The Top 10 Mistakes Technology Companies Make

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In working closely with  technology  providers over the years, I regularly discover that these companies are making common mistakes that devalue the company, leave revenue on the table, or jeopardize their long-term health. So this special article identifies the top 10 of these mistakes to help you avoid making them.

10. Failure to register a federal copyright for company-developed software

Your company has spent months, and maybe years developing the next-big-thing. You’re out there licensing it to customers, fighting off competitors, and trying to maximize your revenues. What would you do if a customer was misusing your software? What if a competitor was copying parts of it to use in its product? There are various ways to respond to these problems, but one of the easiest to way to strengthen your claims is to register a copyright for the software with the United States Copyright Office. Registration provides you with an enhanced ability to have a court prevent infringing use of your software, and a greater amount of damages that are recoverable. The best part is that registration is relatively easy and inexpensive.

9. Licensing  technology  too broadly

So you’ve landed that big deal with that big customer. You’ve carefully priced the deal based upon your expectations of how the customer is going to use your  technology  – by a specific group within the customer’s large organization. You’re hoping that the success of this deal will lead to a greater adoption of your  technology  within the rest of the company, and ultimately more revenue for you. Unfortunately, you later learn that this one group is sharing your  technology  throughout the rest of the company, with no additional license fees to you, and there’s nothing you can do about it. Why? By failing to carefully and narrowly draw up the license grant in your agreement, you’ve unwittingly granted the entire company the rights to use your  technology , and you’ve left a pile of cash on the table.

8. Failure to provide detailed support and maintenance policies

Too often, once a company’s  technology  is ready to be licensed, determining how to support the  technology  becomes an afterthought. General and non-descriptive obligations like “providing telephone and email support” and “providing updates” are invitations for disagreements and missed expectations. When is phone support being offered? How quickly will you respond to problems? What is considered and update and what is a new product for which you would charge the customer separately? Many times, you need your customer to provide you with certain information about the problem before you can diagnose and fix it. Set the appropriate expectations in your support and maintenance policies and avoid these issues in the future.

7. Not contracting customers to recurring support fees

Customers want and expect that you will be there to support your product, assist with problems, and provide them updates when you add features or fix bugs. Customers also expect that you will regularly charge them for these services, so why do so many  technology  vendors sell a product to a customer and fail to structure regular and recurring support fees? In general, a  technology  vendor’s highest profit margins are realized through a support fee stream, and not in the upfront license charge.

6. Inadequate non-disclosure and non-compete agreements with employees and contractors

The  technology  business is one of the most competitive industries in the market. Why take a chance losing your competitive advantage by not ensuring that your intellectual property, customer lists, trade secrets, and other sensitive information are properly protected through appropriate agreements with your employees, contractors, and vendors? Finding and using some form agreement that you saw floating around on the Internet somewhere may actually make matters worse if you don’t fully understand the terms. Moreover, simple steps can be taken to ensure that anything developed by your employees is, and remains, your company’s property.

5. Giving away intellectual property ownership too liberally

Many  technology  companies develop customized  technology  for their customers, or make customized modifications to their existing  technology  on behalf of a particular customer. And most customers argue that if they’re paying for it, they want to own it. But giving away your company’s intellectual property in these instances can prevent you from reusing it for other customers – effectively shutting down a potential source of revenue in the future. And many times, your customers may not need to actually “own” the developments – a license right can often do the trick.

4. Using overly broad or subjective acceptance testing

It is not uncommon or unreasonable for customers to want to “kick the tires” of your  technology  before they pay for it. Problems arise when the customer has an unreasonable expectation of what the  technology  is supposed to achieve, and either want to withhold payment, or force you to provide extra services to meet that unreasonable expectation. This especially manifests itself when a customer includes acceptance testing language in a contract which is not tied to objective and realistic standards. Although it can be a laborious effort, taking the time to objectify these standards with the customer in the contract can save you significant time down the road, and get you paid faster.

3. Offering liberal source code escrow release conditions

For software developers, you know that your source code is the “crown jewels” of your business. It is the core of your  technology , representing months or years of your blood, sweat, and tears. Yet many software companies are willing to give it away, for free, to their customers. How? By entering into a source code escrow agreement with a customer and allowing it to be released to them in situations where the code still holds value for you. Many customers will demand the source code be released to them if you stop supporting the software, but the intellectual property in the code may still be used in your other products or  technology , effectively giving your customer the tools it needs to duplicate your  technology . Creating very narrow and specific source code release conditions can minimize this impact.

2. Undervaluing  technology 

What is your  technology  worth? It’s a difficult question, and value can be measured and determined in many ways. Many new  technology  companies feel compelled to undercharge for their  technology  in an effort to break into the market. Although there is certainly some merit in that, I see vendors consistently undervaluing what their  technology  is worth, leaving significant revenue on the table. Understanding the impact and loss to the customer if they DON’T license your  technology  is the first key to pricing your product. Plus, under-pricing your product can create an impression that the  technology  is “cheap” – not a label that will build a positive reputation of your company in the long run.

1. Using a form license and/or services agreement that doesn’t fit your business model

Capturing exactly how you want to provide your product or services to your customer, allocating the risks, and creating each party’s obligations and rights, is not a simple or quick process. Replicating some other company’s form agreement not only exposes you to risks that you may not be aware of, but potentially violates the other company’s copyright in their agreement, and raises the risks outlined in the other points of this list. Having a customized agreement created for you that aligns with your business processes, mitigates your risks, and addresses the laws that apply in your jurisdiction for your industry is a key component in running a successful  technology  business.

Source by Daniel A. Pepper, Esq.

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