Creating a brand involves a lot of hard work - which pays off when you have people lining up to buy your business. Partner John Hackett explains how brand protection is vital when executing the perfect exit strategy.

It takes guts and effort to run a successful business centred around a much sought-after exclusive product or service. You have an idea, create a business plan involving that idea, set up a business which will be a vehicle to commercialise that idea, then work for a number of years building up equity and goodwill in that business.

We're all in business to make money, and determining the perfect exit strategy is difficult. It depends on a number of factors, and more importantly on that luxury that we have little control over: timing.

But, get it right, and we've all seen those great end-results:

  • Sam Morgan's sale of Trade Me to Fairfax Media.
  • Jan Cameron's sale of Kathmandu to private equity interests.
  • The Marris's sale of Wither Hills to Lion Nathan.
  • Geoff Ross's sale of 42 Below to Bacardi.
  • Kim Crawford's sale of the Kim Crawford brand to Vincor of Canada.
  • The sale of the La Bonne Cuisine dips business to Heinz Wattie.
  • And, more recently, there has been the sale of the Trilogy brand of natural skincare to Ecoya.

There are many more examples, but you get the gist.

All of these companies had an exclusively successful branded product into which they poured a lot of effort, and no doubt heartache, and which resulted in something tangible, as well as intangible, that another company could simply not resist.

The vendors in each case deserved to reap the rewards of their efforts. However, to get to the point where they could sell to an interested party, meant they had to have a product that translated into value, exclusivity and quality. More importantly, they had to create a brand that could be converted into a legacy, meaning the brand could be continued under different ownership even when the original creators had exited.

We talk about value, exclusivity, quality, equity and goodwill – these words all come under the word, intangible: "something which cannot be precisely measured or assessed".

It is the creativity which gives immense value to an organisation's goodwill – in other words, its intellectual property. Intellectual property can cover a whole bunch of rights – the more commonly-known ones, of course, are trade marks, patents, registered designs and copyright.

In the above examples, the intellectual property has a lot to do with a strong brand name:

  • Trade Me for online trading.
  • Kathmandu for outdoor equipment and clothing.
  • Wither Hills for wine.
  • 42 Below for vodka.
  • La Bonne Cuisine for dips.
  • Kim Crawford for wine.
  • Trilogy for natural skincare.

All of these brand names were registered as trade marks, not just in New Zealand but in the export markets where the intended to sell their products.

Obtaining trade mark protection in a number of jurisdictions can require significant investment. Trade mark registration gives the brand owners exclusive rights to use their trade mark without concerns. They can also enforce the rights granted to them by registration to stop any unauthorised parties from using the same or similar names on the particular products or services for which the trade marks were registered.

Trade mark registration also means that when prospective purchasers carry out due diligence, they know they too could have exclusivity in those countries where the mark was registered. The certainty of being able to carry on business using the trade mark would be a significant factor in the price paid for the company and its assets (tangible and intangible).

The Moral of the Story

  1. Prepare yourself from the outset when you set up your business with your creative product that's going to take the world by storm. Don't laugh – these examples above are true and recent, and all involve New Zealanders with a dream, great vision, and a creative product that they sold for great value.
  2. Make sure you have registered your brand in all the countries of interest. Each time a new market is set up, register the brand in that country as well. Ensure you are fully protected and that you have an extensive intellectual property portfolio.
  3. Always be ready to sell out and realise the profit from your hard work. Keep your eyes open for that opportunity. Surround yourself with experienced business people and mentors. As an example, the owners of the Trilogy skincare brand have said they formed a 'dream team' advisory board comprising a former chief executive of one of their distributors and an accountant, to which they added a lawyer and a further accountant. There are plenty of experienced people out there who have already found their own exit strategy, and who have a lot of wisdom they can pass on in an advisory or mentoring capacity.
  4. There will be setbacks along the way. Hang in there – these will teach you a lot about yourself and your beliefs, and you will definitely come out the stronger (and hopefully financially better off ) for the experience.

An edited version of this article was published in NZ Business magazine, March 2011.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.