Network: July 1992
How do you bring a son into the business? License designs to a manufacturer? Manage an office move? We sought the experts' advice on those questions and more. See if you agree; then add your two cents by mailing, faxing, or calling in your advice.* * *
I want to license my sportswear designs to a manufacturer for a royalty. Where do I find the right company, and what can I ask for in such a business arrangement?
Name Withheld* * *
Start at the library. Prospect in Thomas Register of American Manufacturers, which indexes products, trademark names, and company contacts. Check a prospective company's net worth, sales volume, production capabilities, market share, and general reputation in Moody's Manuals or Hoover's Handbooks. (See "License to Steal," No. 12881411, December 1988.)
Next, query your best prospects. An effective query letter, according to Waltham, Mass., patent lawyer Joe Iandiorio, should contain a quick description of your property and estimates of production materials, equipment, and costs. Point out how you'll complement a company's product line, create a niche, and boost market share and profitability. Protect yourself with a confidential disclosure agreement (Hot Seat, August 1991 Network). Iandiorio's series of brochures, "New Ideas, Methods and Products: An Intellectual Property Primer," details contract options, international safeguards, and technology transfer ($14.95 for five brochures; call 617-890-5678).
If manufacturers respond favorably, talk to a lawyer about pricing. The length of the license will determine a payment scheme, so build around it. Valuations should reflect all the costs that went into realizing the design: research and development, legal, accounting, and engineering are a few. Try to put a price tag on any benefit to the licensee's bottom line. Royalties run higher for exclusive licenses than for nonexclusive, because of the risk that your partner won't fulfill promises. For a discussion of fee negotiation, check out Licensing: A Strategy for Profits (KEW Licensing Press, 1990, $30; 919-929-7283). It walks novices through real-world experiences -- good and bad -- in a variety of industries and lists books, seminars, and professional groups.
Also, the Inventor Consultation Service of the American Intellectual Property Law Association (703-415-0780) publishes How to Protect and Benefit from Your Ideas ($9.95 for the book plus a half-hour consultation).* * *
I am moving my business to new offices less than a mile away, and I want to do it as smoothly as possible. Are there any resources that would help me plan a move? What should I think about?
Sterling International Group
Washington, D.C.* * *
To avoid problems on moving day, Dorothy Erwin, president of Facility Options Group, a consultant in Minneapolis, suggests clearing up details beforehand:
* Does your building have any rules governing when you can move? Weekend and evening moves are expensive.
* Are the doors big enough? Erwin recalls a $10,000 conference table so big the company had to get approval from its building's insurance company to put it on top of the elevator.
* Are there adequate dock sites to load and unload furniture and equipment at both your old and your new buildings? Will moving trucks fit into the garages?
* Make sure you have latitude in your contracts with the movers, so you can reschedule without penalty if the space isn't ready on time.
A professional consultant can help with all those details. Facilities managers at larger corporations can advise you, too. Call one directly, or call the International Facility Management Association (IFMA) at 800-359-4362; it can refer you to one. The IFMA research library will suggest articles and books concerning moving, space planning, and more, all for a research fee of $35 to $50. Also, check Inc.'s back issues for "Movers, Not Shakers" (In the Office, No. 06911432, June 1991) and "Is Your Move Covered?" (In the Office, No. 12911701, December 1991).* * *
Serves You Right
Our medical-electronics company employs outside contract agents for about half of our service calls. I want to maximize customer satisfaction and minimize callbacks. I've tied our full-time in-house service engineers' compensation to renewals of service agreements. Is there a similar way to motivate contractors?
San Diego* * *
Don Blumberg, author of Managing Service as a Strategic Profit Center (McGraw-Hill, 1991), advises that you survey customers and log all calls, assignments, and project-response and completion times. Once you're armed with project averages and customer-satisfaction feedback, you can set standards and measure perfor-mance. Award bonuses to contractors who excel.
Emphasize that service is an important element of the job, says Kristin Anderson, author of Delivering Knock Your Socks Off Service (AMACOM, 1991). Make that point with bonuses based on service-contract renewals for independents as well as in-house agents.
Don't focus on financial incentives at the expense of more personal motivation. Ed Bobrow, president of Bobrow Consulting Group, a New York City-based sales-motivation specialist, suggests you involve independents in decisions and ask for feedback. That way, you build the relationship that makes incentives work.* * *
Here Comes the Son
Eighteen months ago my 26-year-old son joined my partner and me in our property-management company. Now he's talking about partnership. What financial contribution should my son make toward a partnership interest? Before his arrival, the company made an investment that has doubled in value. We want to invest this year's profit similarly, but we must settle this question first.
Base Mountain Properties
Sun Valley, Idaho* * *
Deal with the financial questions last, Robert Zobel, tax partner with Deloitte & Touche, in Fort Lauderdale, Fla., says. Those can be negotiated. The emotional issues involved must take first priority. Does your partner have relatives who may join the business? Will your partner want safeguards against you and your son exercising unfair control over the business? Are you preparing to cash out? Why are you doing this, and what do you want the company to look like afterward?
If your partner wants to retain 50%, you can give all or part of your 50% to your son, or he can buy into that portion. In either case, you must set a value on the company and your share. That will take time, effort, and perhaps professional help. (See Goodwill Industries, No. 11912101, November 1991 Network.) And, Zobel says, either case raises huge tax issues.
To avoid heavy gift taxes, you must limit the gift to $10,000 annually. Your son may wait awhile for meaningful equity. If your son instead buys a portion of your stock and you are a controlling stockholder, the IRS may treat the transaction not as a sale from you to your son but as your redemption of stock, taxable as a capital gain, and his compensation, on which he would pay income taxes.
If your son comes in as an equal, Zobel says, decide whether you and your current partner want cash in your pockets or cash in the company. If the former, your son can buy some shares from each of you. If the latter, you can issue new shares. While that forces you to set your company's value, Zobel notes that it's "the cleanest way to bring money into the company."
Maybe you and your partner don't think your son should share any of the return on the upcoming investment you mention. If so, the three of you could set up a new corporation. It would be difficult with a capital-intensive business, but not for a service company like yours. The old company could become a partner in the new entity, paying compensation to you and your partner, or it could become a holding company for your investments.
In any case, set up a good buy-sell agreement that gives you nonlitigious ways out of the business in case of a serious difference of opinion. n
-- Reported by Michael P. Cronin, Christopher Caggiano, Karen E. Carney, and Phaedra Hise.