Traction may by the new IP for your startup. But then again, it may not be.
“Traction is the new IP” is a common refrain from startup experts these days. As a result, many startup entrepreneurs are rejecting patents and other forms of IP protection to focus instead on generating customers. It is certainly comforting for busy entrepreneurs to have succinct slogans like “traction is the new IP” to reduce the complexities of their decision-making. Nonetheless, encapsulation of a complicated subject like IP to a quippy phrase lacking in business context can be very dangerous for startups seeking to create long-term value. Like many things in life, “the devil is in the details.”
There is no doubt that over the years vast sums of startup company resources have been spent on patents and other forms of IP protection (some of which was paid to me in my former life as a law firm patent attorney). Moreover, if we were to track the number of patents held by successful startups and those held by failed startups, a poor correlation would certainly exist between successful exits and the presence of IP protection. An adherent to Lean Startup Methodology would then likely conclude that scarce resources should be spent on tasks more often associated with startup success. Of course, customer traction is the “holy grail” for most startups, so it is not surprising that experts increasingly push entrepreneurs to work diligently to generate sticky customers. Such a singular focus could be a huge mistake for some startups, however.
Both customer traction and IP exist as examples of barriers to competition, but the appropriateness of either or both for a particular business model will be specific to each startup. Focus solely on traction to the exclusion of types of other barriers to entry means that a startup entrepreneur with a potentially successful business model is placing is huge bet on her ability to gain customers and (hopefully) revenue at a rate that keeps competitors at bay. Nonetheless, time and again, we see that the second or even third entrant into an innovative new market ends up being the company that wins in the end. The delays resulting from pivots or other adjustments can allow smart competitors to use the first startup’s business model and execution mistakes as a roadmap to allow the late entrant to gain a short cut to market dominance. Alternatively, we see an established business with deep resources swoop in and take over the nascent but promising market once the startup entrepreneur has de-risked the opportunity for the incumbent. In each of these cases, the startup team that identified the opportunity and expended the time and resources to validate the opportunity ends up with nothing for their efforts because, in the absence of the hoped for traction, no barriers to entry existed to keep competitors from copying the successful business model.
The answer to the question of “is traction the new IP for my startup?” requires a fact-specific review in each circumstance. Rather than shut down a conversation regarding the applicability of IP and other, more traditional, barriers to entry, startup entrepreneurs and their advisers must work to understand what barrier–or more likely–what combination of barriers will allow value capture from the new venture’s validated business model. In other words, what activities will allow the startup to not only be first in a validated and valuable business model, but also to be able to capture the value that they should derive from being first?
In short, I believe it is better for entrepreneurs to consider traction as just one of the tools available in the value capture toolbox. Indeed, customer traction may be more than sufficient to allow some startup companies to achieve a strong exit. For other companies, however, traction may happen too slowly or not be sufficient to keep competitors from capturing market share from the innovator. In these cases, startup entrepreneurs must at an early stage evaluate alternative competitive barriers that make more sense for capturing value in their specific business model. These other tools could include patent, trademarks, strategic partnerships, and a whole lot more.
In later posts, I will be discussing the various tools available to assist startups to capture value from a validated business model. In the meantime, please feel free to contact me at jhutter@leanlegalteam.com or review my IP Asset Maximizer Blog where I have been providing IP Strategy advice since 2008.
(photo credit: http://therenegadeblog.com/finding-social-media-traction & featured- http://mkgmediagroup.com/wp-content/uploads/2013/05/Measuring-Customer-Value.jpg)
