How Some Small Firms Are Fighting Off Giants

So, you developed a nifty product, started production and, boom, it’s selling like
hotcakes. But as the market takes notice, how do you prevent some big outfit from
snagging your idea or otherwise crushing your new venture?

By JEFF BAILEY
Staff Reporter of The Wall Street Journal.

That’s a problem many idea-driven start-ups face. Remember Netscape? And there isn’t
any one-size-fits-all solution. A look at two entrepreneurs grappling with the issue,
however, suggests some ways to think about how to protect your business:

Bandanamap

Larry Smith, 60 years old, founded Professional Impressions Inc. with his wife, Helen, in
1996 to make Bandanamaps, which are simply maps printed on bandanas, or
handkerchiefs. Mr. Smith now stocks about 70 different 22-inch-square cloth maps,
including Yosemite National Park and the Appalachian Trail, which sell at retail for about
$8 or $10 each.

And as fast as he can design and print new ones, they sell, too, at big outfitter stores
like REI and at little gift stores and tourist locations — perhaps 600 spots in all, Mr. Smith
estimates.

It’s nicely profitable, Mr. Smith says of the Grass Valley, Calif., business, into which he
has sunk about $500,000 for equipment and offices, advertising and marketing and for
drawing his own maps.

At this point, Mr. Smith lets the market tell him which map to make next; people literally
call and ask him to print maps of areas they live in or visit.

It’s a dream come true for a onetime high-school teacher, father of seven and grandfather
of 16.

But what’s to prevent some big mapmaker, tourist-trinket importer or clothing company
from horning in? Mr. Smith has no patent.

And while a registered trademark may protect the product’s name, anyone can slap a
map on a hanky and sell it.

"It haunts us," Mr. Smith says. "The fact of the matter is maps are in the public domain.
Anything we do, others can do, and some could probably do it faster and better." He
adds with a chuckle: "And I’m not saying that to encourage anyone."

What’s he doing about it? For one thing, he refuses to brag about how big his company
has grown; he won’t disclose sales figures. And although he has no patent, he still
consults with intellectual-property lawyers, who help to outline his options.

But essentially, Mr. Smith has to choose one of three courses:

1.Keep growing slowly on his own financing and hope that a big competitor doesn’t
jump in. He plans to introduce 24 more maps by winter, but says there are literally
hundreds more that could sell.

2.Bring in outside investment that would allow him to grow more swiftly, trading
partial ownership for the opportunity to quickly gain market heft and perhaps scare off a competitor.

3.Form a partnership with a bigger company in a related business — join ’em instead of fight ’em — or even sell out to one such potential
competitor.

"We had a conversation on that this morning," Mr. Smith said one day last week, with his wife, his lawyer and the entrepreneur discussing and
evaluating those very choices.

For now, Mr. Smith is choosing to remain independent, without any financial backing from outside investors, meaning he can afford to add only so
many new maps each season. But he is seriously mulling his choices. He watches the marketplace carefully for competition. "We’ve had a
couple of people try to knock us off," he says, though nothing yet he regards as a serious threat. And he knows he could be forced at some point
into selling all or part of his company to fight off a competitor.

"When it happens, there’s not a damn thing you can do about it," he says.

Paul Berghoff, a patent lawyer at McDonnell Boehnen Hulbert & Berghoff in Chicago, says Mr. Smith faces a common question: "Do you try to
keep it all for yourself — in which case you limit your opportunity for growth? "Or do you partner with somebody? That’s either smart leverage or
you’re selling your soul to the devil."

Scott eVest

Scott Jordan, 37, a lawyer and gadget lover, founded Scott eVest LLC last year to demonstrate the marketability of what he calls
technology-enabled clothing. The current model Scott eVest 2.0, $109.99, has 17 pockets, some connected by channels that allow wires to run
between cellphones, CD or MP3 players, personal digital assistants, headsets, earphones and other gadgets. The giant rear pocket will hold a
laptop. It’s actually a jacket, and the sleeves zip off.

The look might be a little nerdy, but Mr. Jordan, of Chicago, just smiles his geeky smile and says that sales are on target to hit $3 million this
year. Nearly all of that is done via his scottevest.com Web site. He has filed a U.S. patent application and says, "I’m prepared to spend in the
millions to defend my patent rights. The garment industry is notorious for knockoffs."

His strategy is to demonstrate the demand for wired many-pocketed garments, fight off any who would try to copy the concept without paying him
a royalty, and then get out of the clothing business and merely license the concept to others. "If I’d had my druthers, I would’ve walked into Levi’s
and said, ‘Isn’t this wonderful?’ " Sadly, he says, there are skeptics. "Scott eVest is a proof of concept."

His other company, Technology Enabled Clothing LLC, owns the concept, but he doesn’t want to be in the garment business. "All I want to be is
a licenser," says Mr. Jordan.

There have been other garments made with special pockets for gadgets. Levi Strauss & Co., in fact, makes Dockers Mobile Pants, which have
some extra pockets designed to carry gadgets But only Scott eVest, Mr. Jordan asserts, has the combination of many pockets connected by
channels for wiring, all built to handle "third-party" gadgets rather than a specific brand.

Should Mr. Jordan’s patent be awarded, he would then have a potential weapon to fight imitators and something of value to sell to clothing
manufacturers.

"If you end up with no intellectual property," says patent lawyer Stanley A. Schlitter, at Jenner & Block in Chicago, "how then is it you’re going to
compete when someone larger notices?"

http://www.startup.wsj.com/columnists/enterprise/20020725-bailey.html