Small Business Trade Secrets

Guest Blogger – Richard Proffer, University of Missouri Cape Girardadeau County Extension Office SBTDC

Secret

Photo (CC) by laverrue, on Flickr

Every business, whether large or small, has a secret considered vital to success. It could be a family recipe for a meat dish that has a special spice or a new way to create a rubber product cheaper but yet it lasts just as long. Whatever it is, it is of value to the business and is often considered to be one of the most important assets when the business is up for sale.

Unfortunately, trade secrets cannot be easily and universally defined. The real definition comes from the fact the following three tests on the idea: is kept secret, is considered important and necessary for the business’s success and has a value to it. Those three tests must be met for a court to protect the trade secret in a legal issue.

A trade secret can be almost anything used in the business or created by the business as long as it is not generally known in the industry. For example, if a business owner creates a new recipe using pinto beans for a homemade chili, it will not probably be considered a trade secret because 1) chili is common, 2) pinto beans are common, and 3) most importantly, it is common knowledge you can use pinto beans in chili. What a trade secret does is provide the business owner with a competitive advantage and allows it operate a higher profit margin usually.

Trade secrets are treated differently than copyright or patents. As long as they are kept secret they remain valuable to the business. But that value can diminish when a competitor has figured out how to duplicate the process. Once discovered independently, the once trade secret can be used without any legal action being able to be taken unlike the copyright or patent. If obtained illegally, then the owner has the right to take legal action and claim damages.

How can a business protect its secrets? The first step is to determine what in your processes create a trade secret. Unfortunately, the information gathered in creating a product cannot be labeled as one as it usually represents skill or industry practices. Courts also protect an employee’s rights to carry with him his experience from one employer to another or her own business.

The second step is to write them down in a log and indicate who knows the secret. The business owner needs to make sure all the people on the log understand the importance of the secret to the business and they are not to disclose the information.

While no protection plan is entirely safe, the starting of one should indicate to the staff the owners are serious about protecting the secret and its importance to the business.

It’s the Questions You Don’t Even Think About

Oil well site (CC) Glenn Muske

Oil well site (CC) Glenn Muske

Everyone who has considered starting or has started a business has probably received this piece of advice, you need to do your research and planning. This means finding the data that may influence the potential success of the business and then planning on how you will overcome that challenge.

Often times aspiring owners also find a somewhat standardized list of the information they need to gather such as market size, income levels, potential competitors and availability of suppliers.

What you won’t find on the lists, though, and you really can’t because each situation is different, are questions about the unusual factors that must also be considered (I suspect that every area has one and probably more unique items).

Currently in my role with the North Dakota Extension Service, I regularly get questions about starting a business in western North Dakota. Now if you have watched or listened to the news during the last couple of years, you probably know we are experiencing an oil boom. Many of the people contacting me are interested in how they can get involved in the boom. They have a business idea and are now trying to make the idea a reality. In general, their questions focus on the standard questions.

When I get the standard list of questions, however, I suspect that the aspiring owner has not taken the time to do a little more research or homework into some of the most important questions – those not asked.

When talking with a potential business owner looking to come into the western ND oil patch, other questions they need to consider include:
– where am I going to live and what will it cost?
– can I find a space to locate my business and what will it cost?
– if I need help, can I find it and what will it cost?
– if I am bringing a family, can we find daycare or what is the school situation like?

Those are questions I add to their list. Yet every area will have a set of unique issues that owners need to be aware of and take into account when planning. Many of these issues can be found with research – the Internet is a great tool for this. It may be development plans or zoning issues that may impact a community or a major employer who is growing or downsizing or new competitors who have announced their intentions. In a rural ag-dependent community, it may be commodity prices or what the weather has been.

The bottom line for the aspiring business owner is to do your research and then dig a little deeper. Consider what questions “you should have asked.” One place to get that information is with talking to other business owners.