4:33

It's a good thing we don't get all the government we pay for

Summary: 

We’ll plow close to 20% of winnings back into franchise operations with the intent of making R&D investments more successful. We do this without meddling into the affairs of the investment.

Be thankful we’re not getting all the government we’re paying for. Will Rogers

The middleman stands between the buyer and the seller. If a product to be purchased is complex, buyers may opt out due to their uncertainty. The middleman allows a purchase to happen by dint of their reputation with both parties to the transaction. Both the buyer and the seller respect the middleman’s experience in these complex transactions. As is often the case even in consumer goods, the middleman demands changes be made to a product to better satisfy the needs of the buyer (and in situations of scarcity, can make similar demands upon the buyer). These demands are often met.

It’s no different in Franchise Capital Management+. The funding agent+, in the role of middleman, makes demands upon the owners of intellectual property+ (the seller) as a condition for consummating the investment. In this case funding agent demands are intangible. With unpredictable R&D+ there are no physical design specifications to be changed. Instead we demand changes to make the investment more likely to succeed: we expect the seller to show an approach to research and to the market that will be effective.

This is not meddling (at least as commonly understood). But we do intend to turn academic research (which by-the-way is not confined to academicians) into commercial research. We instill effectiveness into research as defined by increasing the likelihood of the research to achieve blockbuster+ commercial success, and we spend lots of money to make this happen. Today’s venture fund receives 2% in management fees; we’ll receive 22% in franchise fees. How we effectively spend this money without meddling is the crux of franchise management.

The owners of intellectual property continue to hold reins over many key decisions:

  • The burn rate+ for operational funds
  • The commercial direction of the research
  • The timing for commercial success
  • Allocation of spend to maintain a scientific competitive edge+

There is nothing mechanical in the way we expect owners of intellectual property to prosecute their business; in fact we demand owners come up with unique approaches, subject to approval by representatives of the funding agent.

The funding agent holds reins on measuring the effectiveness with which owners of intellectual property prosecute their business. The 22% is spent on education, resources, and incentives so research teams have every means available to them to be effective. Teams will have no excuses. The funding agent rates the commitment of research teams to the practice of effectiveness, and uses this rating as the basis for its demands.

Listed are illustrative funding agent services provided using the 22% spend (see here for more):

  • Watchdog+ / Independent Evaluation+
  • Watchdog / Formal Decision Mechanisms (e.g., Trial by Jury+, arbitration panels)
  • Education & Training (e.g., McU+)
  • Access to Technical, Business, Legal, Regulatory and Commercial Expertise
  • Investment Team Confabs and Public Forums
  • Shared Services (e.g., high-cost equipment, vendor – buyer agreements)
  • Legal protections (e.g., Intellectual Property Repository+)
  • Organizational Behavior Management+

With the exception of Watchdog services, research team usage of these services is optional.1 The funding agent commits to making these services effective. This is measured in the increased effectiveness of teams leveraging these services. Opting out of participation could be hazardous to a research team’s effectiveness vis-à-vis their counterparts.

Funding agent services are paid out of a ‘tax’ on windfalls+. The windfall happens due to the effectiveness of franchise operations+, and the tax is in recognition of its contribution. You have evidence the tax was productively employed before it gets paid. This is analogous to government services being offered and the taxpayer opting whether or not to take advantage of the services. Not all taxpayers need all services. But we set it up in a way where most taxpayers find a service helpful, otherwise we shut it down.

It's not meddling, but it's also not hands-off.


Editor's Picks for April, 2011

  • 1. Participation is optional; payment, in cash and contributed labor, is not.
Further Reading
Reba Tull
Offline
Joined: 03/30/2011
A 30% tax is too high

Owners of Intellectual Property+ are a proud lot who know what takes to get their research done. What makes you think they'll give you more money, essentially giving you the resources to meddle into their affairs when you later find your hands-off approach doesn't give you the results you expected? It all sounds so good up front when enthusiasm and expectations are high: it all falls so flat when reality sets in and the hard slough of commercial success comes to the fore. Conversely, how do we know the 30% won't be wasted purchasing real estate or services from relatives of the managing partners? I have a better idea: give us the 30% and let us figure out how to spend it making our research more effective.