Why economic moat is good for startups
It’s a competitive world out there. In any area of business that appears profitable, competition seems only to increase as more companies seek to do the same thing. If you have a lot of companies offering the same product with comparable quality, then price becomes the main factor in competing for sales. IP turns ideas into real assets that form an economic moat to keep competitors at bay. This moat not only secures market share, but also gives the IP owner pricing power. Let’s see how IP can keep competitors from taking customers.
How IP provides competitive advantages
You can think of IP as both a weapon (offensive) and shield (defensive). Intellectual property provides a business with ways to stop competitors from copying. In terms of offense, one common objection is the prohibitively high cost of litigation. I would agree that IP litigation can be very expensive, but litigating is not the only way to use IP offensively. IP owners can license patents and trademarks. If an acquisition might be in the foreseeable future, those IP assets can boost the valuation of the company.
In terms of defense, IP can discourage others from suing. The threat of a counterattack might disincentivize competitors enforcing their IP rights. There may also be opportunities for cross-licensing and collaboration.
How patents create a moat
Patents are exclusionary rights. They provide the patent owner with the right to stop others from copying, but they do not actually give the patent owner the right to make the patented product. But, patents are only available when you have created something new and unique.
If you have created a unique product and decide to forego patents, then you have to ask a critical question: What will stop competitors from copying? There are other questions to consider as well: How will potential investors view your company’s prospect without patents?
How trademarks create a moat
Not every innovative product is patentable. In such situations, companies should think about protecting their brand by registering trademarks. The purpose of a trademark is to indicate the source of a product. In other words, your trademark distinguishes you from your competitors.
It is possible for a company to have trademark rights without registration, also known as common law rights. A trademark registration offers many practical benefits, including the shifting of the burden on others to cancel your trademark. But why put your business at a disadvantage? If you’ve got moat, then why would you offset your competitive advantages with IP disadvantages? Use IP to strengthen your moat.