Finance4U

Protective Guardrails Start-Up Founders Need to Protect Their Business — But Often Overlook


Opinions expressed by Entrepreneur contributors are their own.

Antitrust can be defined as “a kind of law or rule that protects fairness and competition in business.” On a company basis, issues concerning antitrust are often brought to the forefront during one-off events, such as a merger, acquisition or public offering. However, violations can also occur over a period of time as a pattern of ongoing behavior.

To an early-stage start-up, the subject of antitrust may seem like a far-off topic. The notion of preparing for a legal acquisition or not unfairly infringing upon your competition can appear to be ages away, especially as immediate issues like fundraising, market launch and cash burn take precedence. Survival-related endeavors are naturally prioritized.

Yet, the reality is that ignoring antitrust efforts at the start can prove detrimental to growth companies down the road when the stakes are much bigger. And in fact, overlooked antitrust issues often reveal critical gaps in the business plan itself. Future violations have been rooted in decisions that were made (or not made) early on and continued over a period of time. When they do come to the forefront, their preventable consequences can exponentially limit a company’s ultimate success.

Related: The Legal Lowdown of Starting a New Business: A Startup Lawyer Explains

While early-stage companies remain capacity-challenged, there are critical and manageable practices that can be undertaken in order to reduce the potential for catastrophic violations down the road. There are four key actions that early-stage founders need to take to address antitrust that both help refine a company’s goals and vision while also establishing often overlooked guardrails that protect the business long-term. To illustrate more directly, let’s use a case study of an entrepreneur who has built a company that creates and sells “self-cooking hotdogs”:

Imagine an entrepreneur invented a hot dog that perfectly cooked itself at the precise time the customer wants to eat it. No grill or cooking equipment is required; rather, just one push of the button and three minutes later, it is perfectly cooked. Here are the steps this entrepreneur should consider regarding antitrust:

1. Determine your core competitive advantage

This is something that your company can do that very few (or no one else) can easily replicate. For the hot dog entrepreneur, this would be the technology associated with the self-cooking capability, for which the entrepreneur should consider applying for intellectual property (e.g., a patent) before it is in market. Any attempt by an existing hot dog maker to replicate this technology would either prove difficult or could cannibalize their existing “regular hot dog” sales.

2. Highlight how your competitive advantage helps customers

In antitrust, competitive advantages that result in consumer benefits (e.g., price, convenience, quality) are favored and encouraged by the law. On the other hand, competitive advantages that give a business a leg up over competitors but either do not help or harm consumers are where problems can arise. For our hot dog entrepreneur, the core innovation saves consumers’ time, money (on power), and potentially the embarrassment of not knowing how to cook a hot dog. Clearly and consistently articulating these benefits across all aspects of branding can help the entrepreneur on both business/marketing and antitrust fronts.

3. Execute a plan to overcome the market leader

One of the most common pitfalls for startups is that the current leader in their respective space has a reputational or other sustainable advantage that it has built up over time that prevents the entrepreneur from gaining significant traction. For example, customers may be prone to the “if it isn’t broken, don’t fix it” analogy. For our innovative hot dog, a primary constraint may be that the cooking process itself provides enjoyment for customers, or there is a natural skepticism to buying a new product to eat from a company that no one has heard of before. To overcome these barriers, the hot dog entrepreneur may need to do a “blind taste test” campaign or perhaps partner with another company that is known to offer products used for BBQing. Over time, once the new product gains more mainstream acceptance, it will be easier to gain market share (and perhaps funding) at a rapid pace.

Related: 8 Legal Requirements When You Start A Business

4. Determine the social benefit associated with success

As a larger proportion of the consuming public is associated with younger generations, a common success tactic has been to convey that your company is not just out to make a buck but rather to improve a global societal issue. The hot dog entrepreneur may focus on the fact that its innovation will reduce expensive and/or harmful forms of heating energy. Or food products can be donated to needy populations who do not have access to heating mechanisms.

A focus on antitrust advances all of these efforts, and when successfully implemented, they provide natural and compelling defenses to future issues. Addressing them early on not only guards against future risk, but also better defines a company’s competitive advantage today, thereby positioning it more strongly for both short-term and long-term success. While guised as a risk-averted practice, addressing antitrust can actually prove to be a key determinant to paving the roadmap for successful and lasting company growth.

Share This :

Follow Us

Podcast

Subscribe Our Newsletter