When Being a Market Opportunity Is Not Enough for Success

“Would you consider yourself a threat or an opportunity to the people in your market?” asked my friend, K. P. Reddy.

K. P. is the co-founder of The Combine. Working with big businesses and technical founders, The Combine converts promising intellectual property into sustainable businesses.

I asked K. P. and his team to visit one of my investments whose value is based on intellectual property. I knew he and his team could help. They have a unique perspective having dealt with so many of these types of companies.

Threat vs. Opportunity

“I am not sure how to answer. What do you consider an opportunity, and what do you consider a threat?” the founder asked.

K. P. said, “If the buyer says to himself, ‘If I do something with you, I may lose my job,’ that’s an opportunity. On the other hand, if the prospective buyer says, ‘If I don’t do something with you, I will lose my job,’ that’s a threat.”

“By that definition, we are an opportunity,” the founder answered.

Without hesitation, KP said, “Then your priority should be to reposition your company as a threat.”

Pitfalls of Licensing IP

The discussion which ensued was all about how to do this. The short answer was simple. Get a product into the market built on the intellectual property. It doesn’t matter if it is perfect, just get it into the market. This is how a company with intellectual property becomes a threat to the market.

The company was pursuing a licensing mode. As such, the company remains in the “opportunity” category and should not be viewed as a threat. The market will continue to wait.

Getting the Big Check

This market approach to realizing value from intellectual property was also described to me by a VC firm in Silicon Valley. This firm mines promising intellectual property from university laboratories.

If they believe they can get to a product quickly, they will invest. They match a researcher with a CEO who is familiar with the addressable market. They then fund the business for three years. It either demonstrates commercial traction, or they let it die.

You’d better be a threat if your value is intellectual property. If not, you just might find yourself being everyone’s opportunity, but no one will write a big check.

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2 thoughts on “When Being a Market Opportunity Is Not Enough for Success

  1. As an IP attorney for 35+ years, I agree with KP’s comments for the most part — but I think this leaves out something important. Yes, if a significant part of your value proposition is IP, it is far better to be a “threat” … few seem interested in IP as an “opportunity.”

    I wholeheartedly agree with this statement: “Get a product into the market built on the intellectual property.” It is very very hard to do any kind of deal just based on IP — unless you adopt the patent troll model, which is shaky these days.

    And assuming that the second “it” is the product, I agree with this statement: “It doesn’t matter if it is perfect, just get it into the market.” Products coupled with good IP have potential to create the most value.

    But if “it” is the IP, there is often little threat created from a mere IP, unless it has disruptive potential. Rare.

    IMHO, if you want to have an IP threat, you need to have quality, thorough, uncertainty-creating, doubt-engendering IP. The IP may not be perfect (little IP is perfect these days), but it needs to be of a sufficient quality that the high-powered Silicon Valley and NYC IP lawyers representing a buyer or a licensee — or a competitor — look at the IP and tell their client, “Hmm … there may be some holes in the IP … but if they get this patent, and it holds up, you have a problem … and they’ve done a good enough job with a good law firm so that they darned well just might get that patent and those claims … now, how much are they asking in the deal?”

    If your IP can make their lawyers pause and express some concern, you are on the way to having a threat. It will cost them a lot of money to really assess if the threat is real or not, and most buyers, licensees, competitors, etc. do not want to spend that money — they will more often do a deal.

    Anyway, that’s what I think.