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Launching a product is overwhelming. Overseeing or conducting development, doing your marketing, meeting investors – there’s a lot of chores a founder needs to juggle all at once.
Legal matters are often left unattended in this merry hustle and bustle. Of course, developing your vision is way more exciting than getting through the murky legal waters. Yet, failing to establish a strong legal base for your business can cost you your company later on. The following four tips are the bare must-do for any founder launching a tech venture.
Choosing a Domain/Brand Name Without Doing Your Homework First
Just made up a cool sounding name for your venture? Awesome! Now it's time to do some digging apart from checking its eligibility on a domain registrar.
You will need to make sure that you have not picked a name that is the same or sounds similar to an existing registered name, especially a trademarked one. And failing to register a trademark can be a huge roadblock later down the road.
Think Apple. The company has been continuously suing various Chinese companies, who have been “trademark squatting” on Apple’s iPad without any legal consequences. According to the China laws, whoever registers the trademark first, owns it for good. Also, during all those squabbles it turned out the name "IPAD" was already legally copyrighted to a Taiwanese company back in 1988. Suppose that makes a good lesson on why researching and protecting your business name is so important, especially if you decide to expand to a foreign market.
That’s why it may be worse to do some preliminary digging and commission a patent and trademark search before you go all into product development.
Failing To Protect The Source Code and Other Intellectual Property
Intellectual property laws are not evolving at the same pace as the technology advances. Hence, startups now enter a somewhat sticky area with no fine line defined, especially when it comes to the product source code.
Imagine this: you are licensing some software from a 3rd party vendor to power your product, API integration for instance. What happens if that vendor goes out of business just when your product finally starts taking off? To avoid these scenarios, you may want to negotiate a software escrow agreement with that vendor through an agent. The agent will store that licensed source code and give you immediate access to it once the respective conditions apply.
Next, think about your web app design – what if it gets completely or partially ripped off by some 3rd party? While filing for utility patents (protecting the way the product is used and works) is rather common for startups; filing design patents, which protect your product looks isn’t something most companies consider to do.
The official US Patent Office stats prove this tendency: in 2015 over 9.2 million utility patents were issued, compared to just 746,000 design patents.
But think about this – obtaining a utility patent for software inventions has become significantly harder in the US after the Alice v. CLS Bank case. Design patents may be easier and faster to claim and they will still protect the essential parts of your product such as GUI, logo, screen flows and so on.
Operating Without Proper Paperwork
Hiring and legal mistakes come hand in hand just too often. You should prepare in advance all the required paperwork for the new people with clear contracts, NDA agreements and any other supplementary clauses you deem appropriate.
As a founder, formulating strong bylaws should be on top of your agenda. Your work contract should specifically list all the existing policies, how the disputes are settled, descriptions of duty, conditions, and terms of employment and the rights and powers of key shareholders. Also, you should mind the worker's compensation laws in your state (as those differ largely) and establish the procedures for claiming injury compensations, which cause not just financial, but reputational damage as well.
You will also need to have a business owner's insurance (BOP) before moving into an office space. It would have your back covered when it comes to property damage, personal property coverage (hardware, furniture, and other possessions). Some insurances also offer extended coverage for valuable documents (both paper and digital), meaning you can receive compensation of related costs if you lose access to those files.
Have a Formalized Founder’s Agreement
Also called the operating agreement, it will help you avoid certain conflicts among the founding party. This legal document should clearly define the relationships among the founders; outline how the communication is expected to happen and incorporate a conflict-resolution clause that should minimize and regulate the disputes.
Richard Harroch also suggests that a founder agreement should absolutely include your agreement on the following matters:
While doing the legal chores may be not the most exciting part of your job, you will have to prioritize them at the beginning to avoid paying for your mistakes later down the road.
We consumers love our gadgets. And as technology gives us the “latest and greatest,” we jump to acquire it. From Apple watches to Fitbits, to controlling our home heating and cooling and locking systems, we have become a people wedded to convenience and efficiency.
New “smart homes,” in which everything can be controlled remotely through a single smartphone with a single technology, are the future for sure. But what about the homes that have added smart devices one at a time, each with its own manufacturer and proprietary technology. And these device manufacturers are very jealous of their technology. They want it to be unique and are not particularly fond of collaborating with other manufacturers to standardize the architecture. As a result, there is one app for the refrigerator, another for the heating and cooling, and still another to operate the home locking and security system.
What began as a revolution in convenience and efficiency has turned into a quagmire of device fragmentation.
Middlemen Offer Solutions
Several services have tried to fill the mess created by incompatible smart devices by offering packages of “smart” lights, thermostats, and security cameras that will all work together.
Companies like Comcast, AT&T, Time Warner, and Verizon are happy to sign consumers up for a monthly fee, usually around $40. This may be fine for some basic devices, but appliances and other smart home devices are not included. This doesn’t seem like a truly viable solution for the consumer who only gets a partial “fix” to his incompatibility issues.
Individual Manufacturers Want a Solution that Involves a Monopoly
Manufacturers such as Sony and Samsung have expanded their smart device product lines, hoping that consumers will “dump” their current smart devices and take a package from them. So, a consumer could buy a Samsung washer, dryer, TV, fridge, etc., and they could all talk to one another, but this could obviously be pricey. And a manufacturer like Samsung will not produce every smart device that a consumer may want to purchase. They are savvy, and they will research the quality of everything from slow cookers to robo-vacs and make purchasing decisions based upon reviews and recommendations, not on manufacturer name.
So, What is the Solution?
There is no single solution at present, although many are working on it. The goal is to have a technology that, when inserted into every device, no matter the manufacturer, will allow a consumer to control everything from a single smartphone app.
And there are people working on this right now.
Recently, Qualcomm unveiled two innovations. The first is a chip-based integration system. What it claims is that if consumers put this into their connected products, then those devices will connect to anything. It has also developed a technology that uses Amazon Echo, Apple’s Siri, and Google Home. Consumers can ask a question of any of them, and supposedly, the best assistant for the task will answer.
Quirky Wink Hub
A New York startup by the name of Quirky claims that it has the solution to smart home fragmentation. It has developed a $79 box that will allow communication among numerous smart home products, over a variety of architectures. The Wink app can control devices no matter who the manufacturer and no matter what the system.
Zigbee and Z-Wave
Two other names in the attempt at standardization of some sort are ZigBee and Z-Wave. Both of these are using wireless networking that will let devices from different manufacturers and different technologies to talk to one another. While hundreds of device manufacturers have “signed on” to one or the other of these standardization technologies, manufacturers of appliances have generally not. And until the manufacturers of the bigger items agree to allow standardization, no progress will really be made by either of these two concepts.
Another hub which sells for $99 can communicate with appliances over Wifi, once those appliances are connected wirelessly. Everything is accessible through one smartphone app, which is at it should be.
The Consumer May Need to Step In
It doesn’t appear as if manufacturers are ready to agree to any standardization which would reduce their control. And if they will not “sign on” to such as Zigbee and Z-wave (or some other standardization element), then the consumer must look to work around them.
Right now, the biggest promise is some type of hub and, while it means another item to buy, at least it is a one-time purchase. Middlemen services’ monthly fees go on forever.
Purchasing the technology that will bypass the proprietary technology of individual manufacturers will ultimately make their technology meaningless. And once that is meaningless, they may be willing to agree to standardization. Remember, while they are certainly on a smaller scale, phone chargers, USB ports and cords, Bluetooth devices, etc. have all been standardized to meet consumer demand. And at one time, Mac and Windows didn’t “speak” either.
Yes, smart homes are still a “hodge-podge.” But we can probably take heart that there are those working on solutions.
Just under a decade ago, Google’s concept of a self-driving car seemed outlandish. That’s not the case today. Now, brands like Tesla, Lyft, and Uber are actively pursuing the idea. Even mainstream car manufacturers are conducting research into the concept of self-driving cars in an attempt to gain their own foothold in this space.
But here’s what is certain. In the future, we will be driving autonomous vehicles. Yes, there are still things to work out in terms of the technology, but the truth is we are coming closer and closer to this being the reality.
Then again, technology isn’t the true roadblock. Nor is safety. When 93% of all accidents are caused by human error or intentional action, it’s clear that the safest thing to do is take the human element out of the picture for the most part. Instead, it will be legal and regulatory issues, and resistance among drivers themselves that slow down this progress. There will also be pushback from those who benefit from maintaining the status quo. Then there are the logistics of it all.
Job Loss is a Real And Perceived Concern
When self driving cars become mainstream, there are potentially millions of people who could lose their jobs. This includes delivery drivers, taxi drivers, truck drivers, and bus drivers. This will likely impact those working in complementary fields. Imagine the impact of this change on a motel chain or truck stop that relies on vehicle traffic for its main source of income.
This, of course, puts politicians in a quandary. Do they vote in favor of policies that support autonomous vehicles? This gives their challengers ammunition to refer to them as job killing and out of touch with the needs of their constituents. The current political climate doesn’t exactly seem to be leaning towards progression at the cost of populism.
Drivers Will Need to Rethink Personal Safety And Liability
It turned out that the fatal car accident involving a self-driving vehicle from Tesla was the result of the driver’s failure to download a vital software update. In the future, if autonomous vehicles are going to become a reality, one of the challenges will be getting drivers to buy into new concepts regarding vehicle maintenance. Replacing worn brake pads, keeping tires inflated, and having cars checked out a few times a year are all commonly accepted ways to keep cars safe and operational. In the future, keeping up with software upgrades, even installing vehicular anti virus and security software will be considered the vehicle owner’s responsibility in terms of keeping cars safe for themselves and others.
There are definitely unanswered questions. For example, who is liable if a driverless vehicle causes an accident? We know that if a driver loses control of their car because they did not properly maintain it, they are responsible. If a driver is in an accident as a result of their negligence relating to their AV, are they equally liable? What about the manufacturer. There will very likely be new laws that will need to be written. Attorneys will have new challenges to face as they seek to protect and help those who have been injured in car accidents caused by self-driving vehicles.
Tough Decisions And Higher Expectations
Every driver makes mistakes or chooses to drive recklessly. Sometimes those mistakes and choices end in near misses. Other times, fender benders are the result. Then there are times when injury even death are the consequences. We accept that risk.
In spite of the fact that AVs reduce risk, they cannot eliminate it altogether. Although it was later proved to be human error, Tesla was initially blamed for a fatal car accident. Self-driving cars from Uber have been tagged running red lights on multiple occasions.
So, what happens when a self-driving vehicle is involved in an accident? In addition to accepted risk when humans are in control, there is often some level of sympathy and understanding towards those whose mistake cause an accident. Reckless, illegal, or intentional behavior being obvious exceptions to this. There’s no way you could have stopped in time. It could have happened to anyone. Don’t blame yourself.
Reactions to accidents caused by machines are starkly different. There is an expectation that these machines will execute perfectly, and make the best decisions possible. When the inevitable happens, it will and has become fodder to justify preventing this technology from becoming mainstream or rolling back progress.
Security is a Serious Concern
Hackers have already taken over vehicles that have some self driving features. However, in cases where there is a driver present, there is less risk. An alert driver can see that something is amiss, and override the driverless features. When a car is truly driverless, that’s not an option. When all aspects of the vehicle’s operation are software driven, how will the car know when things aren’t right. Auto manufacturers will have to work hard to ensure that the security measures they implement stay far ahead of the malicious individuals or groups who could literally turn a self driving vehicle into a weapon.
Self driving cars will eventually become the norm. It’s inevitable considering that all major players in the automotive industry are slowly adopting the technologies that will take us from fully manual vehicles to partially autonomous, to fully autonomous. However, it is clear that the transition will not be without challenges. Politics, human nature, legalities, and logistics will need to be dealt with before progress is made.
Disruption. That’s the new term for big change that comes to industries as a result of technology. Consider just the changes in communication and services as a result of technology. The internet, smartphones, social media, education, entertainment and beyond, have all changed dramatically in the last decade, showing how technology marches on at an incredible pace.
Disruption in the financial services industry was inevitable. And it is upon us in major ways. What we witnessed in 1998, with the founding of PayPal, we are now seeing on a huge scale, with banking, investments, lending and insurance affected by huge disruptions that are being embraced as quickly as they come. As both financial service providers and consumers look to the near future, here is what to expect.
1. Fintech becomes a solution for the little guy
Traditionally, only investors with deep pockets could enter the banking and financial services industry. This is no longer the case. Lean start-ups, focusing on specific areas of financial services, do not need the kind of money that traditional institutions needed and are eating away at the market share that were traditionally the monopolies of large financial institutions.
Pushing this along, obviously, was the financial crisis of 2008 – people lost their trust in the big banks and welcomed new and innovative services that allowed them to have more personal control and choice.
Everything from transferring money to buying insurance, investing to bank accounts, even getting a mortgage loan can now be accomplished online through companies that do not have the large overheads that traditional institutions do. All they need is talent, and there is plenty of that.
And consumers love this new form of “shopping” for services, especially because they can compare all in one place. In a recent PwC Global study, respondents from traditional financial service institutions stated that by 2020, they expect to lose 25% of their business to FinTech enterprises.
2. Matching investors with those in need of capital
Time was, if an individual needed venture capital, they had two choices – family or traditional banks. The problem with traditional lending institutions was a lack of access unless all “hoops” were jumped through and all conditions met; as an industry, moreover, large institutions enjoyed a concentration of power and, often, a lack of transparency.
To compete with the venture capital industry, savvy disruptors created crowdfunding platforms and what is known as equity crowdfunding. In the former, smaller investors can contribute to a start-up venture with the anticipation of receiving a payback at interest. The latter involves individual investors putting up money for an equity position in the new venture.
Peer-to-peer lending models include such companies as Indiegogo and Kickstarter in the U.S. and Crowdcube and Seedrs in the UK. Additionally, larger companies, like Barclays and Accenture, have been attempting to find new and innovative financial solutions through acquisition, reducing the risk potential or need to conduct the research themselves. Smaller market infrastructure firms such as NEX. NEX have been successful in competing with the larger venture capital institutions and banks by partnering with growing fintech companies.
3. Data science
Data analytics have come a long way. From e-commerce businesses tracking who comes to their websites and what pages they visit and how many move into the buying funnel, technology has moved to the collection of huge amounts of data about consumers and their behaviours. From those aggregate collections, sorting that data into information that large institutions can use to make decisions about what products they offer, to whom they offer those product to, and even when they make such offerings.
This has meant a big paradigm shift from focus on products, to focus on consumers and what they want and value. Financial services institutions that use big data to drive their decisions will win the competitive race in the long run.
4. Investments – more consumer participation
Financial investment services have traditionally lain with brokerage houses and financial advisors who evaluate personal investors’ finances and make recommendations regarding investments. Then along came “day traders” who thought they could compete with the “big boys,” cut out the middleman, and make their own fortunes. In most cases, this was disastrous – they just did not have access to the research and information that the career professionals did. And, again, like banks, these career pros had a monopoly on bringing individual investors into the markets.
The mystique is now gone, and individual consumers are demanding the same information that the investment services industry has and getting it. They are also demanding personal participation in investment decisions and their own asset management. Digital robo-advisors hit the scene, and brokerage houses and investment counselors were caught off guard.
Investment institutions will have to make the change to more user-friendly platforms if they intend to keep a decent market share.
Charles Schwab realized this earlier than others. It began in the 1970’s as a discount brokerage house, offering cheap trading prices to individual investors. But when disruptors like Wealthfront and FutureAdvisor came along, the company had a choice – be beaten or change its business model.
They took some time to analyze this robo-adviser disruption and see if it was viable. It was. And so, the company became a FinTech startup itself by launching Schwab Intelligent Portfolio. It was a huge success and today it outperforms other startups.
5. Insurance and IOT
Insurance companies have also become more consumer-driven, given that customers can shop for their insurance needs online and compare products. This of course has forced insurers to modify products and become more competitive. One of the biggest disruptions in the insurance market is the internet of things (IoT). From home and car security devices to remotely controlled temperature and appliance turn-ons and shut-offs, to devices placed on cars to monitor safe-driving habits, insurance companies can use digital information to set individual rates.
6. Public cloud services will streamline banking operations
The more cloud-based computing becomes mainstream, the more comfort financial services institutions will have using it. And SaaS apps are continually improving. As this happens, core activities of financial services will be taken to the cloud and automated. As this continues to occur, the need for people services within company infrastructures will certainly be reduced. It is predicted that by 2020, core functions, such as payments, statements, billings, and even credit scoring/worthiness will no longer require human/manual work. The implications for underwriters alone, in the mortgage lending business for example, are pretty big.
7. Cyber-Security – A continuing risk of increased technology
Executives in the financial services industry continue to worry about security, especially due to the increase in the use of mobile devices and IoT technologies (particularly older devices that do not have the latest security) on the part of consumers and the potential for cyber criminals to “back door” into their systems. Cloud-based technologies can help some, but are not immune to attacks either.
These are only seven disruptions that technology has brought to the financial services industry. There are more to come – the shift to Asian technological innovations, blockchain technology which is still a bit of a “mystique” to most financial services executives, and the technological advances in the regulatory sector. And there are more to come, for certain. FinTech startups are trying to out-pace traditional institutions. Traditional institutions will need to make decisions to step up their game or to find ways to collaborate with those startups that prove to be successful. If Charles Schwab can do it, so can others.
The financial industry crash in 2008 severely damaged faith in the traditional banks. But even before then, banking and financial transactions had been moving into new digital realms. PayPal had already been around for 10 years, and other virtual wallet systems had begun to pop up too.
Enter Bitcoin in 2009. Developed by an unknown individual or group using the name Satoshi Nakamoto, it is an asset/payment system that uses no intermediary (i.e., a bank) – a peer-to-peer transaction platform that is be fully secure and almost without fees. The concept is that “value” can be virtually exchanged all over the world in a digital environment that does not transmit any sensitive information (e.g., credit card numbers) that could be subject to cybercrime. That “value” can then be converted into any fiat currency on the receiving end, although the value of a Bitcoin would be subject to market volatility, just as currency exchanges can be.
Slow to Catch On
The disruption of cryptocurrency has not been rapid. It’s tough to get individuals and businesses to make a paradigm shift to virtual currency and to understand such things as blockchain technology. But there are many who predict that Bitcoin, and perhaps some other cryptocurrency platforms, will replace the traditional bank card payment system.
We are not there yet – not by a long shot – and there are many “wrinkles” to iron out if this is to happen. But the question is certainly out there. Can Bitcoin replace traditional payment systems? Some say “yes;” others say “no.”
There are certainly arguments to be made that Bitcoin will ultimately replace the fee-based transactions that consumers and merchants use today. Among those are the following:
In looking at those hurdles, along with some other factors that keep legacy payment processing the preferred transaction methodology, many believe that bitcoin will take its place for certain demographics but will not replace the use of bank cards, money transfers, and letters of credit that still constitute the vast majority of transactions. Here are their arguments.
The average merchant would have to develop a technical savviness that he is probably not prone to want to do. Bitcoin transactions do not have the support structure that bank card processing has, and merchants would have to create and manage their own digital Bitcoin wallets, in order to accept funds and convert them to fiat currencies.
Traditional payment processors are getting much better with what they do, especially considering the competition out there. Most payment gateway services are providing the streamlining, the lowered transaction fees, and the support that merchants want and need. And they are beefing up security measures by leaps and bounds today.
Merchants who use Bitcoin will still need some processing support, from providers such as Stripe, PayPal, or others that are now in the business – processors who are able to lock in exchange rates at the point of transaction. For example, if a merchant were to accept Bitcoin that is currently worth $1500 U.S., but the value had dropped to $1200 by the time he exchanges that Bitcoin for USD, then he is out $300. The lowered transaction fee is worthless at that point. Using a processor to convert the Bitcoin to a fiat currency at the time of payment processing will be essential, and that actually adds another step to the whole process. It’s just not the maximum efficiency that most merchants want.
There are also problems on the consumer side of Bitcoin transactions. Online purchases using credit cards come with certain risks. The merchant could be fraudulent; ordered products may not be received. Exchanges and refund requests are commonplace transactions. These are currently handled pretty well when normal bank cards are used for purchasing. Refunds can be directly credited to a personal credit card account. And, if there is a dispute, the credit card company acts to resolve it.
Bitcoin transactions are irreversible. There is no process for disputing a charge or getting a refund, except directly through the merchant. And these are not always successful, particularly if the merchant is unprincipled or simply disputes the consumer’s claim. Where is the consumer recourse? Currently, it is non-existent. There are no consumer protections in place. Even if they were to be put into place, they would have to be managed by a processor divorced from Bitcoin itself. In this case, that processor is still in business, not replaced.
It’s still out, obviously. Predictions as early as 2014 stated that bitcoin would replace legacy financial transactions, for merchants and even for individual consumers. That has not happened.
For the near term, fiat currency exchanges, traditional bankcard transactions and processing, and consumer purchasing protections are strongly in place with legacy systems. People are comfortable with their systems, and Bitcoin still holds a mystique that is difficult for both merchants and consumers to fully grasp. It still seems a little bit like “fake money” to many. And change comes slowly.
But no one should discount the ability of Bitcoin to evolve and to take its place within the payment processing industry. The security it offers, as well blockchain technology and lower fees, all provide an attractive alternative to traditional processing through banks and legacy payment processors.
On the other hand, in its current environment, Bitcoin will have to rely on traditional processors that have the ability to lock in exchange rates and to ensure that both merchants and consumers are afforded the protections they need. Only time will tell. For the moment, traditional payment processors are still in business.