Kyle the Red

Good Rules of Thumb for a Software Startup Patent Strategy

I’m sure this post will read like a picture book for those experienced in the patent industry, but a lot of founders will inevitably face issues associated with a patent strategy sooner than later. I’ve run into these issues with various clients and now at VividCortex and wanted to share my experiences.

Note: I am not a lawyer and this is not legal advice.

There is no minimally viable product for patents

You can’t do a MVP for a patent. A properly done provisional patent will cost you about $8,000. A provisional just gives you a 12 month delay on your filing for the actual patent application. The actual patent application will cost you about $15,000 in total. 

Patents are major time sucks

Even if you hire good lawyers to do your patents, you will spend at least 20 to 40 hours of your time organizing your documents, filling out the Invention Disclosure Record and communicating with your attorney. 

Patents are Worth Nothing, Unless You Defend Them

Academics and scientists are  prone to think that having a patent means wealth and prosperity. This is far from the truth and in outlier cases may be true, but patent litigation is expensive (millions of dollars) and only valuable for establish companies. 

If you infringe on a patent and you are noticed by a big company, you are screwed

You probably won’t have any issues with patents, until you achieve commercial success. But if you do, patents are too expensive to defend for a small company. 

Patents Have Some Value to Investors

Unless you are inventing something like infinite energy, your investors should view patents as a necessary evil. If they are forcing you to patent everything, you are likely wasting your time. At the same time, you need some balance with your patents and your long term IP needs. Patents can be viewed as validation confirming protection of critical IP for the long haul. 

Get NDAs for Patentable Stuff

If you want to keep your inventions a secret, get an NDA before you disclose them or have clients use them. This should protect you prior to a filing from those contacts and is a recommended course of action from most attorneys. 

Do As Much as You Can as a Trade Secret

If you can avoid patents, I’d highly recommend it. There will be many ways that competitors can solve the same challenges with a different set of code and algorithms. It’s better to keep everything as much of a secret as you can and not worry about patenting. 

If you already invented some of your idea…

Effective March 16th, the patent system move to first-to-file system, meaning if someone knows abut your technology and files first, they will likely be the patent owner [see this article].

Incremental Patent Filings Are Doable

You may want to consider our strategy of filing a provisional patent, and then pursuing incremental applications as we grow and have more capital to devote towards our patent portfolio. A cost-effective approach would be to do a single provisional filing, internally draft technical documents on one or more incremental features and then have your attorney file everything together as this would only cost about $4,000 in addition to the provisional. 

You Can Negotiate Discounts for Patents

You may want to file multiple provisionals and patents at the same time. Because there may be similarities in each application, you should get a bulk discount from your attorney. Don’t forget to ask about an incremental filing strategy as another way to keep the costs down. 

I hope that is helpful. Does anyone else have any good rules of thumb?

(photo by tarotastic)

Charlottesville Needs to Adopt a Grassroots, Open-source Brand: #cvillemade

Having lived in Charlottesville for nearly thirty years, I’d say I know this town better than most. In my prior post, I asked, “Is Charlottesville a Startup Hub?” It’s not and we need to do a much better job for entrepreneurs of all types in Charlottesville. I’m not limiting this discussion to tech entrepreneurs, but to all sorts of makers, designers, inventors, scientists, engineers, artists, musicians, etc.

So, I came up with a Startup Hub Hierarchy of Needs to easily understand where we stand.  

Hierarchy of Needs 

It’s pretty simple to think about the components needed to create a startup hub in Charlottesville when you use this model. 

Shared Sense of Purpose: This is our vision. As a community we haven’t fully adopted the idea that startups, makers and creators are the ones who add value to our society. We need to celebrate the unique quality that sets us apart and market this to the world. 

Institutional Support: These are our stakeholders. We need investment and long term commitments from various groups that are aligned with the Shared Sense of Purpose. Examples include the Darden Incubator, HackCville, Tom Tom, the active startup investors, and PCA. We need to give more than lipservice to this concept and change the culture associated with our community. 

Standard Processes: We need to educate entrepreneurs, investors and institutions how best to create a market for ideas. There is A LOT of potential investment money in Charlottesville, but it’s not available if investors don’t have enough knowledge or simplified way to approach new ideas.

Success: This is the pinnacle of what we can achieve. There is no end, but I can tell you that Charlottesville will look a lot different if we can become a startup hub. 

Our biggest gap is a shared sense of purpose

I had a nice discussion with Spencer at HackCville about their mission and they are on board to support, as a non-profit (501c3), an open-source vision of the community. This means creating a brand that would be adopted by the community and owned by no one. 

Charlottesville is full of creative makers, from artists to technologists, and we need to unite around a single mission that resounds with all of us. 

How does #cvillemade sound to you? Are you #cvillemade? 

A Business Perspective on IT Monitoring & Operations

@vividcortex forces us to think deeply about the future of IT monitoring. We think about competitors, trends, legacy players and there is a new order in town.  I believe we are entering a revolution of monitoring products that are rapidly displacing the incumbents because of a much better value pitch. New Relic, AppDynamics, Boundary, DataDog, VividCortex and others are paving the way for a new world of more useful and insightful monitoring tools.  

What is Operations?

Firms exist to create value for all stakeholders. Operations are the underlying processes by which firms create and deliver value. A firm’s processes transform inputs such as labor, computing power, materials, and data into more valuable outputs, in the form of product and services. Operations is the management of these processes.

What is IT Operations?

IT Operations, simply, is the management of processes related to IT. As companies become reliant on IT systems for value creation, it’s also obvious that IT systems will become increasingly valuable for a business. 

Lessons from Operations 101

Operations 101 assumes that data is readily available. Let’s take Little’s Law for example. In brief, it says that, in a line, the average number of customers waiting is equivalent to the average arrival wait times the average wait in the system.

If you are Whole Foods, you care about this because, you can add more registers if you know your arrival rate is expected to increase, say during peak hours. You can measure this by sending someone out onto the floor and counting. It’s relatively simple and it gives you a lot of valuable insight. You can optimize your register number for holidays, busy shopping days, etc to deliver a better customer experience. 

Thinking About IT Operations

Now, if you are a big company, you likely have similar problems in your IT department. You may have a database that is receiving thousands of queries per second. Assuming we are using Little’s Law (which I know doesn’t make sense for IT systems), at what interval is average? When you have that many things going on, how do you measure it? And, how do you balance the key principals of availability, performance, reliability, scalability, manageability and cost? It’s not easy because now, you need to manage millions of data points, per day, and need to make sense of it all.

Monitoring modern IT systems is like looking at que lines, of every store on earth, at the same time. It’s not easy, but modern solutions are tackling these challenges. 

The Future

The brightest minds have built powerful measurement systems to help them solve problems. They know know and manage their systems very well, but there is more than what they do and what companies currently offer. The following are the things I believe will drive value for successful monitoring companies, like our own, VividCortex. 

• Modern monitoring solutions must require minimum time to setup. Teams shouldn’t have to build their entire monitoring platform from scratch; it’s complicated, expensive and takes time away from critical company resources. It’s also scary when you talk about a two week deployment and a server cluster requirement. 
• Modern monitoring solutions must be SaaS based. No one wants to maintain a vendor solution, or pay the embedded cost of traditional models.  
• Modern monitoring solutions must measure everything in very tiny granularity (1 second or lower). Faults don’t occur in minute or 5 minute intervals and measuring should reflect reality.
• Monitoring systems should automatically detect errors. Traditional monitoring require users to manually set threshold values to trigger errors, but this requires extensive knowledge of a system and the ability to foresee errors or have experienced them in the past.
• Monitoring must direct people to root cause. Having a spike in a graph doesn’t mean anything, unless you can associate other meaningful data or you know the cause. E.g. a thermometer may indicate you are sick, but it isn’t until you do the strep test that you actually know why you are sick and how to fix it. 
• Monitoring systems must eliminate key man risk. People are the secret sauce behind making systems work, but if your business is too reliant on a single individual or a small ninja team, it’s risky to let them control the crown jewels. 
• Monitoring systems must be optimized themselves. It’s becoming clear to us one of the major competitive advantages of modern monitoring systems is how efficiently can they manage the firehouse of data. Existing players have achieved 90+% reductions in data management costs from traditional systems. See here and here.

What did I miss? 

Photo from JD Hancock.

How to Fix the Education System

Higher Ed is Destroying Value by Passing Debt to Recent Grads to Fund Waste and Administrative Inefficiencies. And, it needs to be fixed by creating lasting value for students, providing incentives for companies to sponsor curriculums, and by eliminating the stakeholder mismatch with student loans.

1. Universities have to produce results that create lasting value. Higher education is clearly a benefit for all of society, but not when it, for instance, it produces 90,000 psychology undergrad majors per year. Colleges need to think about their missions and serve their students by focusing on the future value they create. 
2. Provide a tax benefit for companies to fund college programs. Enable a trade-school/apprenticeship mentality, and let companies define some of the curriculum. If Google needs more Go (coding language) engineers, why not have them sponsor the class teaching students how to use the language in an actual business environment? I’m sure there are many creative ways to structure these relationships if the incentives are there.
3. Eliminate the stakeholder mismatch between student debt and colleges. Universities have zero accountability when it comes to student loans. They have short term financial needs and after four years of educating a student, they free themselves of any liability of that student. I equate this fact to a real estate agent collecting massive fees for selling you a house that was five times market value, and when you realize that he/she defrauded you, you are still stuck with the debt payments and brokerage payment. Universities should become underwriters of student loans and share the risk of defaults, because they create many of those risks. 

Did I miss anything?

The Ineptitude of the IRS (including fraud) and the absurdities of paying foreign contractors

I recently experience the full labyrinth of paying foreign contractors and wanted to share the absurdities of a broken US system. Things I learned:

• The Office of Foreign Asset Control can, at anytime, without giving you any reason, limit your ability to wire money out of the country. Amount and frequency don’t matter. They don’t have to tell you why. They don’t even contact you directly. You get a notice from your bank and you send some information to a black hole in the hopes that you can actually pay your people.
• When asking the banking representative how to prevent this in the future, she said, “sorry, there is nothing we can do about this. If the individual is flagged once, it’s likely you will have to submit additional information for each payment.”
• Now, if you want to apply for a Individual Taxpayer Identification Number (ITIN, ie a way to identify foreign contractors in case you need to file anything, or to pay them in a US bank account and claim tax-free treaty status), you will learn that the office that issues ITINs was recently found to be blatantly committing fraud. Workers were “told by upper management to ignore fraud, to assign ITIN numbers and…pay out refunds to people who are lying.”
• So, in response, to get an ITIN, you now have to send the original passport (or a certified document from the issuing agency) to the ITIN office. 
• According to a local IRS representative, the IRS doesn’t accept digital signature, so don’t even think about faxing or using esign services to get your document filings done. 

So, in order to avoid foreign wire payment issues, and properly report payment to US bank accounts of foreign contracts, the IRS forces you to do a dog and pony show with snail mail and wet ink. 

The moral of the story is that we are living in the stone age, prevented from paying contractors for fear of terrorism and, even if you want to properly report tax-free payments, the IRS makes it all but impossible to do it in any efficient way.

You’d think the government would make it easier to report to them, but no. 

How Lucky We Are

80% of humanity lives on under $10/day. 27% of children are underfed. 1 billion illiterate. 121 million children not in school. And many more shocking facts.

Compare that to our lives. If you are reading this blog, you are probably in the top 1% of the world’s earners, you have more education than 95% of the world, and weren’t part of the 2.2 million children that die each year who didn’t have access to immunizations. 

I’ve been an entrepreneur for most of my career and each year brings me more opportunity and success than the last. I’m very grateful and humbled that I had opportunities that most of the world will never have. I also am very thankful to all my peers, friends, investors and mentor’s who’ve supported me on the way. 

I hope you don’t forget how lucky you are and find new inspiration to make 2013 your best year yet. I know I have. :) 

Happy 2013!