Post Brexit, venture capitalists are still pouring money into tech start-ups, creating fantastic opportunities for innovative businesses. Even with funding, however, turning innovative ideas into digital reality is challenging in a market dogged by the skills shortage. Rather than attempt to build the software developer skills in-house, turning to a third party developer can be a fast track to delivering the new product. But, warns Nick Thompson, Managing Director, DCSL Software, don’t forget to check who owns the Intellectual Property.
Roping in some help
The UK’s technology sector drew more investment than that of any other European country in 2016, according to data from London & Partners, with more than £6.7 billion ($9.5bn) invested into UK tech firms in 2016¹. But coming up with a great new concept for an app or software as a service is just the beginning; getting the product developed, tested and available to customers is often far more of a challenge than start-ups expect.
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One of the biggest problems is the sheer demand for a top notch IT development skills. The UK technology industry is suffering a well-documented skills gap – recruitment is tough and costs are escalating, especially in software development. Creating a good development team is a difficult and complex process – it can take years for an organisation to attain the correct blend of skills and expertise, a timeline that is simply not an option for startup companies with a quick go to the market deadline.
As a result, growing numbers of startups are turning to third-party developers to turn innovative ideas into commercial reality. And while this makes sense on many levels, there are a couple of major pitfalls that organisations need to avoid.
Setting the ground rules
Firstly, make sure the developer is not using its own proprietary tools to build the software. Unless the developer is using a standard set of Microsoft tools that can be picked up and used by any development team, the business risks being tied into that developer for the life of that product. While a proprietary product may offer a slightly quicker development time, the constraints on on-going product value and flexibility for the software owner vastly outweigh any time benefits gained.
Secondly, ensure the business actually is the software owner. It sounds obvious, but the vast majority of organisations approaching developers to realise specific product ideas never check Intellectual Property (IP) ownership. Failure to ensure that the IP is transferred by the company building the software at the end of the project could be devastating.
Without the IP, a company is effectively licensing its idea from the developer. And having built a commercial piece of software from the ground up that developer could take its asset straight to market, bypassing the company with the original idea. Surprisingly, many company owners are incredibly naïve about IP and never ask the developer any questions about ownership, but simply asking the question up front and ensuring full ownership of the completed software should be an essential part of any bespoke software development contract. It doesn’t get much worse than coming up with an idea, finding the backing and working with a bespoke software developer to bring that vision to life and then realising that the business does not own the IP.
What if it doesn’t go to plan?
Should the situation arise where a company doesn’t own its IP, costs can start to accumulate at an alarming rate. Often the debate around who owns the IP doesn’t really begin until a company wants to change their development company, so if it’s then discovered that the developer actually owns the IP, things can start to get tricky. Worst case scenario is that the customer could be faced with starting all over again, as that developer is able to legally retain the rights to what they have created, which can be a huge expense for the business. Alternatively, a brand could also be faced with the challenge of being held to ransom by the developer who may try to make them part of a large fee in return for the property. If companies decide to try and fight this, legal battles can also result in high costs, and often still leave the IP in the hands of the developer.
Aside from the monetary costs, there are also some key business risks associated with the loss of your IP. One major problem with not owning the IP is what the developer might choose to do with it. If they own the app then they are well within their rights to sell any features they may have designed to any business that asks for it. This means a company could spend a significant amount of money to develop a system that puts them ahead of the competition, only for a competitor to swoop in and buy the work to date for a fraction of the cost.
A quick recap of what businesses should do to prevent this from happening to them?
- Choose a reputable developer
- Make sure the software is developed in an industry standard way
- Be upfront about the need to own the IP and make sure it is written into the contract