A Primer in Entrepreneurship

Copyright laws, particularly as they apply to the Internet, are sometimes difficult to follow, and it is easy for people to dismiss them as contrary to common sense.

Every day, vast quantities of material are posted on the Internet and can be downloaded or copied by anyone with a computer. Because this information is stored somewhere on a computer or Internet server, it is in tangible form and probably qualifies for copyright protection.

Entrepreneurs should guard themselves against taking too lax of attitude regarding copyright laws and the Internet.

A trade secret is any formula, pattern, physical device, idea, process, or other information that provides the owner of the information with a competitive advantage in the marketplace.

Trade secrets include marketing plans, product formulas, financial forecasts, employee rosters (реестры сотрудников), logs of sales calls (журналы звонков о продажах), and similar types of proprietary information.

The Federal Economic Espionage Act, passed in 1996, criminalizes the theft of trade secrets.

Not all information qualifies for trade secret protection.
In general, information that is known to the public or that competitors can discover through legal means doesn’t qualify for trade secret protection.

The general philosophy of trade secret legislation is that the law will not protect a trade secret unless (если только) its owner protects it first by ...

• ...restricting access to confidential material.

• ...labeling documents “proprietary,” “restrictive,” or “secret.”

• ...password protecting confidential computer files.

• ...maintaining log books for visitors.

• ...maintaining log books for access to sensitive material.

• ...maintaining adequate overall security measures.

The strongest case for trade secret protection is information that is characterized by the following.

• The information is not known outside the company.

• The information is known inside the company on a “need-to-know” basis only.

• The information is safeguarded by stringent efforts to keep the information secret.

• The information is valuable and provides the company a competitive edge.

• The information was developed at great cost, time, and effort.

Trade secret disputes (споры) arise most frequently when an employee leaves a firm to join a competitor and is accused of taking confidential information with him or her.

A company damaged by trade secret theft can initiate a civil action for damages in court. The action should be taken as soon after the discovery of the theft as possible.

There are two primary reasons for conducting an intellectual property audit.

• 1. It is prudent (разумно) for a company to periodically determine whether its intellectual property is being properly protected
• 2. The second reason for a company to conduct an intellectual property audit is to remain prepared to justify its value in the event of a merger or acquisition.

Larger companies purchase many small, entrepreneurial firms primarily because the larger company wants the small firm’s intellectual property.
The small firm should be ready to justify its valuation when a larger company comes calling.

The process of conducting an intellectual property audit has two main steps.

(see picture)

• Sustained growth

  • Growth in both revenues and profits over an extended period of time.

but only 1 of 10 companies succeeds in achieving sustained growth.

Despite these numbers, most firms try to grow, and see it as an important part of their ability to remain successful.

• Economies of scale

• Economies of scope

• Market leadership

• Influence, Power, and Survivability

• Growth of Key Customers

• Employee retention (Удержание)

• Economies of Scale

  • Increasing production lowers the average cost of each unit produced.

• Economies of Scope

  • Advantage comes through the scope (or range) of a firm’s operations rather than from its scale of production.

• Scalable business models
  • A scalable business model is one in which increased revenues cost less to deliver than current revenues, so profit margins increase as sales go up.

Example: Computer software – development very costly, but delivering software program to consumers inexpensive.

Catch: Sufficient (Достаточный) demand for the product needed, to continually drive revenues up.

Market Leadership: Number one or two firm in industry/niche in terms of sales (economies of scale & brand leadership)

Influence, Power, and Survivability: The larger, the more influence & power (standard setting/“foot in the door”/prestige

 Accommodate Growth of Key Customers (Рост численности ключевых клиентов)

Attract and Retain Talented Employees: Promotional opportunities for employees

• Benchmarking

  • Improving the quality of an activity by identifying and copying the methods of other successful firms.

• Benchmarking advantages

  • 1. Facilitates (Содействует) the setting of goals;

  • 2. Motivates staff by showing what is possible;

  • 3. Provides early warnings of competitive disadvantages.

• Managerial Capacity

• Typical Challenges of Growing a Firm

• Developing and Maintaining Professional Business Practices

• Managerial Capacity Problem

  • Growth is limited by the managerial capacity (i.e., personnel, expertise, and intellectual resources) that a firm has available to implement new business ideas.

• Administrative framework

  • 1. Entrepreneurial services.

    • New market, product, and service ideas

  • 2. Managerial services.

    • Administer the routine functions of the firm; facilitate the profitable execution of new opportunities.

• Adverse selection

  • As the number of employees a firm needs increases, it becomes increasingly difficult for it to find the right employees, place them in appropriate positions, and provide adequate supervision.

• Moral hazard

  • New hires typically do not have the same ownership incentives as the original founders → not as motivated. may even try to avoid hard work.

INFORMATIONAL ASSYMETRY

Cash Flow Management

• Growth usually increases rather than decreases the challenges involved with cash flow management, because an increase in sales means that more cash will be flowing into and out of the firm.

Price Stability

• If firm growth comes at the expense of a competitor’s market share, a price war can result.

Quality Control

• Growing firms must handle more service requests and paperwork, and contend with more customers, stakeholders, and vendors.

Capital Constraints (Ограничения)

• Growth ⇒ more pressing capital constraints.

Formal management systems

• Need to implement formal management systems or procedures.

Speed ≠ control

• Right balance between (i) moving quickly and seizing market opportunities and (ii) the need for a well-managed growth plan and professional business practices.

Growth companies = technology companies

• Many, but no dominance.

Rapid-growth in rapid-growth industries only

• Many, but no dominance.

Must have: first-mover advantage

• Not a must.

Growth-Oriented Vision

• Helps firms crystallize the importance of growth for its stakeholders and ensure that its major decisions are made with growth in mind.

Commitment to Growth

• The extent to which a firm is committed to pursuing growth.

Business Growth Planning

• Process of setting growth-related goals and objectives; then mapping out a plan to achieve those goals and objectives.

Business Partnerships

• Participation in business partnerships also spurs growth.