8 8/ Business Operations

Adapted from Mastering Strategic Management is (c) 2012 Dave Ketchen, Jeremy Short. The textbook content was produced by Dave Ketchen, Jeremy Short and is licensed under a Creative Commons Attribution-NonCommercial–ShareAlike 3.0 Unported License, except for the following changes and additions, which are (c) 2014 Janice Edwards, and are licensed under a Creative Commons Attribution 4.0 International License.

Source: Alexander .

Evaluating the External Environment

Many observers were stunned in March 2011 when news broke that Subway had surpassed McDonald’s as the biggest restaurant chain in the world. At the time of the announcement, Subway had 33,749 units under its banner while McDonald’s had 32,737 (Kingsley, 2011). Despite its meteoric growth, many opportunities remained. In China, for example, Subway had fewer than 200 stores. In contrast, China hosts over 3,200 Kentucky Fried Chicken stores. Overall, Subway was on a roll, and this success seemed likely to continue.

How had Subway surpassed a global icon like McDonald’s? One key factor was Subway’s efforts to provide and promote healthy eating options. This emphasis took hold in the late 1990s when the American public became captivated by college student Jared Fogle. As a freshman at Indiana University in 1998, the 425-pound Fogle tried to lose weight by walking regularly and eating a Subway diet. Amazingly, Fogle dropped 245 pounds by February 1999.

Subway executives knew that a great story had fallen into their laps. They featured Fogle in Subway’s advertising and soon he was a well-known celebrity. In 2007, Fogle met with President Bush about nutrition and testified before the U.S. Congress about the need for healthier snack options in schools. Today, Fogle is the face of Subway and one of the few celebrities who are instantly recognizable based on his first name alone. Much like Beyonce and Oprah, you can mention “Jared” to almost anyone in America and that person will know exactly of whom you are speaking. Subway’s line of Fresh Fit sandwiches is targeted at prospective Jared’s who want to improve their diets. Although Subway at the time believed the eating health initiative was important, Jared Fogle was sentenced to 15 years imprisonment for trading in child pornography and having sex with underage prostitutes (Callahan, 2015). Since the prosecution of Jared, Subway closed over 1,000 locations and since the pandemic, has pivoted to adding the sale of grocery items to business operations (Olito, 2020).

Because American diets contain too much salt, which can cause high blood pressure, salt levels in restaurant food are attracting increased scrutiny. Subway responded to this issue in April 2011 when its outlets in the United States reduced the amount of salt in all its sandwiches by at least 15% with no alteration in taste (Riley, 2011). The Fresh Fit line of sandwiches received a more dramatic 28% reduction in salt. They enacted these changes after customers of Subway’s outlets in New Zealand and Australia embraced similar adjustments. Although the new sandwich recipes cost slightly more than the old ones, Subway plans to absorb these costs rather than raising their prices. This may be a wise strategy for retaining customers, who have become very price sensitive because of the ongoing uncertainty surrounding the American economy and the high unemployment. For an example of “healthy” fast food options in Canada see here or here.

The Organization and its Environment

What is the Environment?68

For any organization, the environment is a set of external conditions and forces that have the potential to influence the organization. With Subway, for example, the environment contains its customers, its rivals such as McDonald’s and Kentucky Fried Chicken, social trends such as the shift in society toward healthier eating, political entities such as the U.S. Congress, and many additional conditions and forces.

It is useful to break the concept of the environment down into two components. The general environment (or macro environment) includes overall trends and events in society such as social trends, technological trends, demographics, and economic conditions. The industry⁶⁹ (or competitive environment) comprises multiple organizations that collectively compete with one another by providing similar goods, services, or both.

Every action that an organization takes, such as raising its prices or launching an advertising campaign, creates some changes in the world around it. Most organizations are limited to influencing their industry. Subway’s move to cut salt in its sandwiches, for example, may lead other fast food firms to revisit the amount of salt in their products. A few organizations wield such power and influence that they can shape some elements of the general environment.⁷⁰

While most organizations simply react to major technological trends, for example, the actions of firms such as Intel, Microsoft, and Apple help create these trends. Some aspects of the general environment, such as demographics, simply must be taken as a given by all organizations. Overall, the environment has a far greater influence on most organizations than most organizations have on the environment.

Why Does the Environment Matter?

Understanding the environment that surrounds an organization is important to the executives in charge of the organizations. There are several reasons for this. First, the environment provides resources that an organization needs to create goods and services. In the 17th century, British poet John Donne famously noted that “no man is an island.” Similarly, it is accurate to say that no organization is self-sufficient. As the human body must consume oxygen, food, and water, an organization needs to take in resources such as labour, money, and raw materials from outside its boundaries. Subway, for example, simply would cease to exist without the contributions of the franchisees that operate its stores, the suppliers that provide food and other necessary inputs, and the customers who provide Subway with money through purchasing its products. An organization cannot survive without the support of its environment.

Second, the environment is a source of opportunities and threats for an organization. Opportunities⁷¹ are events and trends that create chances to improve an organization’s performance level. Threats⁷² are events and trends that may undermine an organizations performance. Subway faces a threat from some upstart restaurant chains. Saladworks, for example, offers a variety of salads that contain fewer than 500 calories. Noodles and Company offers a variety of sandwiches, pasta dishes, and salads that contain fewer than 400 calories. These two firms are much smaller than Subway, but they could grow to become substantial threats to Subway’s positioning as a healthy eatery.

Executives must also realize that virtually any environmental trend or event is likely to create opportunities for some organizations and threats for others. This is true even in extreme cases. Besides horrible human death and suffering, the March 2011 earthquake and tsunami in Japan devastated many organizations, ranging from small businesses that were simply wiped out to corporate giants such as Toyota whose manufacturing capabilities were undermined. As odd as it may seem, however, these tragic events also opened up significant opportunities for other organizations. The rebuilding of infrastructure and dwellings requires concrete, steel, and other materials. Japanese concrete manufacturers, steelmakers, and construction companies are likely to be very busy in the years ahead.

Third, the environment shapes the various strategic decisions that executives make as they attempt to lead their organizations to success. The environment often places important constraints on an organization’s goals, for example. A firm that sets a goal of increasing annual sales by 50% might struggle to achieve this goal during an economic recession or if several new competitors enter its business. Environmental conditions also need to be considered when examining whether to do business in a new country, whether to gain another company, and whether to launch an innovative product, to name just a few.

Strategy as a Plan

Strategic plans are the essence of strategy, according to one classic view of strategy. A strategic plan is a carefully crafted set of steps that a firm intends to follow to be successful. Virtually every organization creates a strategic plan to guide its future.

While Apple had been a very successful computer company in the early days of the micro computer, by 1996, Apple’s performance was not strong, and Gilbert F. Amelio was appointed as CEO (chief executive officer) hoping to reverse the company’s fortunes. In a speech focused on strategy, Amelio described a plan that centred on leveraging the Internet (which at the time was in its infancy) and developing multimedia products and services. Apple’s subsequent success selling over the Internet via iTunes and with the iPad can be traced back to the plan articulated in 1996 (Markoff, 1996).

A business model should be a central element of a firm’s strategic plan. Simply stated, a business model describes the process through which a firm hopes to earn profits. It probably won’t surprise you to learn that developing a viable business model requires that a firm sell goods or services for more than it costs the firm to create and distribute those goods. A more subtle but equally important aspect of a business model is providing customers with a good or service more cheaply than they can create it themselves.

Consider, for example, large chains of pizza restaurants such as Boston Pizza and Domino’s. Because these firms buy their ingredients in massive quantities, they pay far less for these items than any family could (an advantage called economies of scale⁷³). Meanwhile, Boston Pizza and Domino’s have developed specialized kitchen equipment that allows them to produce better-tasting pizza than can be created using the basic ovens that most families rely on for cooking. Pizza restaurants thus can make better-tasting pizzas for far less cost than a family can make itself. This business model provides healthy margins and has enabled Boston Pizza and Domino’s becoming massive firms.

Strategic plans are important to individuals too. Indeed, a well-known proverb states that “he who fails to plan, plans to fail.” Being successful requires a person to define a path for the future and follow it. If you are reading this, earning a college degree is probably a key step in your strategic plan for your career. Do not be concerned if your plan is not fully developed. Life is full of unexpected twists and turns, so maintaining flexibility is wise for individuals planning their career strategies and for firms.

SOURCE: Brett Jordan.

For firms, these unexpected twists and turns place limits on the value of strategic planning. Former heavyweight boxing champion Mike Tyson captured the limitations of strategic plans when he noted, “Everyone has a plan until I punch them in the face.” From that point forward, strategy is less about a plan and more about adjusting to a shifting situation. For firms, changes in the behaviour of competitors, customers, suppliers, regulators, and other external groups can all be sources of a metaphorical punch in the face. As events unfold around a firm, its strategic plan may reflect a competitive reality that no longer exists. Because the landscape of business changes rapidly, other ways of thinking about strategy are needed.

Strategy as a Ploy

A second way to view strategy is in terms of ploys. A strategic ploy⁷⁴ is a specific move designed to outwit or trick competitors. Ploys often involve using creativity to enhance success. Think of Mark Twain’s Tom Sawyer, where Tom the principal character is stuck whitewashing a fence instead of playing or going to the swimming hole. His one attempt at bribery did not work. He convinced his friends that he enjoyed painting: “Like it? Well, I do not see why I ought not to like it. Does a boy get a chance to whitewash a fence every day?” He manipulated his friends into gladly paying him for a chance to whitewash Aunt Polly’s fence (Twain, 1876).

Ploys can be especially beneficial in the face of much stronger opponents. Military history offers quite a few illustrative examples. Before the American Revolution, land battles were usually fought by two opposing armies, each of which wore brightly coloured clothing, marching toward each other across open fields. George Washington and his officers knew that the United States could not possibly defeat better-trained and better-equipped British forces in a traditional battle. To overcome its weaknesses, the American military relied on ambushes, hit-and-run attacks, and other guerilla moves. It even broke an unwritten rule of war by targeting British officers during skirmishes. This was an effort to reduce the opponent’s effectiveness by removing its leadership.

Centuries earlier, the Carthaginian general Hannibal concocted perhaps the most famous ploy ever. Carthage was at war with Rome, a scary circumstance for most Carthaginians given their far weaker fighting force. The Alps had never been crossed by an army. In fact, the Alps were considered such a treacherous mountain range the Romans did not bother monitoring the part of their territory that bordered the Alps. No horse was up to the challenge, but Hannibal cleverly put his soldiers on elephants, and his army could make the mountain crossing. The Romans were caught completely unprepared and most of them were frightened by the sight of charging elephants. By using the element of surprise, Hannibal could lead his army to victory over a much more powerful enemy.

Ploys continue to be important today. In 2011, a pizzeria owner in Pennsylvania was accused of making a rather unique attempt to outmanoeuvre two rival pizza shops. According to police, the man tried to sabotage his competitors by placing mice in their pizzerias. If the ploy had not been discovered, the two shops could have suffered terrible publicity or even been shut down by authorities because of health concerns. Although most strategic ploys are legal, this one was not, and the perpetrator was arrested (Reuters, 2011).

Strategy as a Pattern

Strategy as pattern⁷⁵ is a third way to view strategy. This view focuses on the extent to which a firm’s actions over time are consistent. A lack of a strategic pattern helps explain why distillery giant Seagram’s deteriorated into massive losses and became the target of a takeover. The company was started in the mid-1850s as a distiller in Montreal. After Prohibition in the United States ended in 1933 (which itself was a boom for Seagram’s through sales to bootleggers), Seagram Co. Ltd. was ready for the pent-up demand for alcohol from U.S. consumers. At the firm’s peak in the mid-1950s, one out of every three distilled-alcohol drinks consumed by Americans was made by Seagram (Slater, 2013).

Cash-rich, the company diversified, first buying other beverage companies, wine, champagne, cognac, and even orange juice with the purchase of Tropicana Products. One of Seagram’s most profitable investments was a large minority share in chemical giant DuPont. However, in 1994, Edgar Bronfman Jr. took over at Seagram’s, and continued a diversification strategy, pushing into the entertainment business, an area that Seagram’s knew little about. Things went so poorly, in 2000, Seagram sold their profitable DuPont holdings to France’s Vivendi SA, a European telecommunications giant. The deal ended up destroying much of the Bronfman family fortune (Slater, 2013).

In contrast, Apple has very consistent in its strategic pattern: it always responds to competitive challenges by innovating. Some of these innovations are complete busts. Perhaps the best known was the Newton, a tablet-like device that may have been ahead of its time. Another was the Pippin, a video game system introduced in 1996 to near-universal derision. Apple TV, a 2007 offering intended to link televisions with the Internet, also was slow to attract customers. However, in 2014, the $99 box is selling well: Tim Cook (Apple CEO) just told shareholders that the company generated more than $1 billion in Apple TV sales in 2013—which implies sales of over 10 million units. There are risks to following a pattern too closely. A consistent pattern can make a company predictable, a possibility that Apple must guard against in the years ahead (Kafta, 2014).

Strategy as a Position

Viewing strategy as a plan, a ploy, and a pattern involve only the actions of a single firm. In contrast, the next P (strategy as position⁷⁶) considers a firm and its competitors. Specifically, strategy as position refers to a firm’s place in the industry relative to its competitors. McDonald’s, for example, has long been and remains the leader among fast food chains. This position offers both good and bad aspects for McDonald’s. One advantage of leading an industry is that many customers are familiar with and loyal to leaders. Being the market leader, however, also makes McDonald’s a target for rivals such as Burger King and Wendy’s. These firms create their strategies with McDonald’s as a primary concern. Old Navy offers another example of strategy as position. Old Navy has been positioned to sell fashionable clothes at competitive prices.

“The first Wendy’s 7-15-2006 (1)” by Corvair Owner.

Old Navy is owned by the same corporation (Gap Inc.) as the midlevel brand the Gap and upscale brand Banana Republic. Each of these three brands is positioned at a different pricing level. The firm hopes that as Old Navy’s customers grow older and more affluent, they will shop at the Gap and then eventually at Banana Republic. A similar positioning of different brands is pursued by General Motors through its Chevrolet (entry-level), Buick (midlevel), and Cadillac (upscale) divisions.

Firms can carve out a position by performing certain activities differently than their rivals. WestJet Airlines Ltd., based in Calgary, Alberta, can position itself as a price leader by offering the lowest price, lowest cost structure, has excellent service, and delivers a superior experience. The company pioneered paper-free ticketing, consumer phone bookings, and the snack and bag lunch. They use Boeing 737 airplanes exclusively, stocking parts and training staff based on one model of plane. WestJet uses the A to B model rather than a web and spokes model, which is common with airlines such as Air Canada.

Air Canada accumulates people in hub cities to get them to the spokes, which are smaller centres. There is a higher cost structure to support the 1 to 2 hours between flights for the hub and spokes model. Air Canada, designated as Canada’s national airline, is legislated to provide services to hubs and spokes. WestJet can “cherry-pick,” flying only the most profitable routes, which is an obvious major advantage not available to Air Canada (Business in Vancouver, 2003). Westjet has equipped many of their airport gates with two airplane bridges (a second one connects to the door at the rear of the plane), enabling them to off-load and re-load passengers twice as fast as Air Canada. This quicker turnaround time directly supports higher profits, an airplane on the tarmac is simply a cost item! The only time airplanes generate income is while they are flying.

When firms position themselves through unique goods and services that customers value, business often thrives. But when firms try to please everyone, they often find themselves without the competitive positioning needed for long-term success. Deciding what a firm will not do is just as important to strategy as deciding what it is going to do (Porter, 1996). To gain competitive advantage and greater success, firms sometimes change positions. But this can be a risky move. Zellers became a successful department store by targeting moderate-income customers. When the firm abandoned this established position to compete for wealthier customers and higher margins, the results were disastrous. The firm was forced into bankruptcy and closed many stores. Zellers eventually sold many of its locations to Target, a new entrant to the Canadian marketplace. In contrast to firms such as Zellers that changed positions, Apple has long maintained a position as a leading innovator in various industries. This positioning has served Apple well.

Strategy as a Perspective

The fifth and final P shifts the focus to inside the minds of the executives running a firm. Strategy as perspective⁷⁷ refers to how executives interpret the competitive landscape around them. Because each person is unique, two different executives could look at the same event—such as a new competitor emerging—and attach different meanings to it. One might just see an additional threat to his or her firm’s sales; the other might view the newcomer as a potential ally.

Video 1. Newfoundland and Labrador Tourism

(Video Link)

An old cliche urges listeners to “make lemons into lemonade.” A good example of applying this idea through strategy as perspective is provided by Newfoundland and Labrador Tourism (see Video below). Ads played up the charming and old-fashioned place names such as Tickle Cove and Cupids, along with spectacular photography to create a perception of a charming, quiet, and exotic destination compared to Disneyland. These strategists will take a possibly negative situation and see the potential upside.

Executives who adopt unique and positive perspectives can lead firms to find and exploit opportunities that others simply miss. In the mid-1990s, the Internet was mainly a communication tool for academics and government agencies. Jeff Bezos looked beyond these functions and viewed the Internet as a potential sales channel. After examining several markets that he might enter using the Internet, Bezos saw strong profit potential in the bookselling business, and he began selling books online. Today, the company he created—Amazon—has expanded far beyond its original focus on books to become a dominant retailer in countless different markets. The late Steve Jobs at Apple appeared to take a similar perspective; he saw opportunities where others could not, and his firm has reaped significant benefits.

Managing Firm Resources

“N8676A Southwest Airlines Boeing 737-8H4 s/n 36941” by TDelCoro.

Southwest Airlines: Let Your LUV Flow

In 1971, an upstart firm named Southwest Airlines opened for business by offering flights between Houston, San Antonio, and its headquarters at Love Field in Dallas. From its initial fleet of three airplanes and three destinations, Southwest has grown to operate hundreds of airplanes in scores of cities. Despite competing in an industry infamous for bankruptcies and massive financial losses, Southwest marked its 41^st profitable year in a row in 2014.

Why has Southwest succeeded while many other airlines have failed? Historically, the firm has differed from its competitors in a variety of important ways. Most large airlines use a “hub and spoke” system. This type of system routes travellers through a large hub airport on their way from one city to another. Many Delta passengers, for example, end a flight in Atlanta and then take a connecting flight to their actual destination. The inability to travel directly between most pairs of cities adds hours to a traveller’s itinerary and increases the chances of luggage being lost and missed flights. In contrast, Southwest does not have a hub airport; preferring instead to connect cities directly. This helps make flying on Southwest attractive to many travellers.

Southwest has also been more efficient than its rivals. While most airlines use a variety of different airplanes, Southwest operates only one type of jet: the Boeing 737. This means that Southwest can service its fleet much more efficiently than can other airlines. Southwest mechanics need only the knowledge to fix one type of airplane, for example, while their counterparts with other firms need a working knowledge of multiple planes. Similarly, Southwest only needs to train its pilots to fly one type of plane. Southwest also gains efficiency by not offering seat assignments in advance, unlike its competitors. This makes the boarding process move more quickly, meaning that Southwest’s jets spend more time in the air transporting customers and goods (and making money) and less time at the gate relative to its rivals’ planes (Schlangenstein & Hughes, 2010).

Organizational culture is the dimension along which Southwest perhaps has differed most from its rivals. The airline industry suffers from a reputation for mediocre (or worse) service and indifferent (sometimes even surly) employees. In contrast, Southwest enjoys strong loyalty and a sense of teamwork among its employees.

One tangible indicator of this culture is Southwest’s stock ticker symbol. Most companies choose stock ticker symbols that evoke their names. Ford’s ticker symbol is F, for example, and Walmart’s symbol is WMT. When Southwest became a publicly traded company in 1977, executives chose LUV as its ticker symbol. LUV pays a bit of homage to the firm’s humble beginnings at Love Field. More important, however, LUV represents the love that executives have created among employees, between employees and the company, and between customers and the company. This “LUV affair” has long been and remains a tremendous success. As recently as March 2011, for example, Southwest was ranked fourth on Fortune magazine’s World’s Most Admired Company list.

WestJet Airlines Ltd. of Calgary may have learned a thing or two from Southwest’s template for resource management. In 1996, WestJet started with three aircraft and five destinations (WestJet, 2012). Using only Boeing 737s, WestJet employees are also known for a culture of caring and fun on their flights. The airline was the first in Canada to introduce paperless ticketing, direct ticket purchase, and buy-on-board meal service, which other airlines have since adopted. WestJet has recently reconfigured the aircraft interiors with narrower aisles and lighter weight seating to increase capacity while decreasing aircraft weight. They have also adopted a second, smaller airplane, and have been moving into smaller, northern communities, where they have been well received.

“C-GWSB YVR” by airlines470.

WestJet uses the hub and spoke model, partly because of the configuration of its service area, such as destinations in northern Canada. Air Canada, the national air carrier, is mandated to serve all operating airports in Canada, including the smaller and remote communities. In contrast, WestJet can “cherry-pick” its routes, a major contribution to its operational and financial efficiency.

Intellectual Property

The inability of competitors to imitate a strategic resource is a key to leveraging the resource to achieve long–term competitive advantages. Companies are clever, and effective imitation is often very possible. But resources that involve intellectual property reduce or even eliminate this risk. As a result, developing intellectual property is important to many organizations. Intellectual property⁷⁸ is the legal rights that result from intellectual activity in the industrial, scientific, literary, and artistic fields (Canadian Intellectual Property Office, 2014).

Figure 1. Types of Intellectual Property

SOURCES (L to R): Pixabay; C. Cagnin; Aman Jakhar; Pixabay.

The four main types of intellectual property are patents, trademarks, copyrights, and trade secrets. If a piece of intellectual property is valuable, rare, and non substitutable, it can also make up a strategic resource. Even if a piece of intellectual property does not meet all four criteria as a strategic resource, it can be bundled with other resources and activities to create a strategic-level resource.

A variety of formal and informal methods are available to protect a firm’s intellectual property from imitation by rivals. Some forms of intellectual property are best protected by legal means, while defending others depends on surrounding them in secrecy. For example, KFC’s secret blend of 11 herbs and spices is famous for being a trade secret. This can be contrasted with WestJet Airlines’ well-known culture, which rivals are free to copy if they wish. WestJet’s culture thus is not intellectual property, although some of its complements such as WestJet’s logo and unique colour schemes are.

Patents

Patents⁷⁹ are legal decrees that protect inventions from direct imitation for a limited period. In Canada, a patent is a right, granted by government, to exclude others from making, using, or selling your invention for 20 years after the patent application is filed. Getting a patent involves navigating a challenging process. To earn a patent from the Canadian Intellectual Property Office, there are three basic criteria for patentability:

1. The invention must show novelty (be the first in the world).

2. Show utility (be functional and operative).

3. Show inventive ingenuity and not be obvious to someone skilled in that area.

A patent is granted only for the physical embodiment of an idea (for example, the description of a door lock) or for a process that produces something tangible or can be sold. You cannot patent a scientific principle, an abstract theorem, an idea, some methods of doing business, or a computer program per se. Once an invention is patented in Canada, exclusive rights are granted to the patent holder as defined in the Patent Act (Government of Canada, 1985). Any interference with the patent holder’s “full enjoyment of the monopoly granted by the patent” is considered a patent infringement (CanLII, 2004).

You may get a patent for an improvement to an existing invention, but keep in mind that the original patent may still be in force. If this is the case, manufacturing or marketing the product with your improvement would probably be an infringement. This situation is often resolved by agreement between the patentees to grant licences to each other.

In 1986, Windsurfing International Inc. v. Trilantic Corp. dealt with a manufacturer selling the unassembled components of a patented sailboard (1986). In the court’s decision, it was stated:

“Without assembly there can be no purpose in a purchaser buying the unassembled parts since, unassembled, they cannot be used for the purpose for which they are purchased, that is, to sail. To suggest that a patent infringement suit can be successfully avoided by selling parts as components of a kit in contradistinction to their sale assembled is, in my view, errant nonsense.”

–Windsurfing International Inc. v. Trilantic Corp. (1986), 8 C.P.R. (3d) 241

One alternative is to maintain the innovation as a trade secret. This can be very cost-effective protection and, unlike a patent, can last indefinitely. However, once the secret is out, the protection is completely lost. Trade secret protection gives you no rights against third parties who independently discover the same invention and patent it.

Patenting an invention is important because patents can protect and generate enormous profits. Imagine, for example, the potential for lost profits if the Slinky had not been patented. Shipyard engineer Richard James came up with the idea for the Slinky by accident in 1943 while he was trying to create springs for ship instruments. When James accidentally tipped over one of his springs, he noticed it moved downhill in a captivating way. James spent his free time perfecting the Slinky and then applied for a patent in 1946. As noted above, in 1966 the patent expired, and anyone can now use this invention. The company that Richard James and his wife Betty created has sold to date, more than 300 million Slinkys.

SOURCE: Tara Winstead.

Trademarks

Trademarks⁸⁰ are a word (or words), a design, or a combination of these used to identify the goods or services of one person or organization and are important because they help an organization stand out by building an identity in the marketplace. Some trademarks are so iconic that almost all consumers recognize them, including McDonald’s golden arches, the Nike swoosh, and Apple’s outline of an apple.

Figure 2. Counterfeit Soft Drinks

“Counterfeit soft drinks” by Richard Masoner / Cyclelicious.

Other trademarks help to rise companies carve out a unique niche for themselves. For example, French shoe designer Christian Louboutin has trademarked the signature red sole of his designer shoes. Because these shoes sell for many hundreds of dollars at upscale retailers, competitors would love to copy that look. Thus, legally protecting the distinctive red sole from imitation helps preserve Louboutin’s profits. It should be noted that although the average consumer might not identify the specific shade of red, that was granted a trademark, a similar, but different, red colour used in shoe soles was deemed not to be a trademark infringement.

Trademarks are important to colleges and universities. Schools earn tremendous sums of money through royalties on T-shirts, sweatshirts, hats, backpacks, and other consumer goods sporting their names and logos. On any day, there are probably several students in your class wearing one or more pieces of clothing featuring your school’s insignia; your school benefits every time items like this are sold.

Schools’ trademarks are easy to counterfeit, however, and the sales of counterfeit goods take money away from colleges and universities. Counterfeit products are often inferior in quality and may even pose a potential health or safety hazard to the consumer. Many schools and other entities fight to protect their trademarks, including educating consumers. The Vancouver Canucks website (and those of many other national sports teams) features a section called “Fight the Fake” that includes tips on ways to spot counterfeit products to promote the allowed version and protect one of its sources of revenue (NHL.com, 2014).

Copyrights

Copyrights⁸¹ provide exclusive rights to the creators of original artistic works such as books, movies, songs, and screenplays. Unlike patents that are only enforceable for 20 years, copyright exists for the duration of author’s lifetime plus an additional 50 years.

Sometimes copyrights are sold and licensed. In the late 1960s, Buick thought it had an agreement in place to license the number one hit “Light My Fire” for a television advertisement from The Doors until the band’s volatile lead singer Jim Morrison loudly protested what he saw as mistreating a work of art. Classic rock by The Beatles has been used in television ads in recent years. After the late pop star Michael Jackson bought the rights to the band’s music catalogue, he licensed songs to Target and other companies. Some devoted music fans consider such advertisements to be abominations, perhaps proving the merit of Morrison’s protest decades ago.

Over time, piracy⁸² has become a huge issue for the owners of copyrighted works. In China, millions of pirated DVDs are sold each year, and music piracy is estimated to account for at least 95% of music sales. This piracy deprives movie studios, record labels, and artists of millions of dollars in potential royalties. In response to the damage piracy has caused, the Canadian and U.S. governments have pressed their Chinese counterpart and other national governments to better enforce copyrights.

SOURCE: Cottonbro.

Trade Secrets

The definition of a trade secret can vary from one jurisdiction to another. It is information that provides a business advantage over a competitor and is subject to reasonable efforts to maintain its secrecy. Trade secrets can be formulas, practices, designs, patterns, data compilations, devices or instruments, processes, etc. Sometimes a trade secret can be protected contractually through certain legal concepts and statutes.

Trade secrets cover a very wide variety of items, contained or embodied in, but not limited to, a formula, pattern, plan, compilation, computer program, method, technique, process, product, device or mechanism; it may be information of any sort; a scientific idea, or of a literary nature. Trade secrets grant an economical advantage to the business and improve its value (Turner, 1962). There must be some element of secrecy. Matters of public knowledge or of general knowledge in an industry cannot be the subject of a trade secret (Vaver, 1981)

Some trade secrets have become legendary, perhaps because a mystique arises around the unknown. One famous example is the secret blend of 11 herbs and spices used in KFC’s original recipe chicken. KFC protects this secret by having multiple suppliers each produce a portion of the herb and spice blend; no one supplier knows the full recipe. Similarly, Coca-Cola’s flavour mix is also shrouded in mystery. In 2006, shady individuals who were offering a chance to buy a stolen copy of Coca-Cola’s secret recipe approached Pepsi, which Pepsi wisely refused. An FBI sting was used to bring the thieves to justice. The soft drink industry has other secrets too. Dr Pepper’s recipe remains unknown outside the company. Although Coke’s formula has been the subject of greater speculation, Dr Pepper is the original secret soft drink that was created a year before Coca-Cola.

Operational Steps to Launch

Adapted from Entrepreneurship by Rice University is licensed under a Creative Commons Attribution 4.0 International (CC BY) license.

SOURCE: Artem Beliaikin.

The next action is outlining the operational steps in the venture creation process. A good approach is to create a chart that identifies how you should proceed. The goal in creating this chart is to recognize what actions need to be taken first. For example, if you need a convection oven for your business, what is the timeline between ordering and receiving the oven? If you need ten employees to prepare and package your product, how long will it take to interview and hire each person? According to Glassdoor, the hiring process took 23 days in 2014 and appears to be lengthening in time as organizations become more aware of the importance of hiring the right person.⁸³ What about training? Will your employees need training on your product or processes before starting the venture? These necessary outcomes need to be identified and then tracked backwards from the desired start date to include the preparatory actions that support the success of the business. You have probably heard the phrase that timing is everything. Not only do entrepreneurs need to be concerned about finding the right time to start the venture, but they also need the right timing to orchestrate the startup.

Figure 3. Gantt Chart Example

Above is a sample Gantt Chart, a method to track a list of tasks or activities aligned with time intervals. You can use this tool to help identify and schedule the operational steps that need to be completed to launch the venture. One approach to creating a Gantt chart is for each team member to create a list of operational activities or tasks required to start the venture that fall under their area of involvement. Then the team can create a master list of activities to discuss: This helps clarify who is contributing to or owning each task. Next, have all team members create their own Gantt chart based on their task list: That is, the time required for each task should be spelled out, including steps that must happen sequentially (when one task cannot be started until another step is complete). Once again, bring all team members together to create one master Gantt chart. This will help ensure that dependencies from member to member are accounted for in the planning. These contingencies and dependencies need to be identified and accommodated for in the master schedule. After completing the chart, agree on assignments of responsibility to follow through on the activities, based on the timelines from the Gantt chart.

Launch Considerations

Sage advice in launching the new venture is to recognize when you do not have the answer or information to make the best decisions. In the early-stage of launching the venture, the level of uncertainty is high, as is the need for agility and spontaneity. Even identifying the actual moment when the venture becomes a new venture can be difficult to determine. Should the venture be recognized as a new venture after receiving the licenses or tax identification number, or when the first sale occurs, or when funds are first invested, or by some other method?

It is also important to keep in mind the end goal of the venture, often referred to as “begin with the end in mind.” For example, many highly successful ventures never earn a dollar in sales. Depending on the entrepreneurial team’s vision and the business model selected, the venture could be highly valuable from a harvest, or sale of the venture, perspective. Frequently, this decision is dictated by the angel investor. These people frequently started their own venture, harvested the venture, and as a result have funds available to invest in other new ventures. In most cases, the angel investor expects to cash out of the venture in the future. These are investors who are not interested in holding a long-term equity position but expect to grow the venture into a position where another company buys out the venture. This buyout is also known as the harvesting of the venture and the point at which the angel investor receives a percentage of the harvested dollar sale to cover the equity stake in the new venture. Because of this pattern, entrepreneurs are often advised to “begin with the end in mind” when launching a new venture. If the goal is to sell the venture to another company, we want to identify that company before launching the venture. Of course, this is only a desire or hope, as you cannot require or expect another company to have an interest in your new venture. But you can design the new venture to align with this end goal by making decisions that support this goal.

Consider the example of YouTube, a startup with zero dollars in sales but with a harvest price of $1.65 billion in stock from Google. The startup team, former PayPal colleagues, understood that the technology was being developed for video searching and recognized that creating a platform to house video sharing would be desired by companies such as Google in the future. Consider the tight timeline between 2005 when YouTube began supporting video sharing, and the harvest of YouTube to Google in 2006, 21 months Launching your venture is a unique experience for every entrepreneurial team and for every venture. These novel situations and uncertainties create both challenges and new learning opportunities.

Accepting that a multitude of possibilities exists and recognizing the importance of researching and discussing actions are valuable to the success of the team. Angel investors hold a wealth of knowledge, and with an equity stake in the venture, these investors should be included in all discussions. If you have an angel investor on your team, you have an added advantage to tap into the expertise available to support the venture. With a well-aligned angel investor, conducting research to explore decisions will improve your venture’s success. Although these decisions might seem difficult, the next section addresses how to approach hard decisions and the role emotional connections for the venture and its team play in those decisions.

SOURCE: Pixabay.

Footnotes