COMMENTARY | COLUMNISTS | PHIL BAKER

Survival strategies for emerging technology companies

With our economy still trying to recover, a virtual standstill in venture capital investments, and limited access to public markets, what can technology companies do to remain viable and growing?

I posed this question to Harry Rubin of Heller Ehrman White & McAuliffe. Rubin heads Heller's firm-wide Global Technology Transactions practice and is recognized internationally as a leading expert on business and technology commercialization strategies for technology companies. Having grown up in Germany and Israel before graduating Harvard and Columbia Law School, Rubin transacts business in German, French, Hebrew and English. This past year he spent 80 percent of his time on "every conceivable variety of strategic alliance transaction." Rubin has a particularly strong insight, having practiced international technology law for more than a decade in Washington, D.C., before coming to San Diego three years ago. He is the author of the book considered the standard reference text in the field, "International Technology Transfers," and numerous other major articles.

Rubin noted that now more than ever, technology companies in the electronics, software, life science and communication industries have to prove they have a viable product with viable customers. "Technology must constitute a solution for a problem rather than a solution in search of a problem." Tech companies need to ensure they can survive and not be left behind by adopting a "strategy for their technology and intellectual property, guiding both their geographic reach and application space."

He advises a four-point approach:

  • Think globally -- Technology companies, even very small ones, need to think globally for their primary markets and source of supplies, R&D and customers. No longer is it necessary or appropriate to wait to become a certain size to look at the opportunities beyond the United States. This means companies need to think of what they do with their intellectual property and how they protect it on a worldwide basis. Protecting IP in these countries is complex but possible. Even countries frequently seen as "high-risk IP jurisdictions" such as China, Brazil, India, etc., have the right laws (or close to them) on the books. The problem is not the laws but enforcement. The most important thing is to register intellectual property (such as trademarks, patents, copyrights) and use a combination of existing legal protections, local contacts, sophisticated contract arrangements, and a practical and proactive approach to managing and exploiting the IP assets.

    Utilizing global resources for manufacturing (i.e., manufacturing outsourcing) and marketing are becoming easier with the establishment of local sourcing offices, Internet resources and consultants specializing in these areas. You no longer need to be a large multinational to effectively utilize offshore development and low-cost manufacturing.

  • Consider military and security applications -- As opposed to five to 10 years ago when companies were fleeing military and security applications, these areas are now critical and sometimes the only viable markets for technology companies. At a minimum, companies should look at developing their products for dual applications. Some companies are migrating completely toward defense and security applications and are becoming subcontractors to large defense companies. San Diego examples include companies in the wireless, optics, software, GPS, intelligence communications, optical networks, photonics and electronics industries. While profit margins are not huge, they tend to be stable and more than sufficient to support further development of core technologies. For some companies, this can mean survival, as well as spreading the risk between military and business markets. San Diego is fortunate in that it is one of the country's largest defense markets, with major companies such as General Atomics and SAIC contributing substantially to the local and national high-tech arenas.

  • Create strategic alliances -- Increasingly companies have to join forces -- not just with allies but also with competitors -- and enter into joint development, research, marketing and manufacturing arrangements to shorten development cycles and speed products to market. Says Rubin, "When structured correctly, these arrangements are fabulously potent and efficient." They have been widely and successfully used in the communications, consumer products, IT, life science and electronics' industries. Sometimes strategic alliances even involve an equity investment. They are often a marriage of convenience where each company does what it does best and both prosper from each other's capabilities and resources. Rubin has found strategic alliances to be "by far the most effective way to move from consumer to military applications." An important caveat is the misguided impression that joint development means joint ownership. Joint ownership of IP is potentially hazardous to both parties. Therefore, Rubin invariably structures his transactions to avoid it.

  • Look at the latest trends openly but critically -- Do not fall prey to clich?s and the usual responses to them. For example, open source licensing is a big issue now to which many have a standard response. In reality, says Rubin, "open source licensing may be a savior for some companies and the undoing of others." The media has a tendency to simplify everything, but there often is much more under the surface that needs examining and consideration in the context of your specific business.

    I asked Rubin his thoughts on San Diego and the current business climate. He thinks San Diego is a great city that has been somewhat luckier than other technology markets, because the structural shifts occurring here are not as cataclysmic as in other places, thanks to San Diego's diversified economy. In addition, defense and security contractors are making a huge comeback, which is good for the local economy. As to the overall technology economy, he is convinced there will be no repeat of the halcyon days of the late '90s, but a more "sober, gradual reawakening of technology markets with permanently entrenched shifts." Interestingly, Rubin sees Asia and, to some extent, Latin America as the most promising opportunities for U.S. technology companies. He believes Europe has been in a "slumber" from which it will emerge only as a result of a severe external shock or market pressures that will force countries such as Germany, France and Italy to institute permanent legal, regulatory and financial reforms more conducive to venture capital investments and technology innovation. Rubin concludes, "and, by the way, never underestimate serendipity as a great business strategy."


    Baker is San Diego's Ernst & Young Consumer Products Entrepreneur of the Year in 2000 for successfully bringing to market Think Outside's folding keyboard for the Palm and other PDAs. He also has developed and marketed consumer and computer products for Polaroid, Apple, Seiko and others. He is the holder of 30 patents. He can be reached at phil.baker@sddt.com.

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