Voice of the Customer
The only metric of patent value – and business in general.
Our business is to loan money using patents as collateral. My most frequent question:
How do I put a value on patents?
It all comes down to the voice of the customer. If I can capture the reason why someone bought your product – and put it in a patent – I can capture your competitive advantage.
A patent describes a technological feature of your product, and that feature needs to be the reason why your product is sold.
I want to know why a customer buys your product.
If the patent covers why someone buys your product, the patent has value. If the patent covers some feature that is unrelated to the customer’s buying decision, it is worthless.
Many times, competitive advantage is something other than technological.
A business may be very good at marketing, have great brand packaging, or possess a deep Rolodex of customers. Each of these things give a company a competitive advantage.
How many times has a far superior product (Windows Phone) lose to an inferior product (Apple iPhone) due to slick marketing and packaging? Just because a company has the ‘better’ product and has patents on all those improvements does not automatically give them success in the market.
We compare your product to the competition – then ask if the patent covers that difference.
In order to tease out the value of a patent, we need to quantify the competitive advantage that the patented feature has. To do this, we compare your product to the competition and attempt to measure the premium that a customer will pay for your product over the competition.
The status quo is often the single most vicious competitor out there.
Just because “there is nothing like it” on the market does not mean the market wants your product. In fact, that is the exact opposite.
Your patented technology may give you different advantages. For example, a product that has extra features or better performance may command a higher price than a competitor. You process improvements or technological changes that reduce the cost may give you a price advantage (a lower cost) to a customer or a higher profit over a competitor.
We want to see where the patented feature – the claimed feature of your patent, to be specific – gives you a business advantage. Then, we want to measure that effect. The bigger the effect, the more value the patent has.
The best patents are yet to come.
When we write the patents before any sales, we cannot possibly have the voice of the customer.
The good patents are yet to come – as we begin developing the market and start selling product, we start to hear the voice of the customer. This is why companies who have been patenting for a while (and selling for a while) almost always have the best patents.
The ‘grand idea’ of the business is not a good place to start for your patent. We want the picks and shovels – the tools that reflect the value that the customer wants.