20% to 30% if you keep good records.
So what is eligible R&D? Basically, it’s R&D that generates new knowledge. So you need to show that the R&D that you’re doing is something that you cannot find anywhere on the planet, within the ability of you to access those locations on the planet. So generally speaking that means searching the internet and keeping records of the searches that you did – screenshots, etc. – making sure that you can pull them out and show at the time when you started the R&D, you could not find that knowledge anywhere. So knowledge here could be just the know-how of integrating two computer systems together that you can’t find anyone that’s done that before. New knowledge here could be that you know that there’s a product that does something you think you can it do a better, but you may not be able to get to the knowledge of how that product works. So you have to do your own R&D. The fact you can’t access that knowledge means its new knowledge to you.
Over the last few years software has come under deep scrutiny mainly because software companies became a bit rogue over the last few years and weren’t keeping good records. But unfortunately they have been heavily audited over the last three years, but they’re getting on top of things with people like me helping them to get their record keeping under control. There is no reason why software can’t also be claimed as an R&D tax incentive. So if you hear otherwise, please bear in mind that it’s as long as you can show a systematic progression and new knowledge being generated, you’re on safe ground.
What’s not R&D is, for example: in software just because you’re using agile development doesn’t make it a systematic progression; routine software development such as bug fixes; adjusting the location of things on the screen – there’s no risk, so it’s not R&D. Customisation of a product for a particular use, a website – those things are not R&D; there has to be new knowledge, there has to be risk in what you’re doing. For products other than that like the ones Nigel mentioned, it’s all about the new knowledge and explaining the risk in actually undertaking R&D.
When you’re creating your records, what you’ll notice is that the legislation and the guidance around the legislation just requires you to keep the types of records that you would probably be already thinking through but not necessarily documenting and the documentation doesn’t have to be overly onerous it just has to be there and accessible. So everything from a product strategy, project documentation, eligibility documentation, experiment planning, experimental results, reviews and analysis, evidence, iteration. You know, showing that the plans changed and evolved every time you went round and had to start the work again and the cost analysis and review and making sure that you can demonstrate the costs were being monitored and that sort of thing so that they can tell that the R&D was something important to you. And basically having regular meetings once a month or something like that, making sure that you are progressing your R&D.
Ultimately, the other thing to have is a strong work management system that allows you to keep track of all those costs and where you’re incurring them. Timesheet systems, maybe use Lab Scrum, Jira, team foundation services, Confluence, lots and lots of different tools that you can bring to bear to make life easier.
Now to get access to the R&D tax incentive, I recommend that you get a R&D tax consultant involved or check that your tax agent is up to the task of doing an R&D tax claim. The choice of words and the clarity of the claim, making sure that the person reviewing the claim in an audit situation can understand what you did, in a way that you don’t have to be part of your company to understand what was being done, is very important. I can recommend tax consultants based on what sector you’re in we can put somebody forward for you. Make sure that you take the R&D tax compliance record keeping and build it into your processes and that way by adjusting your processes and naturally producing those records as part of what you do every day, you can make the task of actually claiming the tax and putting together the justification for your tax claim much easier. By creating better, clearer and regular records you’ll and also ensure that you’re going to claim all the eligible costs.
Use the structured framework for your record keeping and what I mean by that is make sure it’s something that’s in your quality system or well-documented so that you can pull it out and show the auditors that the way you do your R&D is independent of any particular staff member in the company remembering how to do it. And then, final word on this is prepare to survive an audit. 15,000 claims per year and made on this and they expect to client to audit one in four. So go into it thinking that you’re going to be audited and that way you will take the precautions necessary to not only maximize your claim and make the most of such a generous R&D tax incentive, but make sure that you’re on a sure-footing should you be audited
To do this, I have a tax incentive compliance framework that I can talk you through. You can read about it on the website as well. But basically there are two objectives one is to be compliance-ready. That’s terminology that they use which means that you’ve got a way of showing that you are fully compliant: that quality manual that we talked about; having all your documentation in place; and establishing ways of keeping that documentation together and storing and retrieving it very quickly. Ultimately, continuously improve. There’s nothing better than showing that you have done your spot checks and that you’ve checked that you’re producing all the records and show improvement to your processes. Just like any quality system, those things are looked upon as very positive things even during an audit.
I have workshops and training available on all of this. So please feel free to reach out.
Feel free to book a 30 minute complimentary session with me. We can look at your specific situation and discuss funding options in more detail. In the meantime, feel free to grab the tax audit survival eBook. Feel free to take the R&D tax health check and assess yourself, but that health check also lists all the different things that you need to be doing as it’s checking that you that you are doing so it will give you some insight. Finally in the chat window, Kelly will be pasting the URL on how to find out about all of the background services here.
Excellent. Thanks George. Look, I’ve got a question here. How much money is available in the R&D funding?
Well in the R&D tax incentive it really just it’s all dependent on how much you put into your R&D, so there really is no limit. There are some limits being talked about but they’re very high limits. And so there really is no limit to how much you can spend on your R&D.
Can you give us a case study or an example of a company that’s gone through this process?
I’m helping a company at the moment who service air conditioners and when they’re going around servicing the air conditioners, they need to have chemical solutions that stop the air conditioners getting clogged up with calcium for example, that’s just one example. But they start off with the hypothesis on how they can improve these chemicals. They then go through and document that hypothesis, how they’re going to go about it, the tests that they need to do to show that it has improved and then they iterate on that and not only is the cost of actually doing the R&D and all the chemicals and everything else that they have to use. The actual testing has to be done with real air conditioners. So all of that is all claimable as an expense of doing the R&D. All the people involved right from the R&D committee right down to the people doing all the work manufacturing the chemicals etc. and doing the trials.
What you’re saying is anyone who’s got an idea on how to deliver their product or service better is actually potentially eligible for some of this funding.
Yeah, definitely, there was the court case about six months ago that established that improving a product is as much R&D as making a new one from scratch. And so as long as you can show that there’s risk involved in doing the R&D you can take that on board and go for it.
I think a lot of the guys on the call today like they are business people and they basically out there trying to make a buck. Some people are in commoditized industries, but really the way the way to get ahead in business is to do a better than competitors, right? And what you’re suggesting here is if I have some sort of intellectual property around either a service delivery mechanism or even a methodology that I use, is that something I can actually apply for funding for?
So let’s use a manufacturing process as an example. So if you want to for example address a yield problem in your manufacturing process, you can hypothesize on how to improve that. So for example, let’s take a company that makes bread trying to increase the amount of fibre in the bread – they can hypothesize where in their process they could inject materials substances that would increase the fiber. But all the all the different trials they do to try that and the testing of the bread for both longevity and taste and whatever else they test bread for, that is all part of the process. Modifying the production line to meet those new needs and adhere to the new production process is also part of the R&D if there’s risk involved in working out where in the process you’re going to inject that new material.
So really I suppose what we’re saying is that most people who have been in business of probably got some intellectual property they’ve evolved over time but never really thought about getting funding because all they see is red tape because I look at Government funding I just sort of cringe it all the paperwork. You mentioned having records and keeping audits which sounds very onerous to me and as a business owner I’m just thinking that’s more paperwork. But really what you’re saying is if there’s a process that you have that’s unique, it starts to become viable to get some of this funding and there’s really no cap on the funding that’s available. I suppose what it really comes down to is the willingness to the business owner to actually allocate some time to getting that funding.
Yeah, and look at the documentation needs to be suited to what you’re doing. There’s nothing in what I said that says that there’s onerous amounts of documentation. Basically in my workshops, you learn how to use five templates and update them periodically and just by doing that as a routine, you will keep the right records and it’s doesn’t have to be onerous. But you know, ultimately you wouldn’t start an R&D activity without a product strategy. And so one of the things they look for is a product strategy, so it’s good practice to do many of the things that they ask for if not all of them just to ensure your R&D is on track.
Okay. Well, look I suppose some of the people that are on the call today may have some questions. We’re not getting a lot into the chat box at the moment. But there’s a link there to your website. There’s also the obvious opportunity to have a chat with you to just assess whether there’s actually funding options. I think sometimes people leave it in the too hard basket, but what you’re telling us is it’s not as hard as everyone thinks. It’s just a matter of having a conversation with yourself.
Fantastic George. Thanks for that. That was quite good. We’re going to switch over to Michael who is an IP lawyer by trade. He specializes in helping people identify their intellectual property, almost model it and turn it in to something that’s a tangible product and protect it. So just like to welcome Michael to the call. Welcome, Michael.
Thank for that David. Let me just kick off my screen share.
So look a little brief intro on me. I started Cooper IP at the end of 2018. I did that because I like working closer with my clients and something that’s pretty hard to do within the framework of a large law firm. Our approach is working and our clients are quite happy ,we’re growing and we’re recently recognized as one of the top 5 new IP firms in Australia and New Zealand.
I’ve got 13 years of IP experience, including 10 years is one of Australia’s most prestigious IP firms, but what sets me apart from my peers is I’ve actually got industry experience working as a mechanical engineer before I become a patent and trade marks attorney. I worked overseas with a large French multinational heavy engineering company making gas turbines in Switzerland and I spent around four years working with General Motors Holden in Melbourne when we once had a busy automative industry which we don’t anymore.
So over the years I’ve done work with many household names including Visy, Kmart, Coles, Nike, Stanley Black and Decker, the list goes on and on across many different industries. But most of my clients these days are people you’ve never heard about, they’re local SMEs and entrepreneurs, these guys are really the backbone of this country and I really get a kick out of working with these people because we’re often bringing them from the out in the cold into the IP space and showing them how they can make some money off what they’re already doing.
Now moving on, what if I told you that there was potentially uncaptured value arising out of your innovation just sitting in your business, that there are ways to unleash that value and make money, open up new markets, revenue streams or business partnerships? And would that be of interest to you? think most people would say, yes. Now this presentation is all about pivoting your business and often the pivot that we’re looking for in difficult times already exists in our organization – we just need to identify and find a way to capitalize upon it.
The three things that I want you to take away from the presentation today are:
- You probably already have or are generating IP;
- You may be able to protect it, base your pivot upon it and create new revenue streams;
- Other people’s IP can cause you issues, which is something that Nigel touched on earlier with his Unholy Sox example.
So let’s talk about the IP you already have. Now just about every business that I’ve ever dealt with has some form of intellectual property. For some it’s a gold mine, but for others it’s less impressive. But in a quest for value in times like these we really shouldn’t be leaving any stone unturned. As Australians, we have a great history of innovation and for a lot of us we just do it without thinking about it, particularly those engineering space. But what counters our innovations that were also quite humble and we don’t often celebrate our successes enough.
So what happens is often an inventor will come up with something great, but not realize the significance of the achievement or the extent to which it can be commercialized. So the inventions are seen as simply a solution to a problem they started out to solve, and not intellectual property, and so they don’t think about protection and then the opportunity can be lost.
To find the hidden IP, sometimes we need to look under the covers and I love visiting my clients and potential new clients and seeing what they’re doing at their site. They will often call me in for a particular project but while we’re looking at their operation, we can see other opportunities that arise and other aspects of their business that they didn’t think about out and those opportunities can be missed.
So how do you identify intellectual property? It starts by looking for what’s new and a special part of what you’re doing. It always revolves around what’s new in the business.
Now some people will refer to this as a special sauce, others call this a value proposition. It doesn’t matter what you call it but it’s typically not glaringly obvious unless you know what you’re looking for. But what it often is is the thing that makes your product, process, brand, whatever, better than what’s gone before, or what’s presently on the market. And this is where your competitive advantage lies. So this analysis requires a knowledge of what’s gone before and so you need some market knowledge and it’s crucial to benchmark your innovation against what we call a prior our base. I often meet inventors with a great product and sometimes they just come up with an invention, they know it’s great, but they don’t really understand why.
Once we do some research we reference the innovation towards gone before and the significance becomes apparent and the ultimate aim here is this distilling the essence of the invention to work out the important bits. Once we’ve done that we can start to think about other uses, markets or opportunities.
So with Nigel’s example earlier with his socks, you can start to pull apart the special features that make his socks so great and then you can really start to look at how do you put that inventive aspect into other markets. Unfortunately though this is very difficult particularly when you’re in the business and it often requires you to step back and take stock or get outside help. Now that help can come from many sources, it can be a patent attorney, a business consultant, business coach such as Nigel or David, or one of your other trusted advisors who can sit back and give you some perspective.
So how do you protect your intellectual property? Well this often starts with a definition of what actually IP is. Now there’s many definitions out there but for most of them they follow a common theme of creations of the mind or intellect. But for me, it’s a light bulb moment and a lot of us can relate to that because we’ve all had that moment where we come up with something great and go “oh”, that’s a great idea.
It manifests itself in different ways and different businesses depending on what you’re doing and the type of business that you’re in. So it might be an idea for a product, it might be a way of doing something for a new process, it might be a visual design, it might be a brand name or a slogan for example.
So it’s helpful to know that when protecting IP, which itself is actually an intangible asset and it’s a little squiggly and hard to define, which is often what causes people so many problems, but we’ve created categories for what that IP falls into. Now the most common are patent, designs and trademarks, but the other forms include copyright, which is also quite significant, confidential information, circuit layouts, plant varieties, trade dress, geographical indications and trade secrets.
So I’ll just briefly touch on the main three: patents, designs and trademarks. Now, patents protect the way something works. A great example of this is the post-it note, which is protected by a series of patents that are directed to a “removable and repositionable adhesive sheet product”. So a very generic definition there. The protection is intended to stop competitors creating products that work in the same manner, irrespective of how they look, what color they are, what shape they take or how they’re branded – it’s functional protection. So patents are often most relevant to people in the product development, engineering and manufacturing industries.
A design registration on the other hand just protects the way something looks and not how it works. There are many registrations to articles of packaging bottles, consumer products, fasteners, tools, medical equipment and design registrations are used across many industries.
A great example is Apple. They’re are big user of the system and rightfully so because they invest a lot of time and effort into their industrial design and what they’re trying to do is prevent their competitors from selling products that look anything like theirs because their design is really a market differentiator.
Finally, trademarks protect your branding. Think brand recognition, reputation, customer experience. This all gets wrapped up in your trademark.
I heard Janine Ellis from Boost Juice talk about this recently. There are so many things that they do within their organisation, from how they treat their staff, customers, how their stores and menus look, the sort of products that the sell, all of these intangibles add to the value of the company, and it’s, as a consumer, we see. Those intangibles are very valuable, they’re protected by a series of trade marks and they stop others from using similar branding and creating confusion or dilution in the market place.
So I’ve got here practical example, and this is a great one because everybody knows this product and it ties together the different forms of intellectual property and you can see that from even a rather simple everyday product, there’s a lot of technology associated with it. Let’s start with the lid, there’s lots and lots of IP to lids and closures. I’ve worked with companies like Red Bull and Visy in this space and it’s amazingly technical because everyone is trying to make something smaller, cheaper and easier to use while maintaining strength and integrity which is difficult. So they often have to come up with you technical solutions and these are protected by patents. What they’re trying to do with these patents is stop competitors from creating products that work the same as theirs, thereby maintaining their competitive advantage in the marketplace.
Manufacturing processes can also be protected with patents, particularly where there are physical steps that result in a physical product or changes to it. And manufacturers often overlooked that their processes can be protected in this way.
For example a novel way of molding a complex plastic part for the automotive industry may be equally applicable to parts of made in construction, trucking, marine or whatever and other parts that are not necessarily made in the factory or were not previously considered and so there’s often an opportunity to diversify or pivot is just not considered.
Now bottle shape can be protected by way of a design registration and also a shape trademark after some years. Why would you protect the design? Well, it’s all about protecting a unique visual appearance. If you go into a convenience store service station, and look in a drinks fridge, you’ll see a vast array of different products and standing out in a crowded market is really quite difficult. If you can have a unique bottle design that distinguishes you from your competitors it can be quite valuable. So the last thing you want to do after coming up with that design is to have anyone copying you.
Brand name is an obvious one, but people often don’t realize the different forms a trademark can take, including words, stylized forms, logos. Successful products such as Coca-Cola have many different trademarks in many different forms, and I often find the companies overlook the value of their trademarks because they simply don’t appreciate the importance of their brand or that their trademarks are badge of origin and something that tells the buying public about the qualities of their goods.
Unfortunately, so much value resides in the trademark by way of reputation and people just don’t appreciate it. Your trademark can carry your reputation and often inform the public of the quality of products, how you treat your customers, staff, suppliers, how your stores look, the type of service your customers receive. All are incredibly important when it comes to market differentiation, so it’s important to keep your competitors using branding that’s nothing like yours.
Finally, we’ve got trade secrets on this page. The recipe for Coca Cola is perhaps the most famous trade secret and is incredibly valuable. It shows that keeping IP as a trade secret is certainly a valid option. So it’s not that simple, there are things that you need to know and do to make sure that you do keep your trade secrets that way and that it does enjoy the protections that are out there.
So what can you do with your IP once you’ve identified the hidden IP in your organization and how do you make money from it? Because let’s not beat around the bush, that’s what we’re all here for – making some money. Ideally, we can find a new revenue stream during these difficult times and I was reading an article earlier today about IP rights holders that in these times litigation spikes because companies are looking for new revenue streams and they’re trying to enforce their patents to collect royalties from people that are using technology similar to theirs.
So the first way of making money is through direct use. In one example, you invent a product or process, you protect it by patents, designs or trademarks, and I say or and/or because they can all apply then you build a business around that IP, enjoying the monopoly rights afforded to you. You just have to think of James Dyson and his cyclonic bagless vacuum cleaners and the amount of money he’s made from that product over the years because he’s been the only person able to make it and being the only person able to make it he’s been able to charge a premium price and still get sales. When you’re looking at new uses for existing IP the direct use approach also applies.
But when you’re looking at not directly using your IP, the main way to make money, apart from suing people, which is a difficult route I must admit, is through protecting your IP and licensing it. So essentially what you’re doing is granting another person a licence or right to use your IP and that licence can in respect of other uses or markets.
So in one example you seek out a commercial partner or distributor in another country and let them sell your product there, provided you’ve got protection in that country. This is a pretty common thing to do, often local manufacturers don’t have the time or resources to set up overseas. So they set about finding a distributor to sell their product. People often wonder who would do this? If I’ve got IP who would want to buy it, who would want to buy it, use it, license it and sell a product overseas?
Well, IP is all about obtaining and maintaining a commercial advantage, and this applies for distributors also, and they’re often quite keen to be the only person that can sell a particular product in a particular market.
In another example, you grant a licence for use in another market or territory for a particular application. You can do this because licensing is very powerful and there’s many different ways you can license products. How might it look?
Well you might have created a product for one industry, say you make household windows – you have a new retention system that keeps them in place well. You’re too busy making your product for your own markets to be thinking about other markets, but that product could have application with commercial windows or possibly automotive, marine applications, could be many different things it could apply to. If you can identify the appropriate partner, you can potentially license your IP and drive an income through royalties.
Attracting business partners and collaborators is an important aspect to all this. Through collaboration we share technical and commercial risk, which is something that David touched on earlier. We increase our learnings, we often share the cost of getting something to market. So there are IP ownership issues that arise but we deal with these.
So how do you find potential business partner collaborations? Well, you’ve got to go out and find them yourself, unfortunately. Trade fairs, market research, direct contact, etc. They’re out there, you just need to find them. There are some companies around that do this research for you and I can share some links if you’d like to contact me afterwards.
Now so far we’ve spoken about the IP that you may have in your organization, protecting it and at making money off from it, but it’s important to know that other people have intellectual property and you need to be mindful of their rights so you don’t end up in a dispute with another rights holder.
Quite a common horror scenario that can come up is where you might spend years working on a product getting it to market. You’ve spent a lot of time and effort through that development process, you don’t do any IP checks at the outset and find out down the track that someone in the US or Europe might have come up the same product years earlier. Once you get to market you get hit with a cease-and-desist letter and there’s nothing you can really do except stop or try and modify a product so that it doesn’t infringe. It doesn’t matter how much you beg and plead or the fact that you were an innocent actor. You can still be stopped and the potential cost, time and investment can be devastating for some businesses.
With patents in recent years, and this year will be different, because there’s a bit of a downturn understandably, we’ve had 5,000 provisional patent applications in Australia about 30,000 patent standard applications. There’s a lot of third-party IP of course, it’s spread across many industries, but you need to keep in mind that other people could you doing the same thing as you.
When it comes to searching we can do a third-party search called a freedom-to-operate search before you get too invested and hopefully prevent the scenario above. So instead of shutting down and costing you a lot of money, what you do is essentially change the product or project direction at an early stage and I’ve seen development projects run into these hurdles before, where they start along path, they find there’s this IP in the space, they pivot and still come up with a successful product at the end of the day, so it’s not the end of the world if you find out early.
Alternatively you can contact the rights holder at the early stage and see what sort of collaboration you can negotiate for a mutually beneficial outcome. Perhaps they’re still in development. They might need some help, you might have a unique skill you could bring to the table. So you should never rule out a mutually beneficial collaboration despite the difficulties.
Similar issues arise with design registrations. You need to be mindful of what others are doing and again we can do some freedom-to-operate searching but also through the searching process it can be quite informative because you see what other people are doing in this space and seeing what other people are doing can really guide your own development and give you some great ideas. So the prior up base can be quite helpful.
Finally, trademark issues are probably the most common. People as I mentioned earlier often overlook the importance of their brand, particularly with startups. It’s not uncommon to come up with a good name and just run with it only to find out down the track that others are already using a similar name and having to rebrand at a later date particularly if you’ve got investors on board can be quite embarrassing.
Initially, it’s important to note that the business name registration system, the domain name registration system, and the trademark registration system are all separate and having one doesn’t grant any rights to use the other. It’s quite easy and not uncommon at all to get a business name registration that infringes a trademark and you won’t find out it’s a problem until it is a problem and it costs something to fix it.
So here’s a common scenario for you to think about. You live in Melbourne, you’ve got a great idea for a food technology product. You get your product sorted, tested, validated. You get all your business aspects in place: bank account, business name, website all the rest. You start to order all your packaging, which for some people can be a significant expense – ordering commercial quantities of packaging before you start selling – your website everything up. Initially you open, things are going great, but unbeknownst to you as a product there’s a company in WA the trademark registration that covers your brand – it’s an issue. You don’t know yet, neither doesn’t WA company so it doesn’t come to a head. But unfortunately as you grow the issue becomes bigger and bigger and harder to solve. Maybe this goes on for one, three, six, months, maybe two years, but eventually the WA company finds out about your product because it cuts across their product that they sell nationally through one of the supermarket chains and they’re losing customers. So not only do you need to rebrand which costs you money in all the obvious ways. But there’s also a lot of loss of reputation and to add insult to injury the WA company can come after you for damages.
So how do you mitigate that? Well one way is to do some clearance searching but my favorite way is actually to seek your own trademark registration. IP Australia looks at your application, compares it to other marks on the register and tells you if they think you are too close. So this flushes out issues before they become issues, avoiding problems for a fraction of the cost. And it also gives you the opportunity to stop others using your branding as you become successful yourself.
So look, please check out our website. We’ve got quite a bit of material there, some IP cheat sheets I can forward to you. We offer free IP audits for businesses. We can have a chat with you about what you’re doing and see what might have been overlooked, what holes we can patch and hopefully guide you on a pivot if that’s what you’re looking for. But yeah, as I mentioned, check out the website, there’s lots of material there and process flow charts.
Great. Thanks Michael. I’ve got a couple of questions here. One of them is does a patent last five years? Is this correct or are there variables on this? So what’s the term of a patent?
So standard patent is 20 years, an innovation patent his eight years, a design registration is 10 years in Australia, 15 years in other countries and a trademark is indefinite. So you can keep renewing a trademark forever. And so that Coca-Cola brand just keeps getting more valuable every year.
Okay, right. Thank you. And I have one thing from Damien here which is do you work with universities on their inventions as well?
Yes, we do – a completely different set of challenges working for University.
I imagine it would be.
If anyone’s got any questions now’s your chance to throw those into the chat box and we’ll sort of keep going. I know Nigel wanted to come back on and give you a bit more sort of detail about some of the stuff he’s been working on.
So if you’d like to give them a nice silent round of applause, we’ll get him back on the screen. There we go.
I’ve come back to the screen there, but I actually had one of the questions for Michael just before and I didn’t manage to get it into the chat box because I was listening away and that is: the processes to protect your idea and you went through a trademark registration, domain names, business registrations, company registrations – it would be great if we could actually see a list of the things that we can do and obviously you can get in touch with Michael to get that information.
Back to Unholy Sox and my project and what I managed to work out in the process of talking to Michael and George that the first thing I needed to do was research in other words do the due diligence on the product to make sure that I wasn’t going to waste money producing an item that potentially someone already had developed or a brand that I was going to put money into and then find out that it was too similar to someone else. So definitely doing the research is the start.
The second thing that came from there was the analyzing and researching the potential for the project and how to protect it, which Michael’s run through. The funding, which George gave us a great run down and gave us a lot of the ideas, one of the things that came out of that for me was that whenever I work with a business and we put an organizational chart together, I’ve never ever put into it a third party or employee position within the organizational chart for research and development and also for a compliance audit manager or compliance manager that is chasing for funding. So being able to have a provision for those sorts of services might be a great way to make it positively geared to get your existing products or potential new products on the market because I think that David it said earlier when you’ve got a business that you’re operating yourself and you feel that there’s a massive amount of red tape, then some of those great opportunities are going to go missing. So that seems a shame especially if you can get other people to do the work for you and you can see how you can fund that work being done within your own organization, or as a third-party service supplied to you.
Financial modeling, one of the things which I didn’t do in the Unholy Sox model, I actually fell into what I think Michael touched on, that the people come up with great ideas and they take them straight to market and honestly, I thought I’d covered myself really well with my first invention because I got a design registration and I thought I was so good doing that. But if I could have got a dollar out of every item that sold out of the 3.5 million that have been sold over the years passing, I’d be doing very very well. To get $352 for coming up with the idea’s a real slap in the face when I think of what the potential was for a fantastic result if I had known how to do it properly and I’d actually spent the time and money to learn from people such as George and Michael.
A couple of other points that have come through that maybe people have picked up on. The word case Kaizen we use in this organization a lot which is to look for constant ever-evolving improvement. And if there are products in there and you go and think you’ve had a great idea and then find out that someone’s making it, there’s probably going to be ways to improve that and if you can get funding for the research and development to improve that or your idea and take it to market then it’s what we should be doing within our business all the time looking for constant improvement.
I suppose one of the things which I haven’t touched on and it’s this slide is the financial modeling. When I did the Unholy Sox program, I set myself a whole lot of parameters which was I wanted to get a million dollar business built in 12 months from a five thousand dollar investment. And I knew I was setting a really hard target and it wasn’t until coronavirus and the stopping of all Chinese factories that I really had to think about how am I going to make this all work and I started to think about putting it through the distribution channels into other countries and having distributors do that at a lower margin. If you haven’t got a financial model to work right from the start then it’s probably very risky for you to go chasing down an avenue which has no chance of success. So that was the last thing to really consider. And at the end if all adds up hit the start button and go but it’s one of those things where as we’ve seen from George and Michael it’s very very important that we do the due diligence and use people like them to support us with our idea. So back to you David and maybe we can hear some more questions.