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A continuation of my fear in business series, post numero dos.

Economies of abundance, the Long Tail, digital rights management (DRM), which one of these doesn’t fit? The internet is changing the way we do business and making money, but how do these things affect you? Are you starting a new business, or creating a new product for an existing business, and you’re worried about someone else stealing your idea? Can intellectual property (IP) laws protect you, or will you be driven by a myopic business model of protectionism?

Whether you’re starting or already running a business, these are key questions that shouldn’t be over looked. However, there is an easy trap that’s been set for you when considering each, and that’s the trap of fear. Fear causes business myopia, and this will invariably harm your profits as innovation is ultimately hindered, which as the wise (and often misinterpreted) Peter Drucker noted as one of only two functions of a successful business (the other being marketing).

Sadly, this problem has been around for a long time, and many powerful corporations have been struck by this bug. Today, the end result that we have is a terrible IP situation in the US, and varying degrees of bad IP in other countries like England. Ultimately innovation is put on a leash, and protecting past revenue streams, and the business models built around them, become the name of the game.

Don’t get me wrong, I’m not against IP as it was originally intended, but IP has come a long way from its founding purpose and it’s now a tool for hindering innovation more than it’s a tool for encouraging innovation. This leads to the development of business models that hinge on IP law and in turn hinge on hindering innovation (both outside and inside the company). If you’re a small company without many solid revenue streams, you can’t afford to make this mistake, and if you’re a large company, then it might not appear to hurt much because you can rely on other areas of business, but don’t be fooled that you’re in a different situation from the smaller companies.

For larger companies, fear inducted myopia is actually the second stage of business myopia. First, they create a successful product or service, and then think they’re great. Nothing is better and no one else can compete even with all of those copycats out there. Truth be told, someone else is innovating, and is waiting for you to slip up by not innovating. This is myopic stage number one. The next stage is the realization that you’re not innovating, and that you’re behind the times, which can cause reactionary, knee jerk defense – think RIAA and MPAA tactics of wrongly suing just about everyone they can to protect their current business models.

For small businesses, two things can happen. You either recognize this situation, and realize that you should use IP to whatever advantage you can. No reason ignoring the reality that people might use IP against you and your own IP might protect you, or so the reasoning goes. The other thing that you could do is look at the successful companies and follow suite. They do it, so I should too. Our product that we haven’t finished yet is the greatest thing in the world, so we should protect it, right? Can’t be anything wrong with that expect that you’ve falling into the first stage of business myopia, and you don’t even have a successful product out yet.

If you’re of the first mind, I know the feeling being a entrepreneurial software developer with a patent lawyer in the family. But in the end, your job is innovation and if you get talked into fear driven business decisions by patent lawyers, you could miss the bigger picture (I have nothing against patent lawyers, and they’ll definitely have some good advice, but you need to realize that they’re a part of the system itself, and make their living that way). Certainly protect yourself where you can, but don’t plan your business model on what you think MIGHT happen if someone finds out you’ve had a good idea. By the time you’ve gotten this far, it’s too late for your competitors. Copying today’s iPod, or MySpace, or YouTube, and shipping that a year from now, will at best put you a year behind the current lead with its product that everyone wants instead of yours. Don’t let fear drive your business.

For a great thread on the economics behind these choices, and why no matter how hard the RIAA tries its current business is doomed to failure, check out a thread of posts at Techdirt with the most recent called Infinity is your friend in economics (the rest of the thread is at the bottom of that post). I’m planning on my own posts about the economics of abundance and basically regurgitating what Mike at Techdirt has already written. Still, the more people repeating this the better and repetition is key to learning new things.

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