With the “Great Recession” finally ebbing, the leadership of every company should re-examine their business’ growth strategy and in parallel, re-evaluate the legal tools being employed as part of implementing that strategy. Keeping it simple and straightforward, one way to think about and plan the growth strategy for your company is this:
• Strategically Partner
Execution of each of these growth strategies, in turn, involves corresponding legal tools, including corporate, finance, commercial, licensing, and intellectual property law.
Buy is “M & A” or mergers and acquisitions. This could be of whole companies, whether yours or a target, or it could be of a product or service line or a specific technology. We are seeing a great deal of M & A activity of the latter type, because during the “cash is king” period we have been through, expenditures on internal development of new products and services and technologies (see “Build”) were crimped, especially at many bigger companies.
If Buy is the growth strategy, the legal focus should be on corporate, finance, and regulatory matters. This includes making sure the corporate house is in order (the so-called “corporate formalities”); moving quickly and effectively on financing transactions whether equity, debt, or convertible; and compliance with the increasing universe of applicable rules.
Build is “Invented Here” or the internal development and commercialization of your company’s own products and services. Query: does your business have a strong product management function which works closely with, but is not ruled by, either your engineering/development function (which may develop products and services that do not meet the market’s present needs) or your sales function (which may push for products and services that do not meet the market’s future needs)?
When the growth strategy of your company is Build, the legal focus should be on ensuring intellectual property (IP) protection and clearance, and good business contracts. For technology companies in particular, success requires your organization to create and bring to market compelling products and services. A compelling product or service by definition means there should be IP to protect, whether a trade secret to protect from misappropriation, an invention to patent, an original work to protect through copyright registration, or a brand or product name to protect through trademark registration. Important relationships with developers, designers, manufacturers, suppliers, and other business partners must be defined and contractually described, spelling out the who, what, when, where, and how of the relationship.
License is “Get It Now But Don’t Own It” or obtaining the rights to use the technology, products and services of third parties to accelerate the building of your company’s offerings and make them more compelling. Licensing is a versatile legal tool that technology companies in particular should closely consider. “In-bound” licensing done correctly speeds the development of your products and services, allowing a faster “go-to-market” timeline. On the “outbound” side, licensing your product, service, or technology to an already established market player can quickly create revenue and allow you to stay focused on creating your next generation offering.
When the growth strategy is License, the legal strategy is similar to that under Build (IP protection, good contracts) but the scope of outside negotiations expands to include the composition of the product or service itself, unlike an internal Build. Due to the “multiples” required to be paid in Buy transactions and the “spend” needed for Build, License is often a less expensive growth strategy. A downside can be that a licensee does not own the licensed technology, possibly creating business risk.
Strategically Partner is the “Allocation of Functions,” where it must be determined and negotiated who in the “partnership” will do what functions? The technology industry is a natural space for strategically partnering, due to frequent uncertainty and uneven development in the technology markets.
If Strategic Partnering is the strategy for growth, the legal approach should be to fully grasp and contractually assign the involved business functions – whether engineering, product management, human resources, sales, marketing, operations, and/or customer care – between the partners clearly and wisely. Like Licensing, Strategically Partnering is often less expensive than Buying or Building, because you can leverage the expertise of another organization and focus on furthering developing the core strengths of your own business.
Using this simple and straightforward way of thinking about and planning your company’s growth strategy – whether Buy, Build, License, Strategically Partner, or combination thereof – will have many benefits throughout your organization and in the market. So articulate (in writing, not on PowerPoint slides!) your growth strategy as we emerge from the “Great Recession,” then employ the corresponding legal tools with the help of effective and creative legal counsel