The risk of innovation

This article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in July 2012 and is posted here by their kind permission.

How to turn an idea into a business without someone stealing and using it

Challenge

This entrepreneur has a business idea, which he believes will be profitable. He is not sure who to talk to or how to go about starting up a business based on his idea. He asks if it is possible to secure a patent or other protection to prevent others from taking his idea.

Response

This is a common situation for many would be entrepreneurs with a great business idea. To develop the idea service providers and funders must be approached and this brings a risk of someone using the idea.

Intellectual property protection through patents, designs or copyright may provide some of the answer, but are not always applicable. For instance a patent applies to something that can be represented by a drawing, model or prototype. It must be new and involve an inventive step.  Patents do not apply to computer programs and the presentation of information. Copyright covers written or artistic works and images, but not the ideas underlying them. A legal action against a patent infringer is likely to cost hundreds of thousands of Rand, and could take years to complete.

Davis Gilson, a partner at intellectual property law firm Spoor & Fisher suggests that a good option is to register a company name which describes the product or concept as explicitly as possible, and then to register the name as a trademark. This will limit imitators from passing themselves off as this company. Gilson suggests entrepreneurs who are uncertain what protection is available for their idea should approach an appropriate Intellectual Property specialist for an initial chat, which could be inexpensive or even free.

Options

In this case the entrepreneur has a creative idea for an internet based business, and would probably not be able to rely on patent protection. Nevertheless there are some steps he could take:

• Deal with trustworthy suppliers. Established financiers and advertising agencies hear thousands of ideas and respect confidentiality. So do many other service providers. Check references carefully before choosing, especially their clients who had new ideas.
• Use a Non Disclosure Agreement. There are plenty of free templates on the internet, but he must be sure they are correct for South African law. Banks and financial houses will generally not sign these, but for developers, resellers and technical service providers they are routinely used.
• Do it yourself. Entrepreneurs are often too quick to involve financiers and service providers. Starting small and using family finance may be better. Equally learning how to manage the unknown is not as difficult as it seems. We live in this wonderful age of blogs, advice forums, eBooks, webinars and other educational and knowledge sharing facilities.

The best option

Hiding ideas from the world at large is extremely difficult to do, and even if the entrepreneur is successful in keeping confidentially until launch, once he puts it on a website he exposed the idea to around two billion people. And yet there are many creative web sites, services and products launched by entrepreneurs and not copied by others.

A key step in achieving this status is to launch with immediate benefits to consumers. If it is a website it needs to have a lot of content so that the innovative idea becomes immediately useful to consumers and develops a loyal following. Two very different ideas, the Cape Town Waterfront, and the consumer website Hellopeter.com were wonderfully creative ideas that became leaders in their class. They, like all similar success stories offered immediate benefits and innovation, and became top of mind market leaders.  First mover advantage, if well used, is probably the very best form of protection. Consumers who love and respect the product or service are unlikely to switch.

All this means sound business practices with good planning, a clear understanding of where customers and profit will come from, measurable milestones and a great launch strategy. This should be true for all new businesses. Secure and loyal customers, gaining good value are the best protection of all.

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