Plan for your R&D Tax.

There is a life cycle for any product, and it is much shorter on average today than five years ago, especially in the technology world.

Companies that are successful with their first product must begin thinking about the costs of additional products or of that product’s replacement well before any evidence of a peak in sales is noticed.


There are rules of thumb for various industries in creating a reserve for research and development.  To attempt to find an average number, companies should “tax” themselves by reserving some percentage – say ten percent of their net revenues – for research and new product development.

It is a certainty that even with patent protection, a successful product will be challenged, duplicated, even exceeded by competitors, and within increasingly shortened time periods.  It is a difficult concept, but a necessity of the modern age, to plan to obsolete your own successful products before someone else does that for you.

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One Response to Plan for your R&D Tax.

  1. Garrett L. Kellogg says:

    Over the past decade, I have developed numerous intellectual properties which, I believed were protected by patent, property, and international law. All of my intellectual property has been duplicated in China where duplicated aerospace components have been developed and now are being sold to Boeing, AirBus, and numerous others. Some of the environment we are facing is due to competition, however, much has to do with our political system that has allowed by treaty,a free exchange of technology with China.

    We all used to be comfortable knowing the patent system would protect our IP as well as international law, now we see a peril in keeping our R and D developments secure. The world we operate in does not guarantee protections-especailly when technology/electronics are produced in other parts of the world.
    Dave has hit it the nail on the head, CEO’s have to keep looking to develop and upgrade thier products. This is not just a passing comment, it is a vital practice. We must manage and operate in a world of change.
    I was slow to understand how IP protections are not effective, I lost a lot of licensing money over the past two years due to the conversion of my designs by foreign companies. The sad part is that US companies,tier 1 aerospace companies, back many of these foreign companies that convert property. The only remedy is to file suit and as we have seen in the press, the Samsung v Apple litigation has not restored patent rights or right to loyalties to Apple. The only answer is to keep your IP close and continue to innovate. Dave is absolutely right about this.

    Garrett L. Kellogg
    Principal
    Orion Pacific Capital Group, LLC
    Denver, Colorado

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