TOP TIPS FOR STARTING-UP: STEVE BAXTER
If you’re thinking of launching a start-up, I cannot encourage you enough to give it a go. Running an early stage venture is one of the most challenging, thrilling and exhausting things you can ever hope to do. It’s not for the faint hearted it’s true. Running a start-up takes resilience, a thick skinand an ability to be adaptable, but the rewards can justify the hard work - provided you do it right.
While every start-up has its own challenges, there are a number of principles to which every start-up should adhere. So here are my six rules for building a world-beating start-up.
1. You need complete focus and commitment to the business
The top entrepreneurs will maintain a singular focus on their start-up. The best way I can demonstrate this is with my own story. Back in the 1990s I struck on an idea to start an internet business from South Australia. But to do that, I would need to take all the money my fiancé and I had saved up for a house deposit and invest it in the fledgling business, which we did. It turned out to be one of the best decisions I ever made. That’s the sort of commitment I want to see from all entrepreneurs: 100 per cent belief in the business. If an entrepreneur is working on more than one idea I’ll immediately assume they haven’t hit on a knock-out idea. This is because they would be solely working on that idea if they had.
Investors also value founders who have made sacrifices to start their enterprise.
One of the entrepreneurs who pitched his idea to the investors who appeared on the TV show Shark Tank was Oliver DuRieu. His business was a car-sharing platform. While his business idea was not yet developed enough to attract serious financial backers, the fact that he had turned down a six-figure salary and sold his highly valued ute to finance the opportunity impressed us.
Contrast this with the investors of the Cricket Cooler, an esky-cum-cricket wicket. It’s a great idea and, having sold 4000 coolers already, the enterprise is already revenue positive, working on the basis of a 50 per cent profit margin for each cooler, which is pretty impressive. They even have a patent for the product in most countries, which makes it even more attractive.
But the fact the inventors split their time between their day job and the time they have to spend developing the cooler was a warning sign for me, their error was the insistence that the business needed to provide a full wage for them from day one else they would not give it 100 per cent focus. I need founders that are 100 per cent committed to their business. Their attitude to the concept of an immediate salaried return from start-up venture was a deal breaker for me. I’m looking for founders who are prepared to risk everything. I expect them to be prepared to invest all in the venture. Because if they are not prepared to do this, how can they expect other people to do the same?
Starting a start-up isn’t about playing it safe, it’s about total commitment. If the business fails it should not be for the lack of commitment. Entrepreneurs should not be scared of failure (they also should not plan for it!); which will teach you important lessons that you can bring to your next start-up. What we’re looking for are people who are focused on their start-up to the exclusion of everything else.
2. Listen to advice and criticism
One of the worst traits an entrepreneur can have is arrogance. Letting ego get the better of you can stop you from listening to opposing ideas and considering multiple scenarios for the business. The best entrepreneurs always seek out divergent opinions, and are willing to listen, and learn from the people around them.
It’s a mark of the robustness of an idea that its creator can remain unflappable when being quizzed about the business and its potential. Entrepreneurs who can do that and are prepared to be flexible in their thinking about their venture stand themselves in good stead.
So if you receive criticism about your idea or venture, don’t ignore it or reject it. Take on board the suggestions and work out if they have merit. Some will and some won’t. Make a judgement about which suggestions can help your venture to be the best it can be and build in this feedback to your operations. Never be too proud to accept the advice of others.
Australian Trade Marks Online Seach System
Whether you want to find out if a name or logo is already in use, browse similar trade marks in your field or see if your new product name can be protected by a trade mark — this is the place to search.
Visit the Australian Trade Marks Online Search System, ATMOSS.
3. Know the value of your business
It can be difficult to value a business without established and predictable revenue streams, which is often the situation in which start-ups find themselves.
However, it’s essential to pay close attention to how you value the first round of investment because it determines the value of future rounds. Investors do not want to see subsequent rounds of investment result in a lower valuation, putting them into a ‘down round’. Conversely, second round investors won’t want to pay over the odds compared to first round investors, unless the value of the business has genuinely increased.
A good example is the Nexus Notes business that pitched to the Shark Tank investors. The entrepreneurs were still finalising the sale of 7.5 per cent of their business to the accelerator Startmate for $50 000 after being accepted into the program. But they approached the Shark Tank investors with an offer of $300 000 for the same share of the business, 7.5 per cent. Whilst they had been accepted into the program, they had not started the program let alone finish it, nor had any investment from Startmate actually occurred when they pitched to us — we were offered a valuation six times higher than they were planning to do in the coming months. Accolades and other similar intangible things do not increase value — traction (usage, revenue, profit) does.
When you’re determining a value for the business it’s essential to come up with realistic measures by which to put a number on it. The measure you use for this will vary between types of businesses but if you can put across an understanding of the things in your business that will drive usage, adoption, revenue or profit and articulate how this will grow and what your plan is to execute then this will help the investor.
IT’S ESSENTIAL TO PAY CLOSE ATTENTION TO HOW YOU VALUE THE FIRST ROUND OF INVESTMENT
And don’t forget that if you have previous experience building start-up ventures, investors will look on this favourably, and could build in a premium for your valuation accordingly. Many investors (me included) price in ‘founder risk’ — what is the chance that you may stuff it up, with previous experience there will be some evidence that basic mistakes will not be made on my dollar!
It can certainly be tough to value early stage ventures. But it’s important to be able to argue a case for why you have valued the business the way you have, even if you don’t have revenue. Don’t be tempted to overinflate your value because it can make it hard to raise funds in the future. And if you’re lucky enough to get investors on board, make sure to keep enough of an interest for yourself, to ensure you always have enough skin in the game to make the hard work worth it. Smart investors will want to keep you engaged in the business for as long as you make sense to be there — if you are good then that will be a long time, they will pay (through an increase in valuation) to see you stay in the business.
4. Educate yourself - if you don’t know it, go and learn it
One of the best ways to educate yourself about succeeding in business is to identify mentors you can run ideas past. It’s an idea to choose a range of mentors across various fields you can form informal and more formal relationships with. Choose people from a variety of age groups, who work across a number of different industries, in Australia and overseas, to help expose you to as many different business ideas as possible.
YOU MIGHT NEED MORE THAN ONE TYPE OF IP RIGHT
It’s also essential to get a sound understanding of basic business principles. A great resource is business.gov.au. Here, you will find information about how to register your business and which business structure is right for you (sole trader, partnership and company are the most common options). You can also find out basic information about taxation, how to put in place robust record keeping systems, how to hire staff and your insurance obligations.
Another great resource is local start-up eco-system spaces like co-working spaces, incubators and accelerators which are a good way to meet likeminded businesses in your local area. There are tons of networking opportunities, so check out local websites or jump on to startupaus.org/coworking-spaces for a list. If there’s nothing happening in your area, why not consider starting a meet-up group and seeing who is interested?
You will also need to be fully versed in trends in your industry sectors, which includes ensuring you have a great working knowledge of similar products to your own, so you can determine exactly what it is that sets your business apart. Attending trade shows and becoming part of your professional association, and even lobby groups in your industry, are other ways to immerse yourself in your field.
5. Testing your idea or product
Once you have your business basics in place it’s time to test your product or service. A common mistake entrepreneurs make is to continually tinker with their product, rather than release a working prototype and continue developing it from there.
A different approach is to release an early version of your product for testing, so you can use feedback from users to develop an improved second-release version. The idea is to get input from consumers about what they like and don’t like about the product, and change your existing prototype, where possible, accordingly.
6. Protect your assets
One vital step for every start-up is to identify appropriate protections for its intellectual property.
For instance, entrepreneurs may choose to trade mark product names. It’s also possible to consider applying for a patent or family of patents for the inventions created by the business.
Businesses that are considering a patent might decide to apply for a provisional patent in the first instance. This will give the entrepreneur 12 months during which to test the idea and its market to work out whether it’s worth pursuing a full patent. This will depend on the commercial potential for the product. Securing formal intellectual property rights and enforcing them can be expensive. So before pursuing this path it’s worth understanding whether the revenues from the products will cover IP protection, plus more.
One of the key reasons for having proper IP protection is that potential investors will want to see this before committing any funds to your start-up. If a business has protected its IP, it makes it a much more attractive proposition than a business that has not gone down this path.
Protecting the business’s IP also helps to de-risk the venture, because it can act as a deterrent for a competitor to copy the business’s products. This helps to ensure the business can defend its market share.
Remember, starting a start-up is an exciting time, filled with high highs and low lows. The idea is never to lose focus on your end goal, seek as much advice as possible and be prepared to be flexible and change tack if you need to.
Often, start-up success won’t happen with your first enterprise. If that’s the case, take the lessons you have learned from your experience and apply them to your future endeavours. So keep trying and don’t get dejected and you’ll be well on your way to success. Good luck.
INTELLECTUAL PROPERTY 101: THE ESSENTIALS
Intellectual property (IP) often comprises a business’s most important assets. It covers a range of different registerable rights including trade marks, patents, designs and plant breeder’s rights. Each type of IP protects a business in a different way, depending on the products, services, designs, inventions or knowledge it contains.
What is IP?
IP may be described as property rights that exist over the practical application of the creations of your mind. IP can be an invention, a brand, an original work of art for example. IP rights offer exclusive legal rights over these assets. They can be bought, sold or licensed.
Some IP doesn’t require registration. You don’t need to register your copyright interests — copyright is granted from the time an original work is created. You can find out more from the Department of Communications and the Arts. Other protection comes in the form of legal documents or agreements such as circuit layout rights, trade secrets and confidentiality agreements. For more information visit types of IP.
Different types of registrable IP
One of the main ways to protect an invention is with a patent. A patent is a right granted for any device, substance, method or process that is new, inventive and useful. IP Australia examines patent applications from Australian and international applicants who want to protect their invention in Australia. Examples of registered patents are the KeepCup, the Cochlear ear implant and the Cricket Cooler.
A TRADE MARK AND A BUSINESS NAME ARE TWO DIFFERENT THINGS
A trade mark is the identity of your business. It is used to distinguish the goods and services of one trader from those of another and can be a letter, number, word, phrase, sound, smell, shape, logo, picture, aspect of packaging or a combination of these. Examples of registered trade marks are FruChocs, the Coffee Club and Boost Juice.
Registered designs protect the form and visual appearance of a product such as a shape, pattern or configuration. (This is different to a patent which protects the mechanics of how a product works.) Examples of registered designs are the Albion cricket helmet, the portable cooler and the shape of the Holden Monaro.
Plant breeders can take advantage of the protection offered by Australia’s plant breeder’s rights legislation. Known as PBRs, plant breeder’s rights give you exclusive rights to commercially use and sell your new plant variety. PBRs are used to protect new varieties of plants that are distinct, uniform and stable. Examples of PBR protected species are the pink Iceberg Rose and Drysdale wheat.
Quick IP tips when starting your business
There’s a lot to learn about how IP can protect your business, but here are 5 quick tips to remember while you’re starting your new business and still learning.
Start early - Don’t leave thinking about your IP needs until you’re ready to open the doors on your first shop! You should be factoring IP into your first business plan as you are working out start-up costs and ongoing needs.
Trade marks vs Business names - A trade mark and a business name are two different things. Registering your business name doesn’t give you full rights over that name. You can find a quick explanation of the difference and links on how to register both of these on business.gov.au.
REGISTERING YOUR BUSINESS NAME DOESN’T GIVE YOU FULL RIGHTS OVER THAT NAME
Take responsibility - IP rights are great on paper, but you must act like you own the right or you may lose it. If you aren’t using your trade mark another business can make a case for your right to be revoked. It’s also up to you to monitor the use of your rights. If you see another business using your trade mark for example, you should seek legal advice to enforce your rights. Find out more at IP infringement.
Publicity traps - You’ve finally had that breakthrough and your invention works! It will be hard, but don’t jump up and shout about it from the roof-tops, in fact, don’t even tell your mum! If you demonstrate, sell or discuss your invention in public before you file a patent application, you may not get a patent. If you want to discuss it with employees, manufacturing agents or designers, get them to sign a confidentiality agreement first.
IP protection is for everyone - IP protection is not just for big business, it’s for anyone with a new invention, business, design or a new plant variety. It helps you protect your interests AND it gives you a great bargaining chip when seeking investment in your idea or business.
There’s a lot more to learn about as you consider registering IP rights for your business, invention or product. On our website you can find more information about the different types of IP, search for existing rights and even apply to register a right. Take some time to read more, learn from the experiences of other businesses and figure out how IP can work for you.
Mick Spencer, Founder and Managing Director of ONTHEGO ®, has learnt what it takes to be a successful entrepreneur quicker than most. At 19, Spencer started OnTheGo — a web start-up that sells custom-branded sports gear to teams, companies and organisations — with $150 and a mobile phone in the garage of his parents’ home. Five years later and OnTheGo is one of Australia’s fastest growing brands that supplies products to over 50 per cent of Australia’s health-club market.
However, OnTheGo does more than just sell sportswear. The company has the grand ambition to help give every person the opportunity, regardless of circumstance, to live a healthy and active life. The company has partnered with two humanitarian organisations to help change the world through sport as well as running their own initiatives. Soon, OnTheGo customers will be able to track exactly how their purchase helped make a difference through a unique serial code.
On meeting Spencer it’s easy to see how he has become so successful. He has incredible energy, drive, and passion that have allowed him to ride the highs and the lows that most start-ups experience. He has already come up against some incredible challenges including online fraud schemes, a fraudulent factory overseas, and staffing issues.
I TREAT EVERY PROBLEM AS AN OPPORTUNITY TO GROW
‘If these things didn’t happen we wouldn’t be where we are today,’ Spencer says. ‘I treat every problem as an opportunity to grow.’
The IP lesson
This positive, ‘can-do’ attitude has seen him approach a number of high profile business people and ask them to mentor him. He now has an impressive list of people he can call on for advice. It was one of these mentors who first introduced him to the importance of IP.
‘After a conversation with one of my mentors I realised that IP is pretty important stuff,’ Spencer said. ‘IP is all about your brand and your brand is one of the most important business assets there is.’
A year into trading Spencer decided to file for a trade mark to protect the term ‘OnTheGo’. The application was unsuccessful.
‘I was gutted,’ said Spencer on being notified of the decision. ‘I put a lot of research and effort into the process and I couldn’t find any reason why it wouldn’t be approved.’
Unfortunately for Spencer the trade mark had already been filed by a competing sportswear company but it wasn’t being used. Spencer decided to fight it. Having little cash flow at the time, Spencer took a lawyer out for lunch and got some advice. He also did a lot of research himself. His hard work paid off and he was successful in gaining the IP rights to ‘OnTheGo.
A few years on and Spencer has around 10 trade marks to his name, with plans to register more in the immediate future. Spencer has filed these trade marks himself. When asked why this was, Spencer said, ‘I didn’t have the money to do it any other way. I had to be resourceful, I had to learn what I had to do and give it a go.’
He is glad he did as ‘the process helped me learn the real value of IP. I can now say I understand IP, the value and the process and I can hold lawyers accountable if I use them in the future.’ Spencer has now also helped a fellow entrepreneur register her IP.
An important business asset
Spencer is currently the sole owner of the company but he is working on selling a 25 per cent share and has plans to list the company on the stock exchange in the not so distant future. His IP assets will help him attract this investment.
‘The IP is so much of the brand and it is important that it is properly protected if I am going to attract investment. It’s what investors look at and it’s what gives the business assets.’
Advice from Spencer to you
Spencer has some advice for start-ups looking to go through the process of protecting their IP. ‘Do as much as you can yourself. Go through the process and ask IP Australia as many questions as you need to.’
He adds ‘research thoroughly. There is so much advice available online. If you plan to visit a lawyer go there with as much knowledge as you can. This will help minimise the time with them and the fee. Weigh up if your time or money is the most important.’
He suggests start-ups ‘get as much protection as possible before you start, but don’t let it hold you back if you can’t.’
His final advice to start-ups is to ‘dream big, remain optimistic and don’t be afraid to stretch relationships’. If Spencer didn’t make the effort to reach out for guidance perhaps he wouldn’t have cottoned on the importance of IP so early on in his start-up career.
Registering your trade mark
Thinking of registering a trade mark for your business? You can learn about trade marks, search for existing trade mark and apply for a trade mark in the trade mark section of this website.
IP STRATEGY: GIVE YOUR IDEA LIFE
Whether you’re working by hand in your shed or have your manufacturing outsourced to China, IP is in your toolbox. How you use it is up to you. But before you worry about licensing your invention, franchising your business model or even protecting yourself from infringement, you have to first understand what IP you have and how best to take advantage of it.
Any business, no matter the size, should undertake regular IP audits and start-ups are no different. So where is the IP in your start-up? ‘Intangible asset’ is the kind of term which can send even the most hardened accountant running. But these assets are exactly the things you’re looking for. They can be anything from business methodologies and trade secrets to patents and trade marks. They can be hard to put a dollar value on, but invaluable in the marketplace.
Most businesses will fit into one of two categories, they either brand their product or the brand is the product. Think about the difference between Microsoft and Apple. Both make computers, both own patents and both own trade marks. The biggest difference? Microsoft made the conscious choice to promote their technical ability, while Apple promoted the emotive connection to the brand.
Brand strategy is often looked at as how you want to represent yourself, who you want to sell to or the channels you use to do so. But there is another layer. That layer is the IP strategy, which should underpin those things.
However, not all IP can be registered and not all start-ups have the funds to register the full breadth of their IP portfolio. Considering what can be (and should be) registered is vital for driving your business in the right direction. Having your IP in check, gives you more certainty to operate and exploit it in the long run.
HAVING YOUR IP IN CHECK GIVES YOU MORE CERTAINTY TO OPERATE
Take the company Deus Ex Machina. After selling his life’s work (a little clothing company called Mambo), self-confessed one-trick-pony Dare Jennings wanted his next endeavour — Deus Ex Machina — to pick up where surf wear left off. Building a business based on a culture is no mean feat, much less one which can turn over $10 million inside a decade. But that’s just what Deus does.
With just eight Australian trade mark registrations in 14 classes, Deus has managed to build something worthy of the slogan ‘Bigger than a brand, it’s a culture’. It sounds like a no-brainer, to see a niche and fill it. But what happens when that niche is more like a broad range of existing cultures? Say, surfing, motorcycles, bicycles, food and even art? Luckily for Jennings he knew that while all these cultures might appear as individual and distinct, they are all intrinsically linked under the surface.
Despite what some big brands may imply, if you like surfing you’re also allowed to like motorcycles. So why not build a brand which can turn customers into a culture? This all comes back to having that brand strategy in place. Deus has made the conscious choice to sell the brand as a culture.
Jennings recently told the Australian Financial Review ‘the apparel lines always make money, but it’s much harder to turn a profit on everything that sells them’. And this can be the challenge of selling a brand as a culture. It’s not just about putting a logo on a shirt and putting it in a shop window. It might be about having that shop also contain a café and motorcycle workshop. Or that shop might be part art gallery and part surfboard shaping factory.
Check our trade mark with TM Headstart
A great way to assess whether the trade mark you want to use is available and able to be registered is to use IP Australia’s TM Headstart.
They don’t have any patents or designs registration, they only have those trade marks. But through their brand strategy they’re using those trade marks as the corner stone of the Deus experience in Australia, the US, Italy, Japan and Bali.
The overwhelming majority of start-ups haven’t just sold Mambo. It’s more likely they’re being pushed forward in spare time while holding down ‘real jobs’. So how do they justify spending money on IP? Let’s look at the rough numbers. Deus has spent little over $10 000 on trade mark registrations in Australia. What this shows is that a smart investment in IP can be the cornerstone of a brand strategy.
So how does a cash-strapped start-up lay this cornerstone and begin to build a defensible IP foundation for their brand strategy? Obviously a start-up operating on a lean budget will always look to minimise cost. But it’s also true that start-ups take a purposely agile approach to all things. Most don’t have a traditional business plan, but rather a to-do list. Every day they tick off some items and every day they add some more. By embracing a ‘fail fast’ mentality and being willing to take on tasks they may have no background in, they keep costs down and keep their business moving forward.
START-UPS CAN PLAN WITH MORE CONFIDENCE
TM Headstart (pre-application service) was developed specifically to enable self-filers, people who choose not to use the services of an IP attorney. Through TM Headstart, filers get an answer about their trade mark’s registrability within five (business) days and if the answer is in the negative, they have the flexibility to make changes which might help it across the line. This can also help time poor start-ups stay agile. Having the opportunity to talk to a trade mark examiner can be invaluable for a start-up looking to DIY using a process they don’t yet understand. A real ‘teach a man to fish’ moment.
With registered IP - a defensible foundation - in place, start-ups can plan with more confidence. Knowing you own your identity and (as importantly) knowing you won’t be infringing on anyone else’s brand, means you can make more informed decisions about the direction of your business.
We can make a further distinction between IP strategy and IP management. This boils down to the difference between attitude and action, where one is about how you make decisions (strategy) and the other the result of those decisions (management).
A start-up’s IP strategy should do three basic things:
- Assess what IP is owned - knowing the value of your IP, or which parts of your IP are more valuable than others, is essential when making decisions about what parts of the business to develop.
- Inform what IP is registered, and when - there may not be money to register all your IP at once, your strategy can help prioritise when you lodge applications.
- Decide how your IP is defended - some companies are very assertive in protecting their IP, while others take a softer (less litigious) approach. It’s important to remember it can cost a lot to be assertive but it could cost you everything if you do nothing at all.
Finally, as we’ve seen on Network Ten’s Shark Tank — for start-ups looking for funding, even a simple IP strategy is a must. Venture capitalists and investors always consider IP when making the decision to invest.
CRICKET COOLER® MAKERS ARE ON A GOOD WICKET WITH IP
Even though they had a ‘cool’ idea and couldn’t wait to get it to market, thinking about intellectual property (IP) was one of the first things the makers of Cricket Cooler® did.
Adam Dubrich and Leigh Warren’s Cricket Cooler® is a novel product ‘created out of necessity for the Australian summer’. It is a 33 litre cooler with a set of stumps that rotate upwards at the front — keeping food and drink cool while you hit those winning runs.
‘IP was factored in to our business right at the start — the idea phase — before we did anything else,’ said Dubrich.
‘We actually took our idea for the Cricket Cooler® to one IP lawyer who was not interested in working with us and unfortunately did not share our vision. Thankfully Leigh wouldn’t take no for an answer and we went to another lawyer for advice.’
Dubrich and Warren ended up working with their lawyer for around a year to get their idea ready for protection prior to bringing the concept to the market. They lodged a provisional application as a first step before lodging an application for a standard patent through the Patent Cooperation Treaty (PCT).
A standard patent lasts up to twenty years whereas an innovation patent lasts up to eight years. Check out our quick guide to innovation versus standard patents.
A PCT application is a useful way to apply for patents in a number of different countries simultaneously. By filing one international patent application under the PCT, applicants can seek protection for an invention in 148 countries throughout the world — an important step in protecting future export markets.
‘The advice we were given was to start with a PCT which at that time would cover us for 18 months. This bought us some time, allowing us the opportunity to explore which markets we would be interested in entering,’ he said.
Dubrich says that although it does cost money and there are a lot of upfront costs as a start-up, investing money in IP makes sense for the long term.
‘There is no point spending large sums of money designing, manufacturing and commercialising a product if the day after you launch someone steals your idea.’
‘Investing in IP upfront ensures the hard work in bringing an idea to market is protected for long enough to drive profits once commercialised.’ he said.‘The price is insignificant compared to the costs in manufacturing and commercialising. Just because IP is not tangible doesn’t make it any less important.’
Adam also recommends other start-ups invest in trade mark protection upfront.
‘Protecting your brand goes hand in hand with protecting your product,’ he said.
Warren and Dubrich’s IP rights portfolio now consists of approved patents in both Australia and New Zealand as well as design registrations in South Africa and the UK and patents pending in India and South Africa.
KEEPING A LID ON PATENT COSTS
If you’re just starting a business and you have developed intellectual property (IP) you need to safeguard, it’s essential to talk to a patent attorney to ensure you put the proper protections in place right from the start. Because it’s more than likely that your IP will be some of your business’s most important assets.
Of course, as a start-up, it’s certain you will need to keep a close eye on expenses. So here, we explore some of the ways to ensure you are protecting your IP and, at the same time, keeping a lid on costs.
The right preparation
It’s essential to arm yourself with knowledge. You can do this by developing a working understanding of the patent system and processes, which will assist you to cut to the chase with your attorney.
Todd Martin, a patent attorney with Eagar & Martin, is au fait with the challenges start-ups face when protecting their intellectual property. His advice is to have a firm idea about similar inventions to your own and the difference between your product and what’s already in the market, before you go to the meeting.
‘We usually provide search links to patent databases for people to conduct their own preliminary patent search, something highly recommended if the budget does not accommodate a professional patent search,’ he flags.
Running an initial search is a risk mitigation strategy to determine the viability of the patent. If the search returns barriers for the patent that the applicant isn’t able to overcome then they don’t invest any more money. This also gives them some knowledge about who owns the IP in their field and alerts them to the potential of infringing another’s IP.
It can be tempting for start-ups to file patent applications themselves to keep costs down. But, as Mark J Williams, an associate with IP lawyers Phillips Ormonde Fitzpatrick, notes, self-filing, while possible, has risks attached, unless you’re already experienced in filing patents. ‘Particularly with patents, it can be expensive or sometimes impossible to rectify mistakes,’ he says.
BE SPECIFIC ABOUT THE CLAIMS YOU ARE MAKING ABOUT YOUR PRODUCT
Williams advises choosing a patent attorney who has a history working in the field of technology to which your invention relates. ‘Most patent attorneys have a qualification in a technical area such as mechanical engineering or electrical engineering. Selecting an attorney with expertise in your field will help to minimise costs as they will grasp the aspects of your invention more easily,’ he says.
There are also many free resources to help you get up to speed on how the intellectual property system works in Australia and overseas. Our website is a great place to start to get an understanding of the basic concepts of IP and how the patent filing process works. It’s also a great idea to attend IP Australia’s workshops and free events throughout the year, as well as events hosted by local business groups, start-up networks and chambers of commerce.
There are also government-funded small business advisory resources that host free or low cost training. This will help you to learn about IP and how to negotiate other common challenges start-ups face.
The initial meeting
The first meeting is probably the most important interaction you will have with your patent attorney. The message here is: the more forethought and planning you do before the meeting, the more productive it will be. It’s likely this meeting will be a free, 30-minute initial consultation. To use this time wisely, come to the meeting armed with an agenda and a basic strategy about why you want protection, where you want patent protection and your top line budget. This will help to structure the conversation.
During the initial meeting, it’s common that your patent attorney will spend considerable time educating you about the IP process. It’s also an opportunity for you to educate your patent attorney about the salient technical aspects of your product. This will assist the patent attorney to ascertain the right approach to take to protect your IP.
It’s an idea to come to the initial meeting having done a basic search about patents that are similar to your own. There are a number of tools you can use to find out about other similar patents, for instance, AusPat, The Lens and Google.com/patents. When you’re searching don’t forget to use a number of different terms to describe your invention in the searching process. For instance, the humble coffee cup could be also called a beverage container, while a mobile phone might be listed as a cell phone in America.
PATENTS ARE CRITICAL IP ASSETS THAT TYPICALLY DON’T COME CHEAPLY
Also bring a basic document about your product. Don’t forget to include a catchy, one-line title and an abstract, which should be a short summary of your invention. Then include a description about what your product does, how it improves on any existing similar products, how it functions and what its core aspects are. Drawings of your product are also helpful. If you’re developing a physical product, you should consider the content that you might include in your instructional guides. If you’re a tech-based business consider what functionality specifications may have been created through development.
Find a patent and trade mark attorney
Looking for Patent and Trade Mark Attorney or want to understand an attorney can help you with your IP? Visit the IPTA website at www.ipta.org.au to find out more.
Be specific about the claims you are making about your product. The best way to illustrate this is to think about what you do not want other businesses to be able to develop. All of this information can be used by an attorney to prepare your patent specification which will form the basis of your patent application.
THERE ARE LOTS OF WAYS TO KEEP THE COSTS DOWN IN THE FIRST 12 MONTHS
As Victor Ng, an IP lawyer with Markwell IP, explains, if you’re seeking a patent for your invention, at this first meeting your patent attorney will spend time providing information about your filing options, which include a provisional patent application, an innovation patent or a standard patent. He or she will also explain your search options, the patent process and likely costs.
- A provisional patent application doesn’t protect your IP, but it does establish a date from which any protection will apply. If you file a provisional patent application you can claim there’s a ‘patent pending’ for your product, this is really just a notice to put competitors on alert that you are in the midst of protecting your invention.
- An innovation patent is often used for technology that has a short lifespan or for technology that’s a small advance over existing technology. It may be converted into a standard patent later, within a limited time frame.
- A standard patent involves formal examination of a patent application. Once it has been granted, the owner of the patent can defend it against infringements. While the official fees are less expensive for an innovation patent, the cost for a patent attorney to draft an innovation patent specification may be similar to drafting a standard patent specification.
In the case of an invention, your patent attorney will ask you lots of questions about the invention and how it works. But there’s no need to be concerned that by talking about your invention to your patent attorney there’s a risk it will be publically disclosed. Mark J Williams explains that patent attorneys are bound by a code of ethics not to disclose your invention or anything you tell them to anyone — regardless of whether you formally engage the patent attorney or not.
‘You should also talk your patent attorney through the conception of the idea and how you came to your ‘eureka’ moment,’ he says.
A GOOD PATENT ATTORNEY IS INVALUABLE...SAVING CLIENTS FROM COSTLY MISTAKES THAT MAY RESTRICT HOW YOU CAN PROTECT YOUR IP
Coming to the meeting with a thorough disclosure statement that is a summary of the invention, along with any sketches or, preferably, computer generated drawings, is also a wise idea.
‘For inventors, it’s equally important to find out about the patent attorney during the initial meeting. Patents are critical IP assets that typically don’t come cheaply. So the initial meeting is also about you interviewing the attorney and making sure that you feel confident entrusting your patents to him or her,’ Ng explains.
In this first session, you are also likely to have a discussion about selecting an appropriate IP strategy for your commercialisation objectives. So it’s an idea to come armed with a business plan for your invention. There’s a big difference between having an invention, and having a plan to commercialise an invention, and you need to think about different ways you could go about that. The question you will need to ask yourself is in what worldwide markets will you need IP protection.
This is important as you will need to structure the business strategy and IP protection around the funds you have available. This is because there are points in the process where it can be expensive to protect IP and it’s essential to factor in the ongoing costs of protection when you’re developing the budget for the business.
So it’s a good idea to use a patent attorney who is also registered in markets other than Australia or has access to international IP attorneys. This saves quite a bit of money for local Australian inventors seeking for example, New Zealand or US patent protection.
There are lots of ways to keep the costs down in the first 12 months; you don’t necessarily need to have documents professionally prepared from scratch early on. Instead, some start-ups learn how to prepare patent documents themselves, and then have an attorney review them to makes sure there’s nothing problematic.
And don’t forget to ask your patent attorney or start-up community about any government grants that may be available to cover some patent attorney fees.
Above all, don’t leave things until the last minute and don’t miss filing deadlines. This can result in late fees, extension fees and means your attorney will have to do more work, for which you’ll be charged.
Finally, remember that while you will be able to do some of the work yourself such as searches, a good patent attorney is invaluable in saving clients from costly mistakes that may restrict how you can protect your IP or, in a worst-case scenario, lead to the total loss of IP rights.
FINDERS KEEPERS: DESIGNS BEHIND THE LABEL
It’s the fashion label catching the attention of celebrities and style icons alike. From Jessica Alba, Kylie and Kendall Jenner, Kourtney Kardashian and Jennifer Hawkins, this Aussie export is making a splash in the fashion world.
Be vigilant, don’t get ripped off
Information, including contact details, about patent, trade mark, design or PBR applications and registrations is available online. Some people may use this information to send letters and invoices to you requesting payment for IP services that you have not requested. They may send you an invoice, or offer to provide a service, such as:
- registering your IP
- publishing your IP right in an international register
- providing you with IP monitoring services.
See unsolicited invoices for a current list of companies that send these unofficial invoices and offers, and for examples of the invoices they send. The World Intellectual Property Organization (WIPO) website also contains a warning about these companies.
Before paying a fee for any IP-related service, IP Australia recommends that you carefully consider what, if any, value the service will provide.
Warning: These companies are not associated with IP Australia, or WIPO or the International Bureau (IB). The services offered by these companies do not provide official patent registration or patent rights in Australia or overseas.
Finders Keepers is based in Adelaide and falls under the Australian Fashion Labels umbrella. Focusing on affordable, fast fashion with great design and on-trend pieces, the label provides attainable high street designs in quality on-trend shapes and fabrics.
Finders Keepers has evolved into one of the world’s most sought after fashion labels, stocked in some of the most prestigious retailers worldwide including Harrods, Top Shop and David Jones.
Naturally, the label has also caught the attention of copy cats. Kate Anderson, head designer of Finders Keepers, shared how they use intellectual property (IP) to protect their brand.
The label has registered its logo and brand through trade marks since its launch in 2010 in goods and services classes which cover them for clothing, footwear, headgear, advertising, business management and administration and office functions.
This allows the label to distinguish its goods and services from other fashion traders in a crowded and competitive market place. In any of the 11 collections that Finders Keepers produce annually each collection will have a print, shape or texture distinct to its label and style.
Kate says they design 30 to 45 pieces of clothing a month and they have a particular decision making process to select which of these items should be protected by registered IP.
From each monthly collection the label will register four designs in any combination — whether that is two prints and two styles, or one print and three styles. Design registration allows a business to protect the appearance of its new and distinctive product. A design can refer to the features of shape, pattern or ornamentation which give a product a unique appearance.
Kate noted it’s their new designs that make Australian Labels different to other fashion companies in Australia.
‘You know, new prints, new fabrics; we develop our own fabrics and prints so we always have exclusive pieces in every range, so I think that’s what stands us out in the crowd amongst everyone else.’
Unsurprisingly, it’s what makes the label stand out that also attracts its copy cats. Kate explained this is a ‘huge problem’ and the reason behind their decision to register its designs — to discourage knockoffs and protect its unique and exclusive prints.
‘We are also registering our prints as well because our prints are exclusive to us every month. We do find that is a big problem.’
Design registration is intended to protect designs which have an industrial or commercial use. A registered design gives you, the owner, in this case, Finders Keepers, exclusive rights to commercially use, license or sell it.
‘Every month it’s up to the head designer to pick what styles we think are the most unique to us, and that we think have potential that might be copied.’
Kate describes the design registration process as ‘pretty simple’ and a process that they’ve ‘learned over time’. She anticipates that the benefits of registering designs will ‘hopefully deter people from copying them, because it is a really big problem.’
‘As a creative it really is quite devastating to see your hard work be copied for half the price,’ said Kate.
And the designer’s inspiration? Kate tells us ‘a bit of everywhere!’
‘We use Style Site, which is an online trend forecasting website. This is really helpful, and you know it has all the major fashion shows from around the world. They also do footwear trending and hair and makeup which is really helpful for us. We spend a lot of time on blogs, and also going through magazines and that kind of thing. Also, street style is very important for us. You know, you get to see how people from everywhere around the world put outfits together.’
So what is Kate’s advice for other designers going through the design registration process?
‘I think every case is different and every brand works differently. It is a quite lengthy and costly process, but I think there is a time when you do have to stick up for yourself and for what you are producing.’
SCALABILITY: MAKING IP WORK FOR YOUR BUSINESS
CEO: I want $100,000 for 10% equity
Investor: You think the business is worth $1 million? But revenue is only $200K and net profits only $2K
CEO: In five years, I’m going to be doing $10 million revenue
Investor: Your business isn’t scalable. How are you going to fund that?
CEO: Through profits.
Investor: You can’t scale that fast. Do you have some new technology you haven’t told me about? Are your customers suddenly going to pay more for the same product? Or pay you upfront?
Investor: You’re dreaming. If I give you $100K and you actually grow that fast, you’ll have to raise more capital. My shares will be so diluted; I’ll be making less money than if I left it in the bank. I need to be making at least 30% on venture capital. I’m out.
Venture capitalists talk a lot about scalability; but what is it and why is it important to start-ups? A good IP strategy can help immensely, but first let’s define what we mean by scalability.
Scalability is the ease at which a business can grow. It’s not rocket science, but a rocket is a good metaphor to understand it. The speed at which a business can ‘fly’ depends on two variables; required working capital (gravity) and retained earnings (propulsion). Working capital requirements weigh down a business because money is needed for things like machinery, inventory, supplies and wages while you’re waiting for customers to pay. Retained earnings are like jet propulsion — net profits ploughed back into the business after taxes and any dividends to shareholders.
When a business grows, so does its demand for working capital.Someone has to pay for all that new equipment, inventory and staff. There are only three ways a business can fund its growth; profits, debt or equity. Profits are best because they come with no strings attached.
Most businesses aren’t particularly scalable. That doesn’t mean they’re bad. It just means if they grow too fast they have to borrow or issue more shares. Why is this a problem for venture capitalists? Firstly, banks may be reluctant to offer unsecured loans to start-ups. Secondly, venture capitalists take huge risks and don’t appreciate getting a smaller piece of the pie through share dilution. A smaller claim on the net profits means a lower return on their investment. They may also lose some control when other investors come on board.
Early investors want to see the potential for really high profit margins with low requirements for working capital. Let’s say you need to invest $100 000 to start a business, and you plan to make $20 000 net profit after you’ve paid the taxman. Provided your business maintains the same gross profit margins and working capital requirements, then you can grow up to 20% without borrowing more or issuing new shares. That won’t work well for someone who wants a minimum 30% return on their investment without taking on more debt.
Here’s where a good IP strategy can help the scalability of your business. There are many ways to improve your growth rate. However, most involve really tough decisions that may have nasty consequences. For example you could:
- get your customers to pay you earlier
- take longer to pay your suppliers
- raise your prices
- lower your costs
Alternatively, you could make IP work for your business. A good IP strategy can improve your profit margins and lower your working capital.
THERE ARE ONLY THREE WAYS A BUSINESS CAN FUND ITS GROWTH; PROFITS, DEBT OR EQUITY
Intellectual property has no inventory costs. It doesn’t require warehousing or raw materials. Once it’s created, infinite copies can be sold or licensed at nearly zero marginal cost. In theory at least, a business based around IP can accomplish gravity-defying growth.
Don’t waste your time - search AusPat first
Before you apply for a patent make sure you check to see if the work or invention has already been patented. Over 40 million patent documents have been published and are searchable in AusPat.
IP rewrites the rules because it is both unique and intangible. Unique things tend to lack competition. If they meet a need with no direct substitutes, then you have a monopoly situation where a company can enjoy high profit margins. Intangible assets can also lower working capital requirements because they exist merely as a concept, innovation or a legal right. Ideas behave very differently to bricks and mortar.
Let’s look at the example of franchising. Many small business owners are happy with a 33% return on equity. They essentially buy themselves a job by paying around three times annual net profit for a franchise. If things go well, every three or four years they can afford to buy a new one.
However, the franchisor has an entirely different business model. By licensing their trade mark and other proprietary knowledge they move away from bricks and mortar and generate more profits from intangible unique assets. The more value generated from IP, the faster it can grow. That’s why successful franchises seem to spring up out of nowhere. All of a sudden, there’s a Boost Juice or Zambreros on every street corner.
Over time, smart companies get rid of lazy, underperforming assets and replace them with better assets. In a knowledge economy, this process gravitates towards IP. That’s one reason why retail outlets don’t necessarily have to own their buildings. It’s often more productive to invest in their brand.
Start-ups like the Scrubba Washbag don’t necessarily manufacture their own products. All that can be outsourced to suppliers who already have established their low-cost competitive advantage. The raw materials, labour and overheads may only cost a fraction of the retail price. The remainder is usually the value-add of IP and IP protection. This has huge implications for attracting venture capital. Higher profit margins mean greater scalability. All other things being equal, why would anyone risk money on a start-up with modest scalability, when another start-up (for the same risk) is highly scalable?
Of course, generating valuable IP takes time and money. IP intensive businesses may have higher start-up costs to develop their innovations and technologies. However, for many start-ups innovation is not an option; it is essential. The odds are already stacked against them.
MANY SMALL BUSINESS OWNERS ARE HAPPY WITH A 33% RETURN ON EQUITY
Even established businesses should examine where they might have untapped potential. The costs of generating IP may be warranted given how profitable IP can be.
Investors make decisions based on a venture’s risk profile and expected returns. Returns are measured over time. That’s why it’s important if IP can improve your sustainable growth rate. If you’re a start-up and you think you don’t have time for IP, think again.
AUSSIE BUSINESS SWEET ON PROTECTING ITS BRAND FOR OVER A CENTURY
Australian confectionery brand Robern Menz has been an excellent example of a successful business for over a century. Since 1850, Menz confectionery has brought us products such as Crown Mints, Menz Choccy Snakes, RaspberryChocs, Choc Honeycomb and their most recognisable brand: FruChocs.
The value of protecting your business assets
A very common mistake for new businesses is not registering their business assets as a trade mark. As an Australian owned business going into a market that is very much dominated by multi nationals CEO of Robern Menz, Phil Sims, says their trade mark strategy is very valuable, an integral part of the business.
‘We’ve had to protect our position around the brand because on a couple of occasions we’ve had organisations who wanted to leverage off what is a very valuable product asset of ours.’ Sims said when discussing their registered trade mark for their FruChocs brand. Having a registered trade mark means they can take action against anyone who infringes on their intellectual property (IP) right.
Benefit of seeking IP advice
IP provides defence for your business and future protection for business assets. In a start-up business, valuing your IP can make your business more attractive to potential investors and buyers. Sims admits that registering trade marks in the early days was a bit scary — but seeking advice to confidently invest and protect the brand was a very important process for them. The company has had a number of valued business partners and IP protection is now an integral part of their business strategy.
VALUING YOUR IP CAN MAKE YOUR BUSINESS MORE ATTRACTIVE TO POTENTIAL INVESTORS AND BUYERS
‘Through education and training and a passion to develop our own brands we became aware that IP Australia existed and how the process works,’ said Mr Sim.
Understanding IP processes has allowed the family business to build well-known brands in Australia and to expand into overseas markets.
Want to know more about FruChocs?
You can watch our full video interview with Phil Sims.
Visit the Business.gov.au to get tips on starting your business, accessing grants and assistance, and where to go for support and advice.
Disclaimer: This publication is designed to help you understand intellectual property issues. You should not regard this publication as an authoritative statement on the relevant law and procedure. You should also note requirements and fees may change from time to time. While we make every effort to ensure the information presented is accurate, you should check our website before making any application. While we can’t give you advice about your particular circumstances, we can provide general information and answer questions about our processes and fees. Commercial legal advice is best sought from a registered patent or trade mark attorney or experienced IP professional.
You may share and adapt the information in this publication for any purpose, as long as you attribute the material as follows: “This work by the Commonwealth of Australia is licensed under a Creative Commons Attribution 4.0 International License.”