View From The Bridge

Faith and Commitment

Until one is committed, there is hesitancy, the chance to draw back -- Concerning all acts of initiative (and creation), there is one elementary truth that ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one's favor all manner of unforeseen incidents and meetings and material assistance, which no man could have dreamed would have come his way. Whatever you can do, or dream you can do, begin it. Boldness has genius, power, and magic in it. Begin it now.
      -- Goethe (actually, W. H. Murray in The Scottish Himalaya Expedition, 1951) see here for background

Ya Gotta Believe
     -- Tug McGraw, 1973 regular season New York Mets run for the World Series

Over the past dozen years of successful entrepreneurship, a few lessons have stood out. One critical one is the importance of faith and commitment. I'm always surprised by how dramatic the outcome difference is when someone is working on something they believe in and are committed to vs. how generally weak and crappy the output is when those two things are missing. Creativity, harder-than-hard work, breakthrough thinking, and brilliant execution all are highly correlated in my experience with the level of faith and commitment. When Faith and Commitment are present, you put in play the serendipity of a certain conversation; that ah-ha moment in the shower when you crack the product positioning in a novel way; that midnight email you send on a fluke that becomes a turning point in the financing strategy. And so on.

In every single one of my companies, it is overwhelmingly obvious to me that certain things would not have fallen into place if I hadn't been 110% committed, and if I hadn't possessed a certain, bedrock belief in my product or service. There are just way too many issues, obstacles and unknowns that will stop the average person/product/business. I'm not a military history buff, but I'd venture to say that the military would also have an infinite number of examples where forces that were committed and believed overcame tremendous odds. And, just as likely, where forces that weren't fully committed, and were torn over their beliefs, lost battles they should have by all rights won. I could also point to sports, for I think the analogies are just as effective and common there. How many times has the mentally weaker opponent, who didn't believe he could play better than the other guy, won the contest?

And with that, I ask, why should new products be any different?!

We're learning at EIP that getting large organizations to have Faith and Commitment is much harder than we anticipated. Particularly in the world of really new products where there is much unknown and one can posit 100 questions the data doesn't definitively answer. And if you don't have faith in the product, you can't commit. And if you can't commit, there's no license deal to be done.

So, at the risk of pre-announcing some developments with EIP, I am proud to say that we have a ton of faith in, and commitment to, the products in our portfolio. So much so that we are going to launch a few them ourselves. Read that again, for that that's not a typo... As Dostoevsky said, in The Insulted and the Injured You're a poet, and I'm a simple mortal, and therefore I will say we must look at things from the simplest, most practical point of view. The simple and most practical answer for us mortals at EIP, given the above facts about BigCo behavior, is that we must be the launch vehicle to get these awesome products to market.

The last several months have been incredibly exciting for EIP, and, at the same time, quite stressful as we are learning, exploring, experiencing delays, and succeeding across almost all the projects in our portfolio. As we blaze a new trail in Open Innovation, we're pushing boundaries and organizations in ways that they haven't been pushed before. And we're seeing all sorts of fascinating organizational and financial dynamics that we could not (and did not) predict when we started the company. As I've discussed in prior posts, the dynamic inside of BigCos is a little different from the PR fluff you read about. While organizations tout their Open Innovation successes and talk about all the "outside collaboration" they're doing, when you dig under the covers, 95% of the "Open Innovation" deals out there are basically supply/distribution agreements, consulting agreements, or M&A transactions.

We think that opens up some avenues for us to create a new and different type of value for our investors and to leverage changes in the online and DR worlds that enable rapid market launches with a test-and-learn philosophy. We think we can move more quickly and more successfully than a BigCo can in launching products, and that we can create enterprise value in addition to IP value by exploiting the current market dynamic. If it's easier to do an M&A deal than an IP licensing deal, so be it. We can talk until we're blue in the face about how this isn't the way it /should/ be. But the reality is that organizations, for all their happy talk, are not yet capable of systematically evaluating new product opportunities from the outside, entering into license agreements, and launching new products. There are exceptions, of course. But, by and large, company after company will tell you it's easier for them to buy, at a premium, a fast-growing company with proven product in the marketplace using balance sheet dollars or stock than it is for them to license that very same product pre-launch and run the corresponding launch costs (advertising and marketing, staff, manufacturing spool up, etc.) through their P&L. They seem oblivious to the fact that this M&A vs. license path costs their shareholders an order of magnitude more...

To be clear, we are NOT abandoning our primary monetization model of licensing. We continue to believe that is the optimal outcome that maps to the business and industry trends. And, candidly, preserves the bulk of the absolute dollar value creation for the BigCo. However, in classic arbitrage fashion, if they aren't seeing that value creation opportunity for what it is, shame on them. We'll create it and take it for our investors...

So for 2008, we'll be engaged in more entrepreneurial/start-up work than in pure-play licensing presentations and terms sheet negotiations... It promises to be an exciting year!

Finding the Mensches of Open Innovation...

Over the past couple months, I've criticized Mandarins, Overly Wise Men, and Hubris. A comment was recently posted regarding how to find enablers -- those rare (but not extinct nor stillborn) executives that can be your partner in Open Innovation. For no other reason than the fact I love to define words and create catchy blog post titles, I'm going to call these folks the Mensches of Open Innovation rather than enablers.

Well, OK, there is another reason I'm going to use that term. A mensch is good and decent person. Calling someone a "mensch" is a very high compliment. And if we're talking about those types of people that embrace Open Innovation, and are good and decent people that help you and care about you, they deserve a higher compliment than just "enablers" or "pathfinders" or something that is close, but not really all the way there...

How do you find these Mensches of Open Innovation? Network, network, network. Digital/online networks, personal relationship capital, leveraging friends and peers for introductions, the whole shebang. Open Innovation is still at its very early stages. Most companies are still trying to figure out what it means and how to staff for it. Few companies have any experience with it. Many companies are disguising M&A transactions or vendor/supply agreements as Open Innovation since it has more PR buzz.

We've basically pursued a dual outside/in and an inside/out strategy in building the EIP network and finding our mensches. We've told our story and our model to literally thousands of people. Sometimes we know the company we're trying to get into, but don't know the people there. So we network, network, network for someone who has a similar mindset & passion for innovation and we work our way in. This is our "outside/in" strategy. Other times we don't exactly know where we need to ultimately end up. We have a problem (or an opportunity), but it's not obvious what company is best suited to help us solve it. In that case, we go to folks in our network and lay out the situation and network, network, network into new people and new companies that can help us with that particular situation. This is our "inside/out" strategy.

When you're in the early days of a new industry, it's all about the people. Kindred souls and kindred minds. Shared visions of what is possible and shared desire to take some risk exploring something together without always knowing how it will shake out (be that money flows, roles, or whatever). Finding the Mensches of Open Innovation is not easy, but neither is it hard given the ambient findability that exists online and through leveraging networks.

And, at the risk of stating the obvious, finding the Mensches of Open Innovation requires being one yourself. Give first, help others, connect dots with no clear payback or vig for you; it will come back around. Mensches are there for other mensches.

Building Integrity by Saying No

I know in my last post I promised a follow-up to "Beware the Mandarin". I'm working on it.... But like that last post, events are rapidly evolving my thinking... So I don't want to pre-maturely post :)

In the meantime, I had an event happen early last week that timing-wise just barely preceded a post from Fred Wilson on "Saying No" and I wanted to share it. For it was important (to me) in what it says about how we (I) conduct business, and how integrity is best demonstrated by living it day in and day out.

First, for those not familiar with inventors and invention marketing, let me explain that inventors get scammed more often than probably any other general class of individuals. Inventors get told by invention promotion companies that "you have a great idea. And for a small amount of money, say $5k, we will develop a marketing plan for you and you can make lots of money." Before you know it, the scammer has bilked the inventor for $10k-$20k and has sent over census data, got a design patent, and basically done nothing of any value for the inventor, whatsoever. Why? Because at the moment of conception, with stars in their eyes of how great their idea is, inventors are the most gullible. And they don't realize how hard actual commercialization is.

So, with that as background, one begins to see that unlike entrepreneurs where most VCs are saying NO, inventors get lots of people telling them YES. Telling them their idea is great. And then suggesting the inventor hire him/her to do some work on their behalf. Lots and lots of false hope gets bred and spread in the world of inventing. Crappy ideas are politely supported for reasons relating to not wanting to hurt anyone's feelings, or more nefariously for reasons of bilking and inventor out of his/her life savings.

About 10 days ago, I got an invention submission from an aspiring inventor. His cover note was reasonably cogent, and he attached his invention description in the form of pictures and text. His invention wasn't a good one; in fact, it wasn't really an invention at all.

One option is to be polite and just pass without explaining why. Another option that many firms employ is to say "we'll keep it in our files, and should our priorities change, we'll be in touch." Both foster false hope, and are not helpful. We take a different tack at EIP, and when we say NO, we explain why. Perhaps that will help the inventor, perhaps not. But at least we've held ourselves to a higher standard of integrity and we're building our reputation one inventor at a time for fair dealing.

I've redacted portions of my reply, but here's what I sent him:

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[name]-

I don't think this invention is worth pursuing -- certainly not on our dime, and I would say not on your dime either.

It's quite obvious that a .. can ... I would expect that hundreds or thousands of people do that today. [some more text here]

I can virtually guarantee you that you won't get any patent protection, and I just don't think there is a meaningful product here that could be licensed.

I'm sorry to be raining on your parade, but I wanted to be candid that I think you have a product concept that may appeal to some consumers. But you'd have to make and sell the product yourself and focus on the design and materials. You wouldn't be able to license your "invention" to someone as there is no real invention here...
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What's the moral of the story?

The inventor attached the WRONG invention to his original email. He was both mortified and heartened by our stand up response and he was impressed. So guess what: he sent his real invention to us, and we think it just might be a winner. We're taking it to concept testing and doing some patent searching.

Shading responses to be politically correct, or hiding the ball on why you're turning something down doesn't help anyone. Particularly inventors and innovators. As mom always said, "Honesty is the best policy." Boy, is she right...

Beware the Mandarin

I started this post several weeks ago, but the nature and texture of my comments have been rapidly evolving. First, let me use Wikipedia to define the Mandarin as a "senior civil servant" and then make it my own by claiming it as the Mandarin at a BigCo -- a Mandarin is your typical BigCo executive/manager; not a lifer perhaps, but someone who's happy to be at a big company.

A senior civil servant and a BigCo manager have much in common -- they operate within a political environment, they strive for consensus, they likely seek to minimize risk/exposure/bad outcomes. Their personal mission is to operate and survive through multiple regimes, various re-orgs, latest and greatest management priorities and strategic "visions", etc. I have a strong suspicion that the Mandarin's opinion and behavior is shaped by those around him (or her); the Mandarin's survival is largely a function of how well he fits into the BigCo system. 99 times out of 100, doing the "safe" thing is the right thing, for it will lead to lower likelihood of trouble by rubbing the system the wrong way. I'll demonstrate my point rhetorically: How many mavericks at BigCos stick around? How many thrive? How many are embraced by the organization? Very, very, very few. QED.

So where the heck am I going with all this?

The Mandarin lacks passion. The Mandarin lacks focused energy. The Mandarin is outstanding at executing his/her role, within a larger system. The Mandarin optimizes and makes considered decisions. It's a job, not an adventure, dammit. The Mandarin says: "If I wanted an adventure, I'd join a startup." EXACTLY. The Mandarin isn't an /owner/ of something; they're a temporary caretaker. Heck, how else could they switch jobs every 12-18 months? Can you imagine parents switching kids every 12-18 months? You can only switch gigs by being a temporary caretaker. Sure, you'll do your best, but switching time is always just around the corner.

Again, where am I going?

Initially, my post was going to say that when in the process of innovation you run into a Mandarin, look out. The Mandarin views your invention as merely one of hundreds of new product opportunities. And most of them will fail (the Mandarin has plenty of experience proving his point). So I was going to advise that you must get around the Mandarin, find a champion, find a kindred spirit that has passion for your invention. Find someone who wants to /own/ it with you and make it happen!

Then, I realized that while that's good advice, most of today's organizations are staffed with Mandarins. In some (most?) cases, behind the first Mandarin is a swarm of more of them. They're not evil or bad people, they just don't operate like we do. They've had passion and risk-taking drilled out of them. Like a cancer or canker sore. Budgets. Staff levels. Locked down. Exception spending requires CEO approval. Work the plan. Find the learnings and develop a repeatable process. Don't shake the boat.

Very few Mandarins ever got fired for doing what they said they were going to do; the renegades DID get fired (or managed out) for on-the-fly changes that didn't pay off. And a successful on-the-fly change is generally viewed as a "lucky" thing; good that it worked out, but please don't try that again. Go through the process...

So where does that leave the aspiring innovator? I think it leaves the inspiring innovator in a potentially unique, albeit precarious position. If the new market insight / new invention can only be brought to market by a licensee, then much creativity and persistence must be applied against finding the right licensee and getting them to YES. The odds are more daunting than they should be, but by no means are they insurmountable. There are champions and renegades inside BigCos; they need to be pursued and found. However, if the product can be cost-effectively launched, and market demand validated, there may be a way to appropriate more value to the inventor and investors through creative operating entity structures.

More to come on that topic in a future post...

Of Minnows, Whales and Ships...

Marc Andreessen has a super blog, and recently posted about working with BigCos (whales) and how you need to be careful how you build reliance upon them into your business model. As we continue to push on BigCos of all shapes, sizes, and forms (manufacturers and retailers), I'm reminded of a story of a captain of a ship. The story goes something like this:

A ship is sailing along in dark, foggy waters, and the Captain spots something in the distance in his path. He has his radioman send a transmission to the effect of "Please divert your course 15 degrees to the South to avoid a collision." The captain gets this message in return: "Recommend you divert your course 15 degrees to the North to avoid a collision."

The Captain, believing he is definitely in the right, and has more leverage than the other guy, decides to send this response: "Negative. You will have to divert your course 15 degrees to the South to avoid a collision." And, because he's got his dander up now, he adds, "This is the Captain of a US Navy ship. I say again, divert YOUR course."

Moments later, this is the reply: "No. I say again, you divert YOUR course."

Briefly stunned, he decides that it's time to pull out the big guns and make a take-it-or-leave-it demand: "This is the aircraft carrier USS Lincoln, the second largest ship in the United States’ Atlantic Fleet. We are accompanied by three destroyers, three cruisers and numerous support vessels. I demand that you change your course 15 degrees south, I say again, that’s one five degrees south, or counter-measures will be undertaken to ensure the safety of this ship."

Feeling quite smug and confident, the Captain sits down and takes a sip of his coffee, sure that he's won this one.

Moments later, this is the message he gets back: "This is a lighthouse, sir. Your call."

Sometimes it's soooo darn easy to think you can control and direct big companies. You think you have leverage, you think they need what you have, and so on. Inventors are guilty of this all the time -- and, sometimes, so are we. But at the end of the day, BigCos are almost immoveable objects. And you have to recognize that and plan your approach accordingly.

This week we've made awesome progress on multiple fronts with projects ranging from our Sand-Off exercise where we're now in the the #1 food store in Rehoboth to some of our other stealth projects that could revolutionize a couple consumer product categories. And we did that by being patient, never giving up, and by being creative. We made suggestions, we pointed out certain opportunities and certain issues, and ultimately, we figured out where we could bend and where we couldn't. Sometimes you do have to walk away from a deal. But sometimes by being calm, rational, and focused on the end-game, you can find a way to get an immovable object to move ever-so-slightly. And when that happens, if you're in the right place at the right time, you can win.

When you're a minnow, shouting, threatening, arguing, and getting pride confused with objectives gets you exactly nothing. You'll end up with no deal, chewed up and spat out by the whale....

How's that Proof and Pudding going?

As you may recall, I made a post in early May about a project of ours where we teamed up with the inventor group and are doing a real, live micro market test of a new product this summer. We decided that rather than research, we'd do a product launch and put the "proof in the pudding" so to speak. See here for background.

Well, I thought it was only fair to share some mid-term results... First, some more background. We had an absolute blast making the commercial, and buying time on local cable channels is easier than I ever expected. And despite my initial skepticism that buying 11 cable channels a few times a day would really get us coverage, I'm re-learning that yes, most people still do watch a heck of a lot of TV, regardless of what you read on the Internet...

So we created the ad, bought the ad avails on cable channels, bought a bunch of in-store displays, locked up store distribution from last year, and had 2 big box stores (major food store and major mass merchandiser) all set up by the end of April. We figured we were in great shape for the summer with a summer product and a beach community. Our goal is to see "how big is the product" by getting awareness and distribution up in a single beach community, therefore enabling us to extrapolate to likely US national sales by a major brand.

So, how's it going?

a) the ad that started running in late May and ran through last weekend is here. You can get some good insight into the product by watching a 30-second TV spot and it's much more fun than me explaining it in plain text :) Alternately, if you want to buy the product, go here :)

b) we've gotten some incredible results at the stores we're in. Kids and parents alike have totally "gotten" the advertising and have been asking for the product. We're on a 3x trajectory on year-over-year same store sales. And we're starting to get new boutique stores readily buying a case of product because they've seen the ads and they've had customer's asking for it.

c) it is absolutely stunning to see, firsthand, how the best-laid plans can be brought to their knees by centralized IT departments at food and mass stores. Relatedly, it is a painful reminder of how bloody hard launching a consumer product in the real world can be -- regardless of the wonderful strategies, roadmaps and creative insights one has. To expand, we are not yet in either the food or the mass store because getting a "vendor ID" has proven to be an act that is equivalent to getting off the "do not fly" list or something. Without a vendor ID from centralized IT, the local store can't stock the product (because it won't scan at the checkout). So the fact that local store management wants the product and can sell > 100 units a week is merely interesting because no one in centralized IT has the time/energy, or perhaps the job authority, to add a new Vendor ID. I suspect we're up to 50 calls between the two stores. We've talked to more people than you'd think they have in regional management. And we're still not there. Close, but not there.

So, this post is a mid-term report that we're doing GREAT in the stores we're in. We're in stasis at big box stores, and the summer is heading into the last 6 big weeks. I'll keep you posted as the summer finishes to see if we can pull off a big-box store miracle. But we're delighted with our progress, humbled and reality-checked on how hard actually launching consumer products can be, and excited about our product potential!

Onward!

Enemies of State: Hubris and Overly Wise Men (and Women)

After a decade of successful entrepreneurship, and several years of pursuing the frontier of Open Innovation, I'm concluding that there are two (dangerously) common characteristics that are enemies of a successful new business venture/innovation.

The first is hubris - overbearing pride. These types of folks are best characterized by arrogance and sloth in their response to your invention/business. They're either ever so much smarter than you, or they can't be bothered to actually engage the brain cells to see if you may be on to something. These are the types that cut you off in the middle of your elevator pitch and tell you what's wrong with your idea; these are the types that have no data of their own, but disregard your data completely; these are the types that tell you what the consumer will or won't do, independent of any data or experience that you may actually have in the area. These are the types that are all talk and no action. When you run into hubris, it's exceedingly rare that you'll ever get a good deal done. So my general response has been to just move on and use these chuckleheads as motivation to keep pushing ahead and prove them wrong!

The second is what I've come to call the cohort of Overly Wise Men. Ever run into these folks? They want to study the market and understand the risks. They want to ask 30 gazillion questions and theorize about the answers rather than running the experiment. They will identify all the obstacles to success and demonstrate that when you put them on a list, the obstacles run into double (or God forbid - triple) digits. They will take time to be reflective, to see what other people think, to talk with buyers at the retailers. They'll do the prudent thing over the risky thing pretty much day in and day out. Why? Because they don't really get rewards from taking risks; they get punished for making mistakes. Most would argue this is a compensation structure and organizational structure issue; I'm not entirely sure there isn't something else at work here. I'm not discounting the importance of surrounding structures influencing behavior, but I'm starting to theorize that Overly Wise People are chemically/biologically different from entrepreneurs.

Overly Wise People, I think, are simply are overly careful because it's in their DNA. I think Overly Wise People don't enjoy running/flying around corners before others and not knowing what they'll find. I think they don't get the same spring in their step and joy in their heart when they make something out of nothing. For them, I suspect, much of life is merely an anti-climactic response; their studies and reflection assured them of the answer before they did anything. So the action was wise, prudent, and predictable. I think many of them simply don't get any pleasure at all from the wild swings that come from pursuing paths leading to unknowable conclusions. I think they literally and figuratively fear the unknown more than they enjoy the endorphin rush of "Look what I did!"

Yes, I know, I'm being perjorative by using the word "overly" as it suggests there is an optimal amount of carefulness, and these knuckleheads have too much of it. But that's my point - for inventors/entrepreneurs, the line for carefulness CANNOT be the same as it is for Overly Wise People. It is axiomatic that the world of inventing/entrepreurship is high-risk. It's high-risk because there are big winners, and there are failures (sometimes big failures). Period. If there weren't big winners and losers, it would be called caretakership or something.

And if you're still in a high-risk outcome game/stage, Overly Wise People will be lousy partners. Same with Hubris People.

I haven't yet found a use for Hubris People. I will say, however, that Overly Wise People are critical once the higher risk aspects of your business have been reduced. They optimize and focus on execution and operations in ways that inventors and entrepreneurs can't. They can make it more stable and really grow it. They're called "managers" for a reason -- they manage risks and outcomes very well given a starting point and a desired ending point. But if the starting point is close to zero, and the ending point is unknown, man, are they lost. So my conclusion is to figure out how much risk is still in your equation for your venture to succeed, and at some point, recognize that Overly Wise People are a burden, or a requirement to advancing you cause. Figure out when you need them, and try to avoid engaging them much more than a moment too soon...

So, let's call this Funk's Theorem #1: Match the lifestage/risk of your invention/business with the appropriate DNA of the involved partners/acquirors. And, as is likely obvious, if there's a big gap between what you have, and the risk tolerance (e.g., DNA) of employees at a company you want to make a deal with, find a way to bridge that gap...

Evergreen IP makes it into HBR again!

We're delighted to be featured in the June 2007 issue of Harvard Business Review this month in an article titled "Guide to the Innovation Bazaar"

This longer and more detailed article follows on the heels of our teaser presence in the March 2007 issue, titled "Meet the Innovation Capitalist" (viewable here).

My business partner, Dave Bayless, summarizes this most recent writeup nicely here

Putting the Proof in the Pudding

When we started EIP, we were pretty confident that deep consumer research done by independent 3rd parties would go a long way towards accelerating and enabling great license deals. The idea was that in the absence of data (fact), opinion rules and the incumbent's opinion is always more important than yours. Ergo, unless we got lucky and found a kindred opinion, we were DOA. So, the strategy was to create data to overcome opinion and grease the wheels of a transaction -- in the presence of data, one's willingness to extrapolate from opinion is superceded by facts.

The jury remains out on the effect of 3rd party research data on our deals -- there is no question we've gotten many more meetings as a result of our data than we would have gotten without data; however, it's not yet clear if research data sufficiently overcomes inertia to accelerate decision-making (several companies have either concluded they disagree with the data (which cracks us up when they have no conflicting data, just their opinion) or they've decided to re-test anyway).

So we recently decided to do an experiment. One of our projects is a product that was taken to market in a small community last year. Sales were disappointing, but the product works and is highly innovative. Our analysis was that the sales numbers were a result of the classic startup problem -- due to lack of capital, there was no advertising/marketing and only minimal distribution. All the effort goes into sourcing and packaging the product, and no money/effort is really expended on awareness and distribution.

As a result, we've decided to try a different approach to acquiring data. Rather than doing a research experience using a concept test and asking consumers whether they'd buy the product, we're going to spend north of $30k creating and running television ads on the local cable system. We're buying ads across some 10 cable networks, aimed at our target demo, and running for roughly 6 weeks (over 1000 spots in all). This should drive awareness up to the 50%-60% range we use for volumetric forecasting. Furthermore, we're going to push very hard on expanding distribution to see if we can get up to the 50%-60% distribution that we also use in our modeling (last year the product was not in Food, Drug and Mass stores -- so they're our key target). The experiment is essentially a test market -- simulating awareness and distribution and seeing how high we can drive sales volume. We'll also get some good insights on customer satisfaction and repurchase intent.

After a 3-month test, we'll know if we have a winner or a dud. Assuming we have a winner in terms of sales, we're going to see how different the response is from the target licensees when they see real sales data vs. forecasted sales data.

It's been a blast so far and I'll keep you posted!

Software Patents and the Irony of the Easy...

My friend Brad Feld (probably in the top 5 smartest business guys in Colorado [note: I don't claim to even make the top 100 <g>]) posted the 2nd and 3rd installments of "Empirical Evidence of Why Software Patents Are Bad (or Good)" last month. The series was based upon a late night musing I had on how I found the emotional commenting on the existence of software patents something that could be tested with a relatively straightforward survey/interview methodology.

There are things that a blog is good for (in my experience short commentary designed for skimming/discovery, awareness raising on an issue or pimping your porfolio investments) and things that a blog isn't good for. I waited a few weeks before posting anything to my blog, but based on the comments to Brad's postings, I must admit to being surprised at how superficial blogs may in fact be.

Not a single comment on the blog responded to the testing methodology or the overall assumption set that led to the testing. There were either emotional comments like "software patents are like nuclear weapons -- gotta have them" or something similar. And then there were comments about whether the initial assumption set was nonsense (albeit without a countervailing set of "policy motivations for why patents exist"). Basically the same rhetoric we've heard for years. But I humbly admit to being surprised by the lack of intellectual commitment to responding to the musings.

I'm not sure what surprised me more -- that digital communication lacks reflection and deep engagement, or that one of the top bloggers in the digital realm who's a wickedly smart guy couldn't get anyone to care enough to comment on a testing methodology that would answer a question that annoys many very smart, very well capitalized, strong opinion people. Are they afraid of what they'll find? Or are they just lazy?

Ah, well, don't mean to whine. Just had to get that off my chest. Wish I could find someone to tell me that (a) the idea is flawed for reasons X, Y and Z or (b) the idea is rock-solid and we're going to fund it because in the grand scheme of things, it's a low-cost data gathering exercise that we think is critical to future policy...

It reminds me of how in our business at EIP there are a surprising number of "managers and directors" in new product development at BigCos that would much rather listen to themselves spout their opinions than conduct a data-based experiment that would answer a question. People that "know" what is needed (or more likely not needed) by consumers or by retailers or by their very own organization vs. asking some questions and getting representative, projectable data...

I guess I was just dreaming again to think that things happen automagically. Someone has to drive them. Duh...

Is the big business breakthrough in the non-reflective, opinionated, superficial world of the digital 21st century that those with the data win against those with the opinion? Can it be that in today's world that those that possess the will to create knowledge are the future wealth creators? Are those that actually use the tools at hand to create knowledge, rather than just sit and process their email inbox, surf the web and consume data, the rare ones?

Easier than ever to create knowledge, yet harder than ever to get someone to do it.... How ironic is that?

Why Work with EIP? The Math... (Part 2)

Note: This the 2nd half of my post on why an inventor should work with EIP.

Here's how to think about it from an analytical point of view. There are two factors that we believe we can influence at EIP: (1) the likelihood of any deal, and (2) the economics of the deal.

A classic financial analysis technique is called expected value, which basically looks at a series of outcomes, values each outcome, and assigns a probability to each outcome. Those are then summed and you have your expected value. Here's a simple example: let's say the individual inventor has two outcomes: deal or no deal. And, for simplicity, assume a deal is worth $2m and the odds of a deal are 20%. In that scenario we take 20% * $2m and 80% * $0. The expected value is $400,000. Make sense?

Again, for simple illustration purposes, assume EIP can triple the chances of success due to our network and the work we put into product transformation and validation, AND, further assume we double the value of the deal (if one gets done) through our Product Capitalist model/approach. In this scenario we multiply 60% * $4m and 40% * $0. Expected value is $2.4m -- a 6x improvement in expected value!

I've oversimplified above, but realize that all the variables in the new product development process are multiplicative. For example, let's look at 5 basic "milestones" in simply getting a deal done:

* get the meeting
* make a compelling sales pitch so prospect says "yes"
* get a license deal negotiated with terms that are optimal
* get the product launched
* ensure the company is doing what it needs to maximize sales

Modesty aside, we will meaningfully improve success chances on each milestone. And with the other work we do on the patent side (building a portfolio), on the transformation side (getting designers and engineers involved), and on the validation side (consumer research optimizing the product positioning), we bump up the deal value substantively for everyone.

Here's the bottom line: as I told the inventor, we can't guarantee success. But we can guarantee that working with us will put your product in the very best position to succeed -- we'll have all the data that is reasonably attainable, we'll get the meetings, and we have the experience to get the best deal should a licensee be interested.

Given our experience and knowledge, it's hard to believe that a MORE attractive deal can be done by an inventor, so the real question given our 65/35 split with inventors is whether we are (a) 3x more likely to get a deal done, or (b) get a deal done in a way that makes the product 3x bigger in the marketplace over the life of the product.

Don't forget that (a) and (b) are multiplicative, so if we can move both needles, the odds of dramatically more money in the pocket of the inventor are much higher...

Why Work with EIP? The Thinking... (Part 1)

I had an interesting conversation with an inventor the other day. He asked a question that I'm sure is on the minds of many inventors considering working with EIP: what do you think the odds of success are and how big will the product be? When I asked him to clarify, he was trying to figure out, a priori all the work and effort, the odds of EIP succeeding in licensing his invention to a BigCo. It was part of his trying to decide whether he should go it alone or work with us.

For those of you that know me, you know I love to read. And I think there is a very real analogy between getting a book published and new product development. I'm sure there are authors that have sat down, written a book that just flowed from their mind onto the page, got it published, and it turned into a bestseller. The existence of that phenomenon, however, does not make for a good strategy for an aspiring author...

Can you get lucky? Sure. It's happened. So has winning the lottery. But why would you want to just play with luck when you can stack the deck a little more in your favor? Good authors do research to make aspects of their story more real, they use agents and book publishers to help them market their book and they re-work their storyline based on feedback to make it tighter and more appealing. They work with jacket cover artists because they know, no matter the adage, that the cover design does help sell books.

New product development is a very complex art of design, consumer insight/research, packaging, intellectual property, and manufacturability (to name just a few). Can you get lucky and get a deal done with a great licensee? Perhaps. But going solo is a pretty risky bet and unless you're going to devote your life to doing it, the odds are dramatically not in your favor...

Next post (soon), I turn this thinking into actual math...

Liars use Statistics, but...

statistics never lie... Or so goes an old adage...

Have you ever noticed in the patent debate (patents are bad, patents are good, patent trolls are bad, etc.) that there is a stunning amount of opinion and anecdotal stories? Patents are bad because some patent troll is holding up some company with a nuisance lawsuit... Patents are good because we all know big companies will screw the little guy every chance they get... and so on...

But actual, systematic analysis of the patent system and behaviors, abuses, rewards, etc. are nowhere to be found? Does that strike anyone other than me as odd?

I would say that this emotional rant behavior is most prevalent in software patents. And, while we at EIP live in the land of physical products ("if it ain't made of atoms, we ain't interested"), much of my past life and much of the future of IP law I suspect will be driven by the digital world.

Last quarter I was have a conversation with Brad Feld about software patents, and I sent him a short memo on how I thought the time had come for the world of software patents to stand up and be measured. At EIP we love data, and we're always looking for experiments we can run to prove or disprove a hypothesis.

I won't put my whole idea down on this blog, I'll merely point to Brad's blog on it. Part 2 isn't up yet, but I'm sure it's coming soon...

Autopsy #3: The Case of the Accidental Illusionist

An illusionist is someone who can make you believe you're seeing something that you know is impossible. In this particular project Jane was an accidental illusionist.

Jane came up with an incredibly simple and elegant solution to an office organization problem that is annoying to a meaningful number of folks. When Jane showed it to us (and to anyone really), the reaction is one of a slow smile that creeps onto your face along with an exclamation of "that is really neat! But I can't believe it hasn't been done before." It was an elegant solution, and if it truly hadn't been done before, could shake up a sleepy category and be a pretty fun innovation. 

Jane had spent hundreds of hours perfecting her prototypes, had worked with a lawyer on both a prior art search, and on a patent application. She'd done Google searches and insisted no one had done this before. She was passionate about her invention, and had developed line extensions and a whole suite of products that leveraged her original insight. We were sufficiently intrigued that we signed Jane up after we cracked the code on positioning and hit our hurdle on the concept screen.

Luckily, in our process we're now prepared for illusions (partially as a result of prior failures like Exit Stage Right and Case of Missing IP) and we now take steps to shine very bright lights onto high-risk aspects of a project. Our first action upon signing Jane was to do a really good prior art search with our best legal team; they're not the cheapest, but they are the best. We initiated it within 24 hours of getting Jane's signed documents.

Result: Very similar products have been developed and patented in Europe and Asia, just not in the US. So Jane's patent was never going to issue (or be enforceable), and we'd never have anything we can license. This project holds the record for our fastest project termination (9 days from signing to termination).

Re-learned lesson: Shine bright lights on critical assumptions, get great people to peer review prior work and conclusions. Particularly when your gut is telling you what you're seeing isn't what you're seeing. Was it a failure? It was, but we're getting better and better at failing fast and cheap -- and most importantly we're learning from prior mistakes...

Autopsy #2: The Case of Knowing When to Exit Stage Right

So Bill comes to us through a friend, and Bill's company has some very interesting technology in the healthcare space that is crying out for a simple consumer product. Existing products are expensive and intrusive, and tens of millions of people are looking for a better way to solve their problem. Bill's company can't run with it because of company strategy/focus issues, so they do a deal with us to help commercialize the technology. They're going to keep the high-end of the patient market, but give us rights to the consumer end.

We clean up the saliva drooling down our chin after we run the math on the product opportunity, and jump into the project with both feet. Our going-in assumption was that the technology was pretty solid and what was needed was some marketing work (primarily positioning), some product design work (ergonomics, some materials work, and manufacturability work), and some IP work (the issued IP was a good starting point, but more application were needed).

As we dug into the project, we came to understand that in fact there are 3 key components to making a consumer product like the one we envisaged. The company had figured out only 1 of them. Not being afraid of a challenge, we initially thought we could find and hire some folks to help us with the other two and then we'd come back to the work outlined above. Guess what, if you don't know what you're doing, you don't know who to hire. And in this case we didn't even know how to analyze and scope the problem sufficiently to even pass around a few requests much less RFPs. PhD's, or at least some serious background in medicine, was necessary to complete the actual invention process and manage the project. Oh, and we also learned that the FDA/FTC may want to review the product since the medical claims we'd be making would need to be verified. Yikes, I can spell those acronyms, but I've never worked with those people...

I've learned over the years that while confidently attacking problems with intelligence and hard work can many times put you over the obstacle, lying to yourself (and more importantly your investors and partners) about your skill sets and the limits of those skill sets is a recipe for disaster. If you don't even know where to start, how to organize the tasklist, and most importantly how to prioritize important vs. urgent (and even relevant vs. irrelevant at current stage) you'll never find the finish line (and you'll be much, much poorer for all your dry holes on wrong-headed activities). If you don't have any right to succeed by virtue of knowledge, experience and skills, Exit Stage Right since you're just acting and doing it poorly. And in the business world, you can't just act, you have to execute, so get the heck off the stage and go do what you are good at. This project needed scientists and engineers, marketing problems were a ways down the road. So we bailed and returned everything to the inventor.

In this case, early greed due to the China Math (if we just sell one shoelace to every 10 people, we'll be rich!) blinded us early. We didn't do enough due diligence, we were overconfident in how far we could stretch our model and skills, and we strayed outside our experience zone. Bill & Co. were great folks and they do have a great enabling technology that could  help tens of millions of people someday. But we weren't the right partners to help them map and navigate the commercialization waters and find the finish line of a license deal.

Result: A project death and some learning about how to better filter and screen projects to better align with where we have a right to succeed...

Autopsy #1: The Case of the Missing IP...

As promised, this is the first in what may be a few posts on projects we've terminated at EIP -- what we learned, what we'd do different next (this) time, etc. Here are the ground-rules: (1) I'm going to change names to protect confidentiality, (2) I may even change facts like categories or product-specific info for the same reason (but I'll keep the key points true to experience), and (3) I'm going to have fun and I hope you are too. Due to reality and narrative constraints, my 4-paragraph blog rule will likely get abused in these postings...

Our job at EIP is to find, transform, validate, and license promising new consumer products to branded manufacturers. The big guys have distribution, and have the resources to drive awareness, and they're increasingly hungry for new products to in-license. And trying to start up a new consumer product company is a real challenge. Hence our existence and pursuit of our Product Capitalist model. Our website has more details if you're not familiar with us.

So, Bill comes to us with a really clever product concept in a big-ass category. We're talking health and beauty here, and he's got an angle on what is essentially a spin on an anti-microbial health product that hasn't been done yet. It plays into some great trends, and makes good kitchen logic sense. Not clear from the get-go how big it can be, but gut feel is that it's meaningfully big.

Our concept test scores nice and high. Our anecdotal consumer research is thumbs up -- most people buy the storyline and several are quite excited. We're starting to believe we might have something here and we sit down to map out next steps. We're big believers in rapid, sequential risk reduction. Many BigCos at this point would form a multi-disciplinary task force and boil the ocean in parallel to solve for all sides of the early stage opportunity. We do something else -- we look for the biggest risks, and we attack those first. If the project is a loser, let's find out quickly and fail fast and cheap.

First we decide that we should make some of the product -- he's got a formula that our due diligence says is credible, but we believe very strongly in testing that a product actually does what it's supposed to do. So we find a small lab and make up a bunch of it. That's when we get interesting surprise #1: it costs a bloody fortune to make. We decide to come back to that issue later, but we do confirm it works as promised. So, unintentional caution flag is raised, but the gate of "does it work" is a success: it works.

Next risk box: do we have meaningful IP? Our review of the IP, and our discussion with our inventor and some scientists suggested that the product was meaningfully better than alternatives. But we were curious: how did the inventor come up with the idea? He answered that nicely. Then we asked about his formula since he doesn't have any scientific background. Oh, a buddy of his that knows this stuff helped him. Caution flag #2: the buddy's name is nowhere on the patent.

So we call our lawyers and have a fascinating conversation and learn two things:
1) the absence of the buddy's name is a problem - it can be fixed, but it severely weakens the patent in litigation as a valid patent requires all inventors to be named on the patent. While I knew that, I didn't know that amending named inventors after the issuance has negative consequences in litigation, even when the oversight is completely unintentional.
2) the patent claims were much narrower than we expected. When you get into chemistry, the words matter a lot. Simple phrases like "consisting essentially of" mean something very important. Like if you throw more than a few drops of something else in there, you likely are outside the patent claims. Yikes!

So, given the narrowness of the patent claims, in combination with the weakness due to the named inventor issue, we pulled the plug.

So what did we learn? I re-learned a lesson from a while back: always ask the 2nd and 3rd question - that's where the real nasty often lives. Never stop with the first answer, look for where the bad news may be hiding... In this case, if we had stopped at: "can we add Jim's name to the patent as an inventor" we would have thought we were fine. But we luckily asked the 2nd question: "and are there any ramifications of adding him?"

Same with the patent claims themselves. At first ask, "How do these patent claims look", the answer was "They're pretty good given what you're trying to do. Product seems like it's effective." The 2nd question of, "and if we were company ABC who saw this product successfully launch, and wanted to develop a competing product, where would we start getting around this patent?" led to "as your patent counsel, I'd recommend you just add a bunch of other non-active ingredients to the product mix. That gets you around this 'consisting essentially' language..."

Never be afraid to ask... And keep on asking...

Augering In: The Death of an EIP Project but Survival of the Pilot

In the world of aeronautics, the term "augered-in" is a euphomism for "crash and burn" -- as in when the plane hits the ground at a high rate of speed and you fail to survive unless unless you eject. See here if intrigued :)

I used to criticize VCs for essentially putting so much fuel (capital) and pressure on a young business that they would rather blow it up in their effort to see if it scales than carefully feed and craft the business into a successful, albeit smaller, enterprise. As I've matured and come to learn the distinction between a portfolio and an operating business, and the reality of managing financial assets, I have a better appreciation for what VCs do and why they do it -- short version: big returns matter, failing fast matters, and there is such a thing as an acceptable loss -- they want to find the winners quickly, double down, and get their money back. Time value of money and opportunity cost argue convincingly against the slow-grow approach when your business is managing financial assets...

EIP is a little different from a VC in that when our projects auger-in, we generally just terminate our involvement and return all the IP to the inventor. So, yes, the inventor has lost some time, but they've learned a lot at no cost to them, and they can leverage the work we did to either modify the product or to try to commercialize it themselves. Our work is nowhere near as life-changing as recruiting management and employees, and then shutting down the company.

But that doesn't mean when we terminate the project it's any less emotional for the inventor. After all, we teamed up on an objective of market entry and riches and there was an emotional investment by both parties in the product opportunity. So far in our brief existence, we've terminated 7 products. In every case so far, we've run into a major issue that we believe creates an impossible hurdle for a licensee to cross. That is, there wasn't a meaningful patent asset (so why would a licensee pay us anything?) or there were so many interdepencies required (we need this and that and so on), that only a very desperate licensee would take the risk. Or, perhaps the market volumetrics were too small or the design-around risk was too great.

The good news for us is that we're getting better and better at spotting critical risks earlier and earlier. The game we're in requires a lot of at bats in order to get some hits. For us, our goal is to get better and better at seeing the pitches and connecting the bat with the ball. That's great news for our inventors, because the better we get at hitting, the more likely the "surviving" products get on the shelves. For many of them, seeing a product on the shelf is validation and their insight/inventive genius, and the royalties are merely a byproduct.

Another post or two will be coming that details a few of our recent projects that augered in, and why...

The Art of the Pitch

I ran across a very solid piece from the upcoming Canadian TV show "Dragon's Den" today and it's worth sharing. If you're a successful entrepreneur or inventor, you probably already know about elevator pitches and how to sell and market your new product.

But, sometimes, the best advice is the simplest and easiest to forget. You get so close to the product that you get lost in the trees and the details and you've lost your audience before they even knew what hit them.

When you're pitching a new product, keep it simple and focused. In the 1500+ inventions I've reviewed, it's shocking to find only about 5% of folks actually can make a good sales pitch.

Thesis briefly stated is thus:

1) If you can't state your problem and solution in 30 seconds and on a single page, keep working on it before you submit your idea.

2) Make it simple enough so your 6-year old daughter and your 73-year old grandfather can understand what you're saying.

Pitch = Pain Statement + Value Proposition in plain English.

The original piece and video (strongly recommended for all aspiring inventors and entrepreneurs) is here. Video is 2 minutes, on YouTube, and elegantly simple. Definitely worth the reminder and right up there with "Run the Experiment" in terms of our Top Ten List of Rules for Success at EIP...

WikiPatents - A good(?) start

In addition to the developments with the Peer to Patent system of peer review that I blogged last month, the good folks at WikiPatents have launched something akin to what I mused about here and here with using crowdsoucing and open Web 2.0 tools to help with the patent process and getting rid of bad patents. You can read the News.com story here, so I won't repeat it. I'm hopeful that what they've has launched will spread interest and focus on how to reduce the number of bad patents. And I think they're generally on a good path.

I fear, however, that WikiPatents is going to have a bumpy birthing process. Given that they're in beta and just launched, a full critique is inappropriate (and I want to encourage them to continue pushing forward!). But I see some big issues: they've added voting on things like market value which confuses the whole issue between information and speculation (and I think exacerbates bad actors/participants since we're all equal behind a screen name), and they've (so far) missed the opportunity to do asynch notification of patents that matter to me based on keywords (so I have to want to comment on patent #xyz, which is problematic if I don't know it exists).

More importantly, I think there is a bigger issue here around money flows and ego. With Wikipedia, the joy of being an author and contributor is what drives participation. When you can have pride and can claim expertise that stands up to scrutiny, there is a nice ego boost. Money flows matter less - you're happy to stay up late editing a Wikipedia post because it's there for the world to see.

After more reflection on crowdsourcing the patent application process, I've come to conclude that economics matter in this field. There isn't much joy and pride in delivering death blows to patents; to do it right is hard work. Details matter. Taking the time matters. Whining and complaining are easy, but to really expose flaws in a patent requires digging in. I'm happy to do that if you pay me (even a little) because my sense of right/wrong is buoyed by the cash. But to volunteer my time to chop off one bad application when another just rises in its place is a depressing proposition. I could be the foremost expert in field X, but doing some work on weekends and late nights finding prior art to blow up patents is pretty low on my interest screen after the first few weeks and initial righteous indignation. Cash is king in the world of incenting behaviors, and crowdsourcing shines best when you can tap into those that have more time than cash (or those that are so skilled they can make good cash by working quickly at the time and location of their choosing)...

Don't get me wrong, I wish Peter and his team the most amazing success in the world. I'd be delighted to learn that a sufficient number of folks care enough to participate and make a meaningful contribution. But I fear good intentions need to find a money flow here. Don't know if that's sponsorship or the "gold plating" model that Peer to Patent is pursuing, or what...

The Stockholm Syndrome and Tragic Invention Lock-in

I was surfing around recently and I found this quote from Robert J. Sternberg in an article titled "Creativity as Investment": "Practice in the realm of ideas is what financial investors do in the stock market. They defy the crowd to 'buy low and sell high.' Buying low means pursuing ideas that are unknown, or at least slightly out of favor, but having growth potential. Just as not every stock with a low price-earnings ratio is a good financial investment, neither is every new idea a good creativity investment. Buying low is inherently risky. Selling high means finding buyers for one's work, convincing them of its worth, and moving on to new projects when that work becomes valued and yields a significant return. Analogous to stock market investment success, sometimes creativity fails to occur because a person puts forth ('sells') an idea prematurely or holds an idea so long that it becomes common or obsolete."

For some reason (perhaps the headlines about the kidnapped Austrian?), I was struck by how we at EIP, and inventors in general, can learn a lot from that quote and how important it is to keep perspective and timing in mind when it comes to inventing and new ideas. Just as investors can hold their losers for too long (all sorts of emotional baggage around "I'll sell when it gets back to where I'm even" or "this is a great idea that's just ahead of its momentum curve,") we at EIP need to be thinking about when to fish and when to cut bait. When is a product ahead of its time, when is it past its window, when is it just out of favor but will come around??? And, most importantly, when is it just an average idea that has average odds of success. For these are the real killers in a portfolio as they suck time, money and energy without a chance for a booming return...

Recall my post about the State of Fear as well as my post about The Art of Letting Go. Once we start moving on a project at EIP, two things happen: (1) we begin to turn over more cards and get some facts and data, and (2) we begin to "own" the product and get emotional about it. Just as there is a very fine line between genius and insanity, there is a very fine line between not giving up when all sorts of naysayers and bad research reports are staring you in the face, and recognizing that discretion is the better part of valor and we need to terminate a project rather than throw good money after bad. Sometimes we need to dig in and find a way to charge the hill differently. The idea is still screaming to get out and be a success and we just haven't pulled it out right. And we can't give up (see prior posts on the Importance of Passion).

Other times we need to simply bail out. The danger of getting so close to the product that we begin to love and promote it despite all the evidence that it's a loser is very real and can be debilitating. This is what I mean when I say "Stockholm Syndrome" -- we've been kidnapped by the invention. But we don't see it that way; we see it as our job to defend and explain the product. As the product sponsor and owner, we just don't think the world /understands/ the product and we just need to explain it better. For it's really a good product. Really. Just like a kidnapper is really an OK person who's misunderstood... Really...

The Power of Magic and Elegant Simplicity

I delight in my Chief Product Scout role at EIP. I get to see all sorts of new and crazy stuff just about every day. One of the puzzles I continually try to work out is: "what makes a new product concept just zing right to the top of my priority list?"

We have a finely tuned and honed process of screening at EIP, and before we start sinking any meaningful dollars into a project, it goes through a couple different gates and spin cycles. But before all that happens, it has to get past me. Don't misunderstand, this isn't a God complex post; it's an attempt to distill the learnings of the past 18 months and the past 1500 ideas that I've had the joy and pain of reviewing.

I've concluded there are two ways to jump to the top of the queue and get me so jazzed that I become a zealot in convincing my partners we gotta start the gating process. The first way is what I call "magic" -- you present an invention to me that feels like a magic trick. I just WANT to say "voila" when I demonstrate it to my partners. This requires a prototype (of course), and it requires someone who seriously knows what the hell they're doing. Someone who knows something so complex, or so arcane, or simply so unobvious that no one has ever done it this way before. And it's incredible. It's a frickin' magic trick waiting to be demo'd. A customer that sees this product on a 30-second ad spot just HAS to try this sucker out. Because it's sooooo cool. We've got 2 of those in the portfolio today (and one pending), and I can't wait to show them to you. Think P&G Swiffer -- it just magically makes the dust and dirt JUMP right off the ground and into the Swiffer. Or think the Rabbit screwpull for a wine cork -- how the heck does that work?! These are the products that just bring a smile to my face every morning and every investor meeting.

The other route is what I call elegant simplicity. It's the product you look at and say "Why didn't I think of that!" It's not necessarily obvious, but it's one of those products that you just KNOW you could have thought of if given the right moment of reflection and prodding. And just before you buy the thing and delight in the value/utility/time-saving it provides you, you curse yourself for NOT thinking of it and getting rich and retiring to multiple homes scattered across Paris, Hawaii and Jackson Hole. You need it, you want it, and you know everyone else will buy it. Products I think of in this category include Gladware (uh, CHEAP Tupperware?! now there's an idea it took a genius to think of), Spinbrush (hey, Frank, think we can make a cheap, battery-operated spinning toothbrush?), Uncrustables (Joey, c'mere, check out this PB&J sandwich without any crust! Son-of-a-BITCH, I've been making those for years!), and, of course, the all-time champ: intermittent windshield wipers (Eh, Vinnie, it ain't raining very much, what if we made the wipers PAUSE for a few seconds between swipes?). We've got a few of those in the portfolio too, and I hope you'll find them as fun as we do...

If you're a serial inventor out there, and you have a product that either possesses magic or elegant simplicity, please, make my day and bring them to me.

Early Adopters and Information Cascades

My business partner at EIP, Dave Bayless, is always ahead of the curve on strategy, financial modeling and social networking. One of the things Dave has been educating me and Vandy on is the importance and relevance of information cascades to our long-term success at EIP (and the success of our inventors).

In the world of consumer products, an information cascade is best thought of as word-of-mouth, as propelled by the presence of key influencers in that word-of-mouth flow. For example, if Joe tells you product X is great, and you trust Joe for product guidance, you are more likely to buy product X. But if Jim tells you product X is great, and you just met Jim at a party, the influence Jim has on your future product purchases is less than Joe. HOWEVER, if Jane, who you also just met tells you that product X rocks, and perhaps even Pat tells you that product X is awesome, you're increasingly likely to try product X. That is to say that word-of-mouth, on its own, is not enough to trigger an information cascade -- there must be present some individual with a disproportionate influence on the information sharing and/or the presence of a "herd" that influences you.

In our world at EIP, we need to think hard about the best way to trigger an information cascade in our new products we're bringing to licensees. If we can influence the way a licensee launches and markets a new product, and increase the odds of an information cascade, we increase the odds of success. This is a whole new branch of theory and there is little fact-based experiment upon which to build. But it's an intriguing new area...

So, in the spirit of having some fun and trying to create some information cascades, I'm launching a new blog (my 3rd!) that is all about consumer products that I own and love. I'm an avid consumer product buyer, and I love sharing the great new products I find.

So, check my First Adopter blog out if you get a chance. The first post (at the bottom of course) explains my reasons and rules, and gives you a sense of why this isn't just another gadget blog...

Peer to Patent

It was with incredible joy that I discovered today that some of my late night musings on crowd-sourcing the patent application process (see here and here) are actually well under way at the patent office. There is an initiative in the software world called Peer to Patent that has received a test case approval from the USPTO and is supported by small companies like IBM and Microsoft. It's substantively similar to what I had proposed, and this one is already moving.

This is an awesome step forward, and I'm quite hopeful it will soon be extended to other fields like consumer products. I was a year late with my idea as Beth Noveck had started blogging on the thread last summer and there was even a Wired article...

Go Beth and the USPTO!

A "Boulder Troll" View From The Bridge

I went a little deep on the whole "troll" thing, so when I saw this story today from nearby (and wacko) Boulder, I just had to post it. Particularly after a friend noted the connection with my posts, my blog title, and my geography.

Original link is here, but I just cut and pasted the sucker as it's too funny to make you click through...

Trolls On The Bridge!

Just a day after the public anguish surrounding the appearance (and subsequent arrests) of disrobed cyclists on World Naked Bike Day, Boulder has a new crisis on its hands: bridge trolls.

Fueled by a couple of tabs of LSD and brandishing broken golf clubs, 19-year-old Robert Hibbs, of Boulder, installed himself on the pedestrian bridge over Foothills Parkway and started demanding a dollar from each pedestrian and biker attempting to cross. When the police showed up, as they invariably do in such situations, Hibbs called himself a troll and insisted that he owned the bridge, according to Jeff Thomas, writing for YourHub.

According to Hibbs' fellow-troll Bradley Boville, the decision to commandeer the bridge arose from a dilemma we all find ourselves in from time to time: "The two had rolled a big joint," Thomas reported, "and found themselves without either a lighter or a dollar with which to buy a lighter."

PatentSmack.com - Crowdsourcing the patent application process

My previous post on how to potentially re-shape the patent application process has continued to chug along in background processing lately, and I'm increasingly convinced there is a big idea here trying to break out. It was with great fascination that I read the recent Jeff Howe article in Wired on Crowdsourcing (see also Jeff's blog), and a few more pieces clicked into place for me.

There has to be a way we can leverage the collective intelligence, viral networking, asynchronous notification, search and collaborative aspects of the web towards doing a better job at rejecting anticipated or obvious inventions. Crowdsourcing is an intriguing way to think about doing this. One might actually wonder if software patents would be an ideal place to start the experiment since (a) it's a long wait to the first office action, (b) it's the most problematic space right now (see various posts by Feld, Wilson, comments by McCall, etc.), and (c) there is great cultural and skills alignment between the leading edge of technology tools and software engineers/firms ensuring the best litmus test for all field classes.

I'm thinking I'm going to work up an outline of how the system could work and put up a wiki or some such web-editable document at patentsmack.com* in my spare time. Anyone interested in contributing can just edit the outline directly (assuming I can pull off the tech aspects of the job).

Here are a few of the latest puzzle pieces bouncing around in my head:

1) by publishing patents sooner, we can get a better read on the state of the art at the time the patent is filed. Makes searching more current and creates a reasonable window for the "comment period" before the examiner reviews the patent. It's almost like the comment period for government agency regulations. With product lifecycles acclerating, an 18-month confidentiality period is increasingly useless. And, this is entirely consistent with the reason for being with patents -- to advance the state of the art through disclosure. I know from the EIP perspective, I'd rather have a trial by fire and patent in 12-18 months vs. a game of cat and mouse and a possible (more likely?) patent in 36-48 months that a not insubstantial number of folks think they can blow up anyway in litigation.

2) if we add in an element of commerce to the prior art searching, we can increase the crowdsourcing beyond just those companies who may compete in the relevant field. What if, for example, the USPTO said: "if you pay an extra $1000 when submitting your patent, we will publish it in 6 months, post it on patentsmack.com, and guarantee review within 18 months." Then there's upside to the inventor (faster time to certainty) and there's the beginnings of an economic incentive for crowds to participate. Payouts to commentors would be a function of whether your comment/post was cited by the examiner in a final rejection letter.

3) what if we can ADD money to blow up a patent? That is, company A files for patent X. Company B learns of this patent app, and ups the ante by contributing $10,000 to anyone that can blow up the patent. Now the plot thickens -- we've introduced commerce to the equation and enabled weekend and late night individual contributors to the game. If cited in examiner's rejection, you get $$. If no new art on patentsmack.com is cited, money goes to USPTO. That increases their budget to increase the examiner payroll and to work down the backlog of patents.

I've gotta get back to my day job, but I do think there's something here...

* note: patentsmack.com is purely illustrative. I have no interest or desire to build a business around this concept and do not intend the above to be an advertisement or trial balloon in any way.

** Brad Feld, Fred Wilson and Matt McCall, you guys really should incubate a company like patentsmack.com... I'll even contribute the domain for 1 preferred share :)

Size the Opportunity - Cheat Sheet

Matt McCall, an investor in EIP and good friend (and fellow Kellogg MBA alum!), recently wrote a great blog about how VC's look at businesses to invest in. See Scalability -- P*Q

We run into exactly the same thing at EIP -- how well does a product concept scale? And we recently updated all our product submission and public speaking decks to reflect how we evaluate market sizes for products. We see a lot of inventors that believe their product will take 1% of a big market and is therefore a huge idea. As Matt says, top-down models don't work.

In our world, we ultimately take Matt's model of P*Q down a layer and view it this way: target market size * awareness * distribution * trial * price + [repurchase rate]. That is, how many people are in your target, are aware your product exists, can buy it somewhere, and what % of people indicate that they'll buy it when you do some surveys with random consumers (never trust your friends and relatives). Then we factor in repurchase rates for products that are consumable. This can get highly complex and folks like AcuPoll and BASES will do a wonderful job making highly accurate forecasts.

But, I'm going to give every budding inventor a cheatsheet here. We can simplify the above to X * R * 0.04 where X = number of customers that you think are target customers (US only) and R = price point of your product at the store times the number of times a year the consumer buys it.

I won't bore you with the math, but trust me when I say it works surprisingly well (feel free to email me and I'll send you the details). Using this model, if you can get over $30m a year, we're definitely interested, as is almost any branded manufacturer...

RSS, Web 2.0 & Patent Reform?

My brain has been wrapped around how to improve the patent process to minimize "bad" patents and solve for the mess that we've gotten ourselves into lately with nuisance patent lawsuits and overall frustration with the patent process (not the least of which is the 5+ year delay in many cases).

And I was struck by a thought: Could RSS and some of the new Web 2.0 technologies hold a key?

Here's the angle: most patent frustration revolves around when people file for (and receive) patents on what many folks think is obvious technology (or, alternately, is already disclosed in the prior art). The problem is proving obviousness/anticipation after the patent issues -- not a cheap proposition and time-consuming. As well intentioned as patent examiners are (and often times they're quite skilled despite criticism), they simply can't know everything.

What if we (the US) changed the rules on patent publication such that they are published after 6 or 9 months rather than today's 18 month wait? And what if we (someone) builds a RSS feed with keyword capabilities as well as a mini-Digg-like service where users can "nominate" a patent for obviousness and prior art to highlight it to a broader community so it can get blown up? Under this scenario one can easily "monitor" patent publications for fields, words, products, capabilities, etc. that map to one's particular area of interest and expertise. Think of it almost like Wikipedia for patents...

And what if we add to this by enabling anyone to put comments in the record of the pending patent pointing to additional prior art, making obviousness arguments, etc.? Of course registration would be required prior to enabling commenting to eliminate spam (and perhaps we'd need to use lawyers/patent agents to do the actual posting if stupid commenting got out of hand), but just think if by the time the patent examiner had a chance to review the patent the global community had an opportunity to present additional information to the patent office? Wouldn't they be in position to make a much better determination of novelty and non-obviousness with the broader comments? The patentee would have the opportunity to respond to all the comments and have that much more confidence that their patent isn't going to get blown up after issuance if they really have something novel.

Hey all you Web 2.0 & RSS companies and venture capitalists out there, I'd love to hear what you think...

In Defense of the Trolls - Part 4 (Final)

This is my last post in the series, and my objective will be to demonstrate why I think trolls are a good thing, provided that we (collectively) can clean up the issuance of bad patents.

What if we fast forward and ask "what's the world like without patent trolls?" I think we will all be unhappy with the result. It's a world where the only way to profit from your invention is to practice it yourself and build a business. Because in the absence of trolls, BigCos will happily ignore your patent and copy your invention all day long -- it's all upside to them as (a) they don't have to pay a license fee, and (b) they know you can't compete against their scale, relationships, etc. Game-set-match to BigCo; the really smart ones will let you start to build a business and prove the market exists, then crush you when they enter. And without a patent troll on your side, too bad for you -- them's just the breaks small guy.

Pareto Optimality and the more general theme of economic efficiency throw up all over this required linkage between the inventor and the business that makes/sells it. If I simply suck at building and operating a business, shouldn't I still be rewarded for my contribution of the invention? If I'm particularly good at inventing things, and you're particularly good at making/selling them, a troll exists to make sure that the leverage in a negotiation is appropriate to the value of the idea. Those that wish for the elimination of trolls will get a world where the inability to profit from issued patents chills and shrinks the invention and innovation pool and gives existing companies way too much leverage and strength.

The trolls keep everyone honest. If you are late to the innovation party, you have to pay the price of copying other's inventions. You get the benefits of being a fast follower, but you have to pay up for that benefit. For trolls act as free-market police against bad actors who just steal or ignore the rights afforded in a patent. It really is as simple as that.

Do the trolls play a nuisance game? Of course they do. And I'll be as angry and pissed off when I'm subject to a nuisance suit as I am sanguine about my macro view of the importance of trolls. But if you play out the game of chess, I submit that trying to eliminate trolls has a much higher long-term consequence that is negative than finding ways to limit their game to true invention that is worthy of a patent...

I admit that I've stayed at the 50,000 foot view here, and there are some subtleties when you dig into enabling technology patents (where a patent covers a small step in a bigger process/system) and when you live in a world of software patents, which I think is a really challenging area right now. But the world is soooo much bigger than high tech, that we shouldn't let the high tech giants control the discourse on the very important issue of patent trolls...

I look forward to any comments on what I've missed or how to better solve for trolls without having negative long-term consequences for the individual inventor or small startup.

In Defense of the Trolls - Part 3

Now that I've thoroughly gone off the deep end by defending patent trolls and taking a detour through the world of product invention via the courts, it's time to return to my original thread. Recall my "Game Theory of Patents" where patents can only be insurance or threats? What if, in combination with additional intellectual property, a patent becomes the foundation of a viable business threat? I firmly believe that the reason we don't see more patents as business threats is because too often the patent stands alone as a property right and it's surrounded by all sorts of emotional utterances (e.g., "I just know this is going to be huge" or "everyone I ask would buy one" or "I don't know what it will cost to make it, but I'm sure the profits will be huge"). But there's no data to go along with the patent -- so there's no credible business threat. Standing alone as a patent, in the absence of infringers, there is neither a credible legal or a business threat; the patent is worth little more than the paper it's awarded on...

However, what if we combine the foundational patent with additional intellectual property? Such as real market research (e.g., concept/usage/volumetrics), real product design work including prototypes and CADs, some wickedly clever additional patent applications that expand the fence, and perhaps even some brand and packaging insight? Can we make the product opportunity a business threat?

If we succeed in our "commercialization steps" we create a sufficiently compelling business opportunity that is a credible business threat in the sense that now market entry is almost certain: BigCo A, BigCo B, DRTV/infomercial company C or startup D will launch this product because the economics are known, the manufacturing method is known, the consumers have said they'll buy it, etc. And, to top it off, the product opportunity as outlined in the patent and the additional intellectual capital will have both a time to market and a legal advantage over trying to compete against it.

At this point, the business threat combines with the greed factor (and ideally, the ease factor as less work is now required to bring it to market). If we can turn the product license sales pitch into what is essentially an M&A auction, we have dramatically shifted the odds towards a license transaction. We create urgency by shaping a product opportunity into a reality: someone is going to own this and bring it to market. Fast. And those who don't license it will be forced to design around it (which is generally do-able, but will slow you down and likely increase your COGS if we've done our job right).

So here's the business threat laid out there: "Will it be you or your competition?"

In Defense of the Trolls - Part 2

I suspect a few of you have either unsubscribed or are holding your fire... My efforts to put chum in the water with Part 1 have failed to evoke a single comment from the millions of subscribers to this blog. Stunning. Truly stunning. And a rebuke to the interactive future of all things blog...

But perhaps it's just that those who wanted to comment knew I was setting them up. So that's what I'll think -- you're too smart to be suckered in. Yep, Part 1 was a bit of a stage creation where all patents are created equal. Where all patents are GOOD patents. You've impressed me by not falling for my crass attempts and remaining silent.

In the silence, a point has been scored for the distinction between trolls and patents themselves. For this is the forest that is missed in the trees of frustration around the trolls' behavior. For I would posit that the troll that angers us is really a scapegoat for the property around which headlines have been made. Is the patent truly an invention? Is the patent an obvious (albeit enabling) tech for a complex computer/network/software system architecture and part of hundreds (thousands?) of aggregated improvements or is it a single, standalone god-like advance? Is it Internet software that moves at the speed of light or is it life saving or tremendously value enhancing novel insight that no one had done before and creates the foundation of dramatic societal/technological/economic advance?

It is this question that I fear is lost in today's discussion about trolls. Witness the latest CNNMoney article on Myhrvold's venture. The HP guy comes across as an absolute idiot - so you should only license patents that relate to operating businesses you participate in? C'mon! Get a life. You license a patent because someone else can create value where you can't -- that's the whole point dufus. Taken to its logical conclusion, the HP guy is saying that patent licensing has no role -- either practice the invention (and block others) or go home. That's just inane and I hope (and pray) the writer just took him out of context.

But back to the point here, patent litigation is frequently about where someone appropriated all that value creation for themselves. Believe me, I know -- patent lawsuits suck. But all lawsuits suck, so let's not point fingers and say patent lawsuits are really all that different from others. The bigger problem is in how the patents get awarded and the timeframes around them. I'm delighted to see the Supremes taking up the question of obviousness, for I think THIS is a key part of the answer to our current mess. I'm also generally delighted to see the expansion of the definition of prior art given the reality of today's search technology -- again, this is a big step forward (albeit painful in some specific cases near-term as we advance the search ball).

Here's the punchline for the hook I set earlier: the trolls aren't the problem, the way patents are evaluated and issued is the area that needs improvement. I'll come back to that later in the series...

In Defense of the Trolls - Part 1

This is going to be a multi-part post over the next week or two. And I'm taking a bit of a provocative stand for a reason: I'm getting tired of the debate over patent trolls and I think people are missing the forest for the trees... Just last week, our friends in the House had an oversight hearing on "Patent Trolls: Fact or Fiction" and the topic has gotten plenty of press. Let me begin by stating a hypothesis I'm naming "The Game Theory of Patents". My thesis is thus: patents, standing alone as property, can be only two things: threats or insurance. Insurance, in the absence of a risk, is worthless. Therefore, from a value perspective, patents, standing alone as a property right, can only be threats.

The above is a bold assertion, but I believe as you peel the onion you'll see the self-evidence of it (successful contingency lawsuits by patent holding firms, patents pursued solely for the purpose of counterpunching (or nuclear bombs as some think of them, etc.)). I won't belabor this post with a long discourse on the logic thread, as I want to get to my main points.

Point #1: Assuming the above is a truth, as a (pending) patent owner, if you can't make a credible threat, align your patent rights with someone who can.

Point #2: threats can be either business attacks or legal attacks.

Let's first dispose of the case of when products that are covered by the claims in a patent are already in the market. This almost always means a legal attack (or threat thereof). In the absence of a legal attack, business norms and behaviors are not aligned to promote re-apportioning of value streams as the patent is essentially ignored. To re-state, the invention disclosed in the patent is already in the marketplace and the know-how described therein is already known and combined with the means of production to put it on the shelf. Since nothing more is needed from the business perspective, the legal attack is the only road open.

Therefore, in a world where the established market dominant player enters the market, if a small firm/inventor doesn't have resources, a patent troll is the only option. Let's not niggle about the semantics of those who never intend to enter the market anyway (as some have tried to do to distinguish "evil" trolls from the merely impoverished inventors who use contingency law firms to pursue "good" ends). We can debate that argument offline as I think anyone who is consistently good enough to put themselves in the center of future successful products should indeed be handsomely rewarded and furthers the very ends that patents are designed for -- promoting the disclosure and advance of new technologies. And recall my prior comments about Google enabling one to find almost anything now -- the world of new products moves faster because it can move faster... Patents are published and searchable within 18 months of filing...

In sum, I think the world requires some semblance of patent trolls. I think it was right that RIM had to pay a small fortune to NTP to make that case go away. They tried to stomp over a small inventor, could have settled for a small amount and gambled. As much as I don't always like the result, the reality of the market dynamic requires a counterbalance to thievery and trespass, intentional or otherwise...

Google, Tails, Patents, and Trolls

For both of you subscribing to this blog, I'm going to demonstrate that I can transition between almost any two points in the universe in four paragraphs or less (separate