Slashdot Mirror
Successful Startups and Patents?
An anonymous reader asks: "Is there a strategy for software startups wanting to make it big with a product in this world of software patents? Particularly, how can a software startup, wishing to take its product to the international market, hope to compete with the large software companies and their armada of patents?"
"No matter whether or not the startup has an innovative product, a patent or two, a little or a lot of funds, it seems that if the large software companies decide that they wish to crush them with law-suits regarding patent infringement, valid or invalid, they can tie them up long enough in court to drive them out of business (via bankruptcy, or to cause them to lose any market lead they may have had). Can anyone suggest a strategy (or discussions on strategies) that could help a software company thrive, without playing the same game? Or are those days over — and the current crop of software companies are so well entrenched (thanks to the patent system) that there is no hope for a a new player?"
The best defense against being driven out of business is a creating stable financial structure for a business. It has become fashionable these days to fund a business via debt instead of equity due to certain tax advantages. However, that also exposes a business to much more risk: if a company's revenue stream falters, they're much more vulnerable to going bankrupt. However, if a firm uses profits rather than debt to grow the business and puts aside a large pile of cash to absorb variances in the marketplace, then their future is secure. This sort of thing is difficult for a startup to achieve, since you are in effect, creating something from nothing. However, large corporations only try to crush you once you're perceived as a threat, and patent trolls tend to sue you only if you've already made a lot of money. So the solution for the software startup is to make sure you keep costs down, overhead low and reinvest profits in the business. Stay off the radar screens of the majors that you fear would crush you until you have a warchest where you could survive disruption of income. And finally, diversify. If all of your revenue comes from one product which turns out to be patent-infringing, you could easily be toast. However if you have multiple product lines which don't all depend on the same technology, then your firm will take a hit to revenue if one gets tied up in court, but it should be survivable based on the revenue from the others.
I submitted link to Paul Graham's new essay on startups, but probably it is not home page worthy story so I'll write it here again.
A bit off-topic but worth having look at it.
Why Not Not Start a Startup?
http://paulgraham.com/notnot.html
(March 2007)
He discusses about reasons why people don't start a startup and tries to explain that most of those reasons should be ignored.