Justin Simpson was a young lawyer when he spotted an opportunity to automate some of the services of an old-fashioned profession: international patent protection. He started his business PCT Filer six years ago, and turned over $6 million last year. He expects the business to treble this year.
Justin talks to Amanda Gome about getting sales and distribution right and overcoming ignorance in the market about the benefits of his new services.
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Amanda Gome: You picked up on a trend that was really sweeping the world that I suppose was a digital trend wasn’t it Justin? You tell us what you’ve done and the niche you saw.
Justin Simpson: A lot of companies, when they’re thinking about going global, have the challenge of how they protect their intellectual property overseas, and one of the big problems is the cost of doing that. So I invented a way of doing it a lot simpler and a lot cheaper through use of some automation.
Now at the time, companies set out to protect their intellectual property in their home country first and then looked at global costs. Five years ago when you started the business,what was the cost of protecting your intellectual property?
At the step where you go international, it might cost somewhere between $30,000 and $50,000 to file [trademark and patent applications] in a handful of countries, four or five countries.
And what does it cost now?
Well with our system it’s about 25% to 50% cheaper than that, but we’re only a small part of the market so far. Most peopleare still doing things the traditional way.
If someone wants to protect their intellectual property, what do they do now? Do they take something out worldwide? How is it changing?
Well unfortunately there is no such thing as worldwide patent, so you need protection in each of the countries that you either want to market yourself, or you want to stop your competitors doing it.
Let’s say an Australian company would file an Australian application first — 12 months later they would file a PCT (Patent Cooperation Treaty) application which reserves their right to go into 130 different countries, but 18 months after that they then have to lodge individual applications in individual countries and that’s the bit that [PCT Filer] helps with. It’s going into those countries that’s the biggest expense.
What do most people do then? They still go to the lawyers and they cover off every individual country do they?
Mostly they would go to their Australian patent attorney who has their own network of agents overseas they’d normally use. But they’re not necessarily done at the best value for money and their Australian attorney will charge them quite a lot and their foreign attorney will charge them quite a lot for what really is quite a simple process.
The drafting of a patent specification in the first place is a very difficult job and I wouldn’t recommend anyone does it themselves, but the process of moving that application from the PCT into individual countries is really quite simple.
There is a lot of filling in forms, paying fees and some translation work, so I invented a way of automating that process. I set up a network of agents in 52 countries and negotiated good rates with them. We’ve combined some automation and some discounted rates through bulk buying to get costs down by about 25% to 50%.
Now your businessis five, almost six years old. What changed in the IP world in that time? Is it easy to do? Is it harder? Are you seeing more competitors doing it online?
So far we haven’t had any significant competitors. When I came up with the idea I patented the method of filing patents in an automated way. So I’ve kept out most significant competitors to date, but strangely enough the patent attorney industry is quite conservative even though they deal with technology every day and deal with people’s inventions.
They’re a lot more like regular lawyers in that they like to stick with their old ways, so it’s taken a few years for peopleto catch on to the idea that you can do things differently.
We pitched our services to patent attorneys initially and the early days of the businesswas quite slow; there were not many peopleplacing any orders. But now, in the last year and a half, we’ve grown about 400%. Now of any law firm in the world, we’re the fourth in terms of filing Australian PCTs.
The three above us took about 125 years to get to where we’ve got in five years, so it’s quite good.
Now you’re got revenue of $6 million, you made revenue last year of $6 million…
Yes, $6 million last year…
And you’re profitable? High margins?
We get to good profitability and then we hire a whole lot more sales peopleand then we go back into the red again, so we’re in a sort of a growth phase. And we’re still at the cusp of profitability. We are planning to be profitable in January of next year.
We’ve had some good capital raising rounds so far and we’re using that to grow things faster than we would have if we just sent it through regular growth.
How much of the business do you own?
I own 47% now.
And who are your major partners?
We have a small venture capital company in Australiacalled Divergent Capital. They hold about 20%. We did a funding round to 14 different firms of patent attorneys around the world in January. They gave us about $US1.3 million for a small stake in the company.
There’s a couple of the other founders, a patent attorney called Geoff Sweetment who came into the businessearly. He owns a fair chunk, as does one of my relatives and others are smaller shareholders around the place.
Have you found it easy raising the money?
It has been surprisingly easy. When we asked our agents around the world who wanted to invest, with 14 different firms coming in and saying ‘yes, we’ll put our money where our mouth is, we like the idea, we’re industry professionals, we can see where this is going’. It hasn’t been that difficult, so it’s quite pleasing.
What’s been the biggest challenge for you? You were 28 when you started and you were a lawyer and you put that job on hold, or left that to do this. What’s been the hardest part of running a fast growing truly global businessin a very new area?
Finding good peoplein the sales area has been the biggest challenge. I’ve been burnt a few times where I’ve found someone who’s a hot-shot sales person who looks like they have the right experience. They’ve got good background in the industry, but when you put them on by themselves in a far away country they don’t perform and just use up a lot of money. So I’ve found that in order to do things properly in the biggest markets here, in America, I’ve got to be there myself, working day to day with the sales professionals to get it going.
You don’t outsource the sales function. You find it works to hire the people internally?
It does. We are investigating a couple of sales channels for markets where we have challenges to get into. We’re negotiating with a group in Japan and in Korea at the moment who have a large sales force and we don’t have Japanese or Korean language abilities so it makes sense to use channel partners into those countries for both the language and the existing contacts that they have.
But for English speaking countries and those who speak English relatively well like Americans, [we see doing it ourselves] as being the way to go.
What else has been an issue for you as you’ve grown? How many employees have you got now?
We’ve got about 16 employees scattered through Sydney, New York and London, and we should be growing to about 25 by mid next year. So some of the challenges we’ve faced have been finding the right peoplein sales.
We’ve been faced with the issue that some peoplehave thought that our services are too cheap. We worked out a way of doing things in an automated way and the clients are used to their patent attorneys charging them a lot for this piece of work, so they’ve been saying ‘Why is it so cheap? What’s the difference between what you’re doing…?’
I’m sure this will delight our readers.
It’s like when you see a Rolex watch for $10 you think it’s fake. And normally it is, but in this case, because the process is really simple at heart, we’ve had a challenge of educating consumers to realise that these things can be done in a much cheaper way without sacrificing quality.
So we’ve had to educate them about the quality of translations that we do, the quality of the agents that we use, and explaining to them what the process is. So we’re kind of all about transparency in terms of pricing and process, and once we get that across they realise ‘well OK I shouldn’t have been paying $12,000 for this particular step’.
Have you found any good ways to educate the market? I mean this is such a common problem for entrepreneurs who come up with a new concept. They just think the market will get it instantly and of course the market doesn’t. What’s the best you’ve picked up on how to educate a market of a new way of doing something?
That’s difficult. Especially when the market is as large as ours. Our product appeals to anyone anywhere in the world who’s filed a patent and getting clear messages is difficult, but one thing I’ve learnt is to narrow your focus and be very clear about what your message is.
We’re just undergoing a process now whereby we’re looking at the messages that we’re sending out and we’re realising that we’re kind of trying to be all things to all men, and so we’re refocusing our image to being the industry champion and showing clearly what we do, and this is why we’re great. And just being very simple in the focus.
From a leadership point of view, you’re young. Going into this kind of market, what sort of leadership skills have you learnt?
I think people managementskills is one of the best things you can learn as a leader. There are leaders and there are managers I think. A leader will be someone who inspires by example and who the staff can look up to. Not only for the answers and where the company is going, but also to understand their day to day work and the challenges they face, and to be working beside them.
I think I kind of have an aversion to those who simply manage looking at statistics and not really understanding exactly what it is that each of their staff is doing and who they are. So I think I’ve learnt quite a bit over the time. I’d done various leadership things before running the company. I don’t think there was a great deal of difference between leading in a social setting as a youth group or scouts or whatever you’re involved in as to leading a company. I think peoplerespond to leaders in exactly the same way.
You enjoy the leadership aspect?
I quite enjoy it. I think as a kind of entrepreneur and ideas guy I prefer coming up with the new ideas and suggesting different ways that we can go in. The leadership is I guess… you’ve got to be responsible. You’ve got to watch the numbers. You’ve got to make sure that everyone’s happy. It’s more fun to just come up with new ideas and get someone else to run the company, but I’ve recognised that. I mean I haven’t had any leadership training and yet I’m running a reasonably sized company now.
But to take it to the next level, I said ‘well I think I need some help in this’ and so I managed to secure a very good guy from one of the IP industry giants and he’s come to work with us in the last couple of months so strength in the management.
A general manager role?
Yes, he’s a managing director role based in the UK. His name’s Martin Bourke. He was actually the global marketing director for one of the industry giants, CPA it’s called, Computer Patent Annuities. They are the biggest patent annuity provider in the world. That sounds like a boring thing, but annuities is the yearly renewal fee you pay once your patent is granted and they renew about a million patents a year and have a huge market share and have been going for 30 years.
So we have got a guy who’s been at the board level of an organisation like that and had previously worked at Financial Timesand Reuters and he’s seen what we’ve been doing and he’s come to help me run things and set up the office over there in the UK.
So you’re in how many countries now?
We have offices in three countries; London, New York and Sydney, and our agents have partnerships in 52 countries around the world.
How do you see your industry changing? If you look ahead say five to 10 years, what do you see?
I think there’s going to be a lot more automation of some of the patent processes. Looking back at that company I mentioned, CPA, 30 years ago patent attorneys were doing this annuity step themselves and it was a strange thing for them to outsource that to an automated provider. Thirty years later we’re doing a similar thing for another part of the patent process and what we do is automated; saves clients some money.
We’re just launching another product that’s very similar called [EP] validation for the end of the European patent process where you have to do a similar step.
So I think more and more, there’ll be more and more commoditisation as peoplerealise, ‘yes, my patent attorney is needed for this difficult and brain intensive part of the process’. But for some of the simpler processes, the admin tasks, can be automated — automated or outsourced to lower cost providers.
When you started, the patent attorneys proved very difficult to get on board and you had to go straight to the customers. Are you finding more and more that they are getting the big picture and are happy to outsource the more simpler tasks to you?
They are now, yes. You’re right. In the early days I started talking to patent attorneys and they didn’t like the idea, so I went to clients directly and they loved it. I realised when I looked at my client lists from last year that even though we hadn’t advertised to attorneys at all, attorneys made up about half of our client list. So we’ve started going back to attorneys now, focusing on the smaller ones. And they realise that they’ve got better things to do with their time than fill in forms.
They can outsource that to us and still get a good margin on their work, but they’re making their time more productive, so we are becoming a lot more accepted among patent attorneys now, but it’s taken a few years.
What are your predictions for revenue next year?
We’ve budgeted for $A25 million, and two months into the year we’re on track to do that. It does sound ambitious going from $6 million to $25 million, but we’ve done it from a ground up perspective.
And just to give you an idea, that $6 million came in from a very simple marketing technique, sending postcards out to all the potential patent applicants and having two non-sales peoplefollow them up but with Martin coming in and rebuilding the sales force to something that’s a professional sales machine we can be a lot more proactive and have a lot more control over the income.
You’re another Australian out there on the global landscape who’s changing practices that have been entrenched for many years, so good on you.
This is an edited transcript