By Nick Blackbourn
Nick has worked in and with businesses large and small for around 40 years. Amongst the largest and best known of these are Guinness (brands including Guinness, Harp, Kaliber, Bell’s, the Guinness Book of Records and Champneys), Ranks Hovis MacDougall (Hovis, Mr Kipling, Sharwoods, Bisto etc) and United International Pictures (UIP, the world’s largest film distributor owned by Paramount Studios, Universal and MGM/UA).
Nick cut his teeth with these businesses in the 1980s and 90s in London, when the capital led the world in design, branding and trade marks. The value of ‘brands’ is now well understood, but then it was pioneering, and Nick has been there from the beginning. He was part of the team at RHM responsible for getting accounting standards changed to allow brands to be separately recognised from ‘goodwill’ on balance sheets and so increase the value of businesses.
In this insight, he will share some of the lessons he has learnt during his career and show how the same principles that apply to huge multinational firms are still important for smaller businesses who are looking to create the right foundations needed to build success.
Often small business owners are so caught up in the challenges and excitement of developing their businesses that they can fail to take a step back and examine what’s at the heart of the value of the business.
This may be the brand and its related values and image, the skills and knowledge of the people, the contracts with key suppliers or customers, or the products themselves. It may be the business’s values and culture or its creativity in inventing new products and services, its position in the market or, of course, a combination of some or all those things.
Once a business is large enough and attractive enough for buyers to come in, you can be sure every tiny detail of what is of value and any related weaknesses will be examined. Having handled hundreds of business takeovers, I find it amazing how easy it is for an outsider to spot what can be overlooked about where the value is. And it is worth noting that this value may be different for the buyer than it is for the seller.
So, ensuring that core or foundational elements which are of value are recognised, and importantly protected right at the beginning, is essential to build success. Failure to do so will build cracks into the foundations which may be unseen until it’s too late.
There is an old wisdom saying, ‘prepare for the worst but hope for the best’. This is so true. Knowing what your risk areas are and how best to minimise them is the job of a good lawyer. We can often be accused of being pessimistic when focussing on those issues, but it’s the key to building a stronger foundation on which a healthy edifice can be created!
Brand Protection
Do you have a trademark or name? Will you be trading internationally? Don’t skimp on costs, but seriously consider taking professional IP legal advice on how and where is best to register. I have seen businesses cut corners to ‘save’ money but then find they can’t trade abroad under the same name, immediately devaluing what they have worked hard to build. Some big international brands have had to fight exploitation attempts in foreign jurisdictions, and this is definitely something you don’t want to be dealing with.
It is not uncommon for businesses to register the domain name and company name, but overlook a separate trademark registration, wrongly believing that automatically occurs in some way. This can be expensive and difficult to rectify later and again shows the value of bringing in expert help from the outset.
International Trade Protection
As early as possible in your strategic planning, think about potential markets and examine them carefully. Look especially at the possible competition, those likely to resist you entering their market, their size and branding so you can distinguish yourself and your brand sufficiently. Build relationships with useful contacts on the ground who know the market, the players, key individuals and who can open doors for you. Any research you do and knowledge you glean at the early stages will likely pay off further down the line.
Advertising
Many businesses assume that an advert made for them is owned by them but read the small print of the contract with the agency! Often, they will own the copyright in what they made for you unless it is assigned to you. This can cause real problems for a buyer of your business who could effectively be held to ransom, and they’ll look to you to pay that agency. I once had to deal with this for a buyer of a business who suddenly found they couldn’t use a TV advert that they assumed was theirs and the seller had to part with some of their hard-earned sale proceeds to resolve it. Be warned!
Software Licensing
Problems with software licensing are so common. Businesses that have paid for a licence to use software assume they ‘own’ that software as they appear to have unrestricted use of it. The fact that businesses calling themselves ‘resellers’ say they are selling licences only adds to the confusion. This terminology is incorrect and only leads to confusion – you can’t sell what you don’t own. In fact, a licence is ‘granted’-always owned by someone else. You are just getting the use of it, but it always belongs to someone such as Microsoft.
This can become very important indeed if someone has developed a key piece of software which is essential for the running of your business. If that person is not an employee, they will own the copyright. On a sale, that fact will be flushed out and may put that person in a disproportionate position of power. This is unwelcome in any circumstances, but especially if you have fallen out with them!
Shareholder Agreements
Getting the foundations right by examining the risk areas together helps strengthen relationships for a healthy future and everyone knows where they stand. On the contrary, misunderstanding which is unidentified and built in early is like a small, planted seed that silently grows into a risk, amplified a thousand times when big money and strong emotions are involved down the line. The ensuing battles which can arise usually only serve to damage relationships and drain business and people of financial, mental and emotional resource rather than creating wealth and benefit for all.
Creating a robust and practical shareholder agreement at the outset is a sound way to protect yourself from future dispute. Consider these scenarios:
- What if someone wants to sell their shares?
- What happens if a shareholder falls seriously ill or even dies?
- What if someone leaves and works for someone else and how do you make decisions?
Getting this right may involve some difficult conversations but it’s far better to do this at the start of a relationship before real value has been built in the business. A 50/50 structure can seem very fair and is often seen as an easy compromise. But what happens if there is a disagreement, and it can’t be sorted out. Litigation is expensive and often unpleasant. It is an absolute last resort and should only be used if there really is no other option.
How can TLD help?
By getting alongside you with our experience, we can easily analyse your business with you, gain a good understanding of what’s important to you, your personal aims for the business and your own lives. Then, by identifying where the value is, what the risks are, we can help you take those steps to secure your path forward and make succeeding in your goals far more likely. There is nothing more satisfying than seeing that process through to the end. If you would like my help establishing best practice in your business, and feel you would benefit from IP legal advice, please send me an email on nick.blackbourn@thelegaldirector.co.uk.
