Making Do Without Credit — A Strategy for Business Growth

As part of my participation in the law firm of Gallagher, Callahan & Gartrell, I often contribute to its monthly newsletter and other firm publications. This post provides the introduction to my most recent article. Given the current credit, I thought this article might be of general interest.

Making Do Without Credit — A Strategy for Business Growth

A guide to growing your business using credit alternatives including joint venture agreements, revenue sharing, and installment contracts

October 2008 will be remembered for years to come as the U.S. economic crisis redefines the commercial landscape. While many companies are facing pressure directly from their financial woes, many more are struggling to deal with the broader challenge presented to the credit markets. Potential home buyers with reasonably good credit are struggling to find mortgages, offsetting the opportunity created by falling real estate prices. Retail automobile sales have dropped to all-time lows as consumers await more fuel efficient vehicles and struggle to find credit.

For entrepreneurs and small business owners who provide non-luxury goods and services, the combination of tight credit and economic anxiety have made doing business as normal a thing of the past. In the absence of affordable credit, however, companies which provide counter-cyclical products should ride out the economic storm if they plan ahead.

The alternative to a fluid credit market harkens back to a commercial barter system. A good barter economy allows those who have excess products to trade those products with other producers that have excesses of other products. In the same way, for businesses struggling to grow, coordination of excess productivity may create new opportunities.

Alternatives to Credit: Joint Venture Agreements, Profit Participation Agreements, and Installment Contracts

Through joint venture agreements, profit participation agreements or installment contracts, companies can pull together to reduce part of their cash-flow burden and reduce the impact of poor credit markets.

Read the rest of the article

In Defense of Authors - A reply to Professor Lessig

In the October 11, 2008 Wall Street Journal, Professor Lessig wrote an essay continuing his attack on copyright. Professor Lessig criticizes copyright and yet copyright also supports open source software, jam-band music, fan fiction and a host of economic models in which artists encourage others to share in the collaborative process. His real complaint is that copyright does not compel such a result. His frustration is with media giants struggling to find appropriate policies to balance their economic interests with the good faith they owe to their audience. But as his article admits, the law already provides the necessary remedy in many cases.

A few years ago I taught about copyright at my son's elementary school class. After having all the students draw a picture or write a poem for one minute, the cards were sent around the room and other students were encouraged to "add" to the cards. While most had fun marking up their classmates cards, some were visibly upset that their work had been changed without permission. These children instantly understood the purpose of copyright.

The purpose of copyright is to encourage and support authors and artists -- providing them the economic return to make a livelihood. Academics like Professor Lessig (and myself) have the luxury to have university patrons to pay our salaries and allow us the ability to write without compensation. Most musicians, poets, playwrights, authors, painters, and filmmakers have no such support.

Without copyright we would return to an era of professional works funded only by patrons. How much more power would the media giants have under such a regime than they have now?

iTunes is the beneficiary of the litigation against Napster and Grokster. Legitimate business models will transform the business strategy but only if we continue to hold true to our constitutional tradition of promoting our artists and authors.

Needless to say, I could go on regarding this subject at greater length, which I have done in my legal writing, but the heart of my disagreement with Professor Lessig is not the need for a robust fair use or the importance of participatory copyright, but his instance that the law must demand all authors and artists submit their works to his sense of their property rights regime.

I allow unlimited copying of my academic work and substantial copying of my commercial books. But I should not demand all other authors do the same. I now how difficult it is for an independent filmmaker to raise the funds to make a movie; how arduous a task to find distribution; and how long the road to financial response. Let these people give away their works if they so choose, but do not suggest they have no rights to their labor.

The only thing worse than copyright -- is the unimaginative world we'd have without it.

China Journey - In Preparation (1)

Later this month, I am taking my family on an extended trip to China. I will be lecturing at universities, researching for my next articles on intellectual property development and trying to learn first hand about some of the most important influences coming to shape 21st Century economics and politics.

As I prepare for the trip, I recently came across a new study by the Boston Consulting Group based upon its analytical model, the Five Fazes of Intellectual Property., BCG has created an excellent summary publicly avaliable on China. (Because the report is so interesting, I'm printing the entire url: http://www.bcg.com/impact_expertise/publications/files/Beyond_Great_Wall_Jan2007.pdf)

I learned of the article from the monthly newsletter from the WIPO small enterprise division. WIPO provides a tremendous resource for entrepreneurs around the world, including the U.S.

The Five Phases identified by BCG include
1. Driving Growth through Exports
2. Climbing the Value Ladder
3. Paying the Price (Corporate producers become targets because their weak IP protection allows for take over of their business)
4. Getting Serious About Intellectual Property
5. Profitting from Intellectual Property

These five phases identified by BCG explain both the pressures that remain on China's growth and the optimal strategies to overcome those challenges. Not surprisingly, the overarching recommendation is to have the intellectual property protections begin to catch up to the trade. The model fits well for the experience of Japan and South Korea, so there is much to be said for it.

The model may not entirely take the role of a protectionist government into account. Patent protection provides a company strong protection for exclusive control of its products. Within China -- a tremendous market -- government regulation and tradition may play a significant role in providing this exclusivity as well. Outside the country, of course, only internationally recognized intellectual property can provide such tools.

Much has been written about China. I will be sharing the best of what I find and add a little from what I learn. If you have suggestions, please share them with me at jgaron@hamline.edu.