March 1993 will forever live in infamy for me. That month, all my hard work in marketing the TopsyTail was eroded by boatloads (literally) of TopsyTail knockoffs entering the marketplace at a fraction of my sales price.
Thankfully, I was one of the lucky ones. I had taken my idea to market swiftly and sold large volumes before the "legal thieves" arrived with their knockoffs. Most entrepreneurs, unfortunately, are not as lucky. All too often they see their ideas brought to market by someone else--someone who reaps all the benefits and profits. Their only recourse is a very expensive (about $250,000) and risky two-year court battle--which is an option only if they protected their idea with a patent. And did I mention that the odds of winning aren't all that great? Slightly more than 60 percent of patent holders win their lawsuits.
The good news is there are ways to protect your idea. The key is to be proactive and move quickly to discourage others from copying your products. Following are four of the best weapons to protect you.
1. Be the first to market. The easiest way to protect yourself is to do everything you can to get your product to market before the competition. If you're first to market, you have more control over your product's price, avoid price wars and can recoup your costs more easily. Moreover, your product's name will become established as the brand name. You may not create the next Vaseline, Q-Tips, Frisbee, Band-Aid, Xerox or Rollerblade, but your brand name will be the one people remember.
The TopsyTail had a three-month lead in the marketplace before the competition arrived--a short time, but enough to establish a lead and sew up key distributors and marketing channels. When the competition showed up (most competitors appear about six months after your idea hits the shelves), I had the advantage of established distribution channels and alliances with retailers. Being first meant I could sign up the best distributors and leave the competition with the leftovers.
If your idea is unique and not just a better mousetrap, being first to market can mean effectively "owning" the channels of distribution. Today's retailer is becoming less and less interested in giving consumers every product option available. Many just don't have the shelf space; others don't have time to stock more inventory and keep track of it. But retailers know the value of a product with name recognition, and once your product is picked up by retailers, your competition will have a much more difficult time getting into those locations.
To find out if you can be first to market, do some preliminary research--go shopping, read catalogs, attend trade shows and talk to people in the industry--to see if your idea already exists. You can also do a patent search to see if anyone has applied to patent the idea. If someone has, don't give up. Since fewer than 10 percent of patented ideas ever reach the market, you might be able to buy the idea from the patent holder, who may be just sitting on it and not collecting a dime.
2. Develop trade barriers. Another great weapon is making barriers to entry--strategies that discourage or prevent competitors from entering the market.
- Exclusivity. Suppose your idea is made with a unique part or material. It is possible to enter into an exclusive arrangement with your supplier where it will sell that part or material only to you. This creates a great barrier by forcing potential competitors to buy that part or material from another supplier--if there is one. Clothing designers do this frequently. When they see a fabric print they want, they cut a deal with the fabric mill to sell that print only to them.
- Expertise. Hiring all the expertise creates another barrier for your competition. This concept is commonly used in the technology market. When a new type of technology appears--be it information systems, telecommunications, software or a manufacturing process--chances are only a few individuals are skilled in it. Hiring or contracting with all those individuals not only creates a barrier to entry by other parties but also gives your company all the expertise. Your company becomes the only game in town.
- Expert system. This means delivering your product or service at such a high level of efficiency that no one can compete with you. Consider Starbucks, which, besides being first to market in many areas, makes a variety of coffees, often exclusive, all of it high quality and delivered with an energetic and efficient level of customer service. Competing with Starbucks means beating their prices, matching their appearance (their stores are clean and appealing), and meeting their level of service--all hard to do.
- Buying into the technology. Recently, an entrepreneur showed me a garden product that incorporated the childproof-cap technology used on medicine bottles. The company paid a small royalty to the patent holder of the technology and, in return, got an exclusive product for the gardening industry. As a result, the patent holder was committed to fending off anyone who used his technology without his permission. In other words, the company got the patent holder to act as a policeman.
Remember, not all barriers to entry are foolproof. High start-up costs, for instance, can discourage potential competitors but could also be a barrier for you.
3. Keep it secret. Trade secrets are a fabulous and inexpensive way to protect your idea from the competition--forever. A trade secret is any knowledge you have that gives you a competitive business advantage that is not generally known or readily ascertainable. For example, a jewelry manufacturer I once worked with created beautiful imitation stones. When I went to his factory, he showed me samples but never allowed me into his manufacturing area. He had developed a special method for making stones, and as long as he kept his method secret (even from people he knew and trusted), he could claim trade secret protection.
The irony is that trade secrets are sometimes better protection than patents. If this jewelry maker wanted to patent his method, he would have to fully disclose it. He rightly concluded that his protection would be greater by keeping it a trade secret than under a patent.
Acquiring trade secret protection is simple. You don't have to file anything with the government. You must simply use common-sense procedures and reasonable precautions to keep your trade secret confidential (such as the jewelry manufacturer not allowing tours of his facility). If employees must know the trade secret, have them sign an agreement promising to keep certain information confidential.
The advantages of trade secret protection are many. As long as you maintain your trade secret, you have ongoing and unlimited protection, unlike a patent, which expires. Also, unlike a patent, trade secrets require no filing or maintenance fees, and you don't have to wait years for them to be issued--the protection starts immediately. The only costs are those associated with keeping the secret hidden, such as the cost of having a lawyer draw up agreements for employees to sign. A trade secret can also include more information than a patent. You might need to file several patents to cover all the aspects of an invention that could be encompassed in one trade secret.
Inventions well-suited to trade secret protection include:
- chemical formulas like the one for the paper that is used for U.S. currency.
- chemical recipes for cosmetics, soft drinks and the like.
- manufacturing processes such as the jewelry example above or the process used to form the eyes in sewing needles.
Trade secrets also have some disadvantages. If your trade secret could be discovered by inspecting, dissecting or analyzing your product or service, it would no longer be a trade secret. A trade secret is also more difficult to prove and enforce in a court of law than a patent is.
4. Form strategic alliances. Strategy is always your best weapon, and strategic alliances provide excellent trade protection. The best example of a strategic alliance happened in 1980 when IBM decided to make small home computers and went looking for a company that could write the operating system. They hired a small company called Microsoft. This company licensed its product (PC-DOS) in an exclusive arrangement with IBM and, consequently, became the industry giant it is today. The lesson? If you can align your product with a large company in a strategic alliance, you may be able to ride its coattails to success.
Strategic alliances can also be forged between two competitors who decide to go after a bigger competitor together.
Being new to the market doesn't have to mean being eaten by bigger or more experienced fish if you are smart and strategic in bringing your product or service to market. Your best approach is being proactive, and your best weapons are speed, secrecy, trade barriers and strategic alliances. Armed with this defense, you can achieve whatever you set out to do with your product idea.