The Four Types of Core Intellectual PropertySat, Oct 8, 2016 in Leadership Best Of
If you ask people what their company’s core intellectual property is, my guess is most responses would focus on technical things such as trade secrets, recipes, source code, and algorithms. But I’ve come to believe this definition doesn’t encompass a company’s most valuable intellectual property at all.
Why does a better understanding of core IP matter? It’s because a company will work to improve what it understands to be a key driver of value and competitive advantage. Broadening the definition of “core IP” might help align your teams around a shared vision of what drives the most return on your investments of time and resources.
Here are the four types of intellectual property I discuss with the team at VividCortex.
Technical IP is the type you already understand and value. It’s source code, algorithms, patents and trade secrets, recipes, manufacturing processes, and so on. It’s the “secret” stuff you think would give your competitors an advantage if they were to possess it too.
Sales Process and Distribution Mechanisms
The sales process and lifecycle is typically the only other type of core IP I’ve seen companies recognize. Those who “get it” realize that how they get their product into the hands of customers, and how they convince customers to buy, are extremely valuable. Selling is a complex and highly specialized set of knowledge, skills, and processes that is usually specific to a particular company and its customers.
Consider how many companies fail to continue growing as expected when they’re acquired and their go-to-market processes are integrated into the parent company. The acquiring company often realizes, sometimes too late, that they have destroyed the value-creation mechanism when they disrupt these processes. It’s as if they bought a pitchfork and thought they could replace the handle with a sledgehammer handle.
An example of incredible sales IP is Splunk. Any number of entrepreneurs want to build “the Splunk of X.” Anyone who’s been on the inside at Splunk just chuckles when they hear that. Ask yourself: how, exactly, does Splunk command such high prices for what they sell? How about Bose? Apple? Can you figure out how they do what they do? Can you reproduce it? No? Probably not.
If you can’t figure out how another company gets customers to pay insane amounts of money for things and be incredibly loyal, then you’ve discovered the truth: sales IP is core IP.
A small number of companies realize that the way they convert their product or service into revenue is core IP. Ironically, some of the people who recognize this will claim it’s the most important IP a company develops. It’s not.
Recruiting, Managing, and People Ops
How does your company identify what roles are needed? How do you develop a shared understanding of what the company needs to do, and why, and how, to succeed? How do you attract candidates and assess their fit for the roles? How do you interview and recruit them? How do you onboard them? How do you assess and manage their performance, coach them, nurture them, retain them?
These processes are often the difference between companies that succeed and those that fail. No matter how good your idea is, no matter how good the product or sales or marketing, no matter how much the market needs to buy what you’re selling—if you don’t have a high-performing team, you will fail.
And too many companies hire high performers but then fail them. Adrian Cockcroft once responded to a person who said Netflix could hire people they couldn’t, and that was the difference. His remark was something along the lines of “It’s not as if you don’t have great people—we found our high performers amongst your ranks, hired them, and got out of their way.” I can’t find that quote, but this presentation contains much the same sentiment.
The processes that create a high-performance team are absolutely core IP, because without them nothing else works. If you can’t find good people to execute your brilliant Splunk-of-X sales process, for example, it’s not going to matter how great that process is.
Execution Processes and Culture
Once you get great people on board, you still have to ensure that the company as a whole, as well as all of its parts, is high-functioning. How do you decide what to work on? How do you communicate this and create alignment? How do you manage projects? How do you eliminate waste and maximize output? How do you scale the processes and communication as the organization grows and shifts?
These processes are often encoded in culture. A famous statement embodying this principle is Mark Zuckerberg’s motto, “move fast and break things.” At Google, LinkedIn, and others, the practice of OKRs plays a key role in execution and alignment for high output. And there’s Intel, whose former chairman Andy Grove literally wrote the book, High Output Management. These are all examples of processes and practices that create a culture of rapid, efficient execution. These processes, and the cultural glue that binds them (and is often difficult to distinguish from them), are solidly in the realm of core IP. Without them, you may have great gears and bezels and springs, but you don’t have a Swiss watch movement.
You Have To Develop Your Core IP
You can’t just borrow or graft on these types of core intellectual property. There’s no magic fairy dust you can sprinkle to make it happen.
There are two major reasons for this. First, whether conscious or not, your company already has a culture. It may be emergent and accidental, or it might have been intentional. But it exists. And if you just “throw some OKRs at the problem” or “make diversity in hiring a priority” you’ll have limited success. Perhaps even rejection of the alien tissue.
The second reason is related to the first. It’s because these types of IP are actually effects, not causes. They are artifacts of underlying meta-processes and meta-culture that produce them. How many company founders have read the Netflix Culture Deck and admired it? Culture decks are now commonplace, and most of them are utter garbage. Same thing for core values. “Hmmm… I think we should be honest, yeah. And have integrity. Those sound like core values.” Culture decks and core values are the new mission statements. The mission statement is irrelevant. The mission is what matters! You need to be intentional about your mission, vision, and values—but it’s the input, not the output, of that process that is most important.
You can’t just copy the outcomes of someone else’s identity and become that person. You can’t just put on a purple fedora and become Prince.
As an aside, a lot of these core types of IP aren’t secrets, precisely because copying them doesn’t reproduce their results. That’s why it’s safe for Google to write books about how they operate, for example. And cargo-culting Google’s practices has resulted in many a dysfunctional company. By the way, Google’s books are part of their recruiting core IP.
By the same token, how many companies who adopt Predictable Revenue as their de facto sales playbook end up with actually predictable revenue? Most of them end up with predictable Spamhaus scores, but little else. “Appropriate Person” anyone? Did it work for you the way it worked for Salesforce.com?
Core IP looks like its own thing from the outside, but when you build it (and build it you must), you realize it is just a manifestation of complex interdependent systems that aren’t themselves externally visible.
I'm Baron Schwartz, the founder and CEO of VividCortex. I am the author of High Performance MySQL and lots of open-source software for performance analysis, monitoring, and system administration. I contribute to various database communities such as Oracle, PostgreSQL, Redis and MongoDB. More about me.