Over the last couple of weeks, I've been talking about the impact of automation for small business. I've been talking about being an owner and making rational decisions that help to either reduce expenses or contain expenses associated with the growth of a business. But today, I'm going to talk about a strategy that rarely applies to small business ... makin' money with technology investments.
What I'm referring to here is to use technology to create technology products. Technology products could be things like hardware or software. Example: your company makes cell phones or software apps that can be installed on cell phones. You make the products and sell them, making a little money off of each unit sold.
You can also make money off of intellectual property: patents, trademarks, trade secrets, or even books. Example: your company could have a patent on a critical business process that it licenses to other companies. You could have written a piece of software that gets licensed to other companies. Either way, you make money off of the licensing. Also, maybe you wrote a very successful book. Every time a book is sold, you're making a little bit of a royalty. That's money earned from intellectual property.
Why This Traditionally Doesn't Matter to Small Business ...
Usually, the generating revenue strategy isn't a good fit for small business because they're not making technology products, or, they don't own any intellectual property. It's a great idea it's usually not applicable. The small business is too busy doing small business things - things that matter to it and its customers - than focusing on making technology products.
... But Why It's So Cool!
The cool thing about this strategy is that it doesn't suffer from diminished returns as the previous two strategies.
On the one hand, when reducing expenses, you can never get expenses down to zero, and the closer you get to zero, the harder it is to earn any kind of return. Using the reducing expenses strategy, the earliest returns are the largest returns, and it's not a viable long-term approach to competitive advantage.
On the other hand, when containing expenses, you're dealing with the net present value of money. The money you earn in the future by investing in technology won't be worth as much as it is today. So relying on containing expenses also isn't the best strategy for long-term competitive advantage either.
Then there's making money! You can generate as much money as you want and there's no diminished return - with one exception: you'll pay more taxes, but still! Everyone likes making money. It's just kind of hard to do for small businesses because very often they're not a technology company in the first place.
Can Tech Pay for Itself?
The small business, though, isn't entirely out of this poker game. Let's say, for example, your company develops an app for a mobile device. There's nothing else like it out there. And in your commission agreement with the developer, you've retained the copyright IP (intellectual property) on that app.
With a slight modification to the app, not only could it fulfill your purposes, but it could be resold to other companies with similar problems, and your firm can earn money back from the IP investment. It's a residual revenue flow that helps to both offset the R&D (Research and Development) cost of the app, plus, it earns the company a little bit of pocket change over time.
Of course, the small business will eventually have to ask itself: are we a technology company? Are will going to continue to develop, distribute, and maintain software products for other companies in the future? That's where new ventures can be spun-off or sold to help pay for the risk taken when developing the IP.
Think about it: has your firm created unique pieces of software that it could market to others? Have you developed proprietary business processes that nobody else can easily emulate? Do you own patents, copyrights, or other forms of intellectual property that can be exercised to earn a residual income stream for your business?
Next time: what technology should be doing for you in the first place.