Fusenet’s ‘Dragon’s Den’

Fusenet Inc.’s Google-like work model allows employees to spend 20 per cent of their work week on personal projects and takes it one step further by also offering them a 50 per cent cut of the new business ideas they develop.

“It’s kind of like Google’s 20 per cent off time, except our intent here isn’t just to cultivate ideas. It’s to cultivate entrepreneurs,” said Sanjay Singhal, CEO of Oakville, Ont.-based Fusenet. The company employs 50 people in Canada and another 12 internationally.

Every Friday, the Pet Project Program (P3) goes into effect. “If you’ve been approved into the program, on Friday, we don’t expect to see you at your desk. You’ll be in our lab or you’ll be collaborating with other people,” said Singhal.

The P3 model is codified into employee agreements and the intellectual property developed during this time does not belong to Fusenet, he said.

If an employee spends three months working every Friday to develop a new technology for better video compression, for example, and then presents it to the company, the idea still belongs to the employee, said Singhal.

Fusenet will ask the employee how much they want to sell the idea for or whether they want to start a company that will sell or license the product, he said. “We’ll help you market that and say, ‘We’ll take 50 per cent of the equity, you take the other 50 per cent,’” he said.

“We will help you with money, we will give you all the resources you need – marketing, customer service, R&D – but you get to keep a significant chunk of the equity in the business as opposed to having just the pride of being able to say you started it,” he said.

The policy applies to all employees, but it’s the software developers who are most likely to come up with the ideas, said Singhal. “We thought this was an interesting model … 99 per cent of the companies out there will take the software,” he said.

Fusenet has experienced one major success, one emerging success and two failures as a result of the model, said Singhal. Another five projects are currently in the R&D stage, he said.

Singhal hopes to see Fusenet evolve into an entrepreneurial venture filled with entrepreneurs. “In a normal environment, those people would just spiral out and create an ecosystem of companies around one big company,” he said.

He pointed to Ontario’s Waterloo region, home to several spin-off companies and former Research in Motion Inc. employees, as an example. “What we want is all of that to stay within Fusenet … we want to be like the City of Waterloo,” he said.

Peter Wells, a lawyer specializing in civil litigation and intellectual property law at Lang Michener LLP in Toronto, said the model is “an interesting idea.”

Some universities in Ontario have collective agreements with their research staff that gives entire ownership of their ideas to the employees, he said. “What I’ve observed is that not very much happens with their ideas because they can’t afford the cost of trying to commercialize it,” he said.

Fusenet is basically rewarding the employee for having a good idea and is prepared to provide the capital and take the business risk involved in trying to move it into a commercial product, said Wells. “There are lots of reasons why this is a good idea,” he said.

Generally speaking, companies are looking to solve a particular problem or identify a need for a specific group of customers, he said. “They are anxious to get something saleable in the shortest amount of time possible and once there is a commercial product, it’s on to the next,” he said.

“This sometimes means that you don’t always get the best solution. You get, in effect, the best solution that you can come up with in the amount of time you can afford to spend,” said Wells.

But Fusenet’s model offers a way to free up people to let their minds wander, he said. “The employee would be free to explore [an idea] and the company could end up developing a product in this way that totally changes some aspect of the industry,” he said.

And even if the employee gives up 50 per cent ownership, “giving up that 50 per cent to see it become a reality beats owning 100 per cent of nothing, which is kind of the alternative,” he said.

The only legal caution for companies considering a similar model, according to Wells, is that they document it clearly. “You need to have somebody who really knows their way around this stuff to draft the agreement, because if you are not careful about how you lay out the terms, you might create an ambiguity,” he said.

Company agreements usually discuss salary and who the employee reports to, but they rarely mention intellectual property, he said. “You then end up with somebody doing work at the company and they have a great idea and then there is a great kafuffle over who owns it,” he said.

According to common law, “if the person is employed specifically for the purpose of doing research or if they are assigned the task of solving a particular problem that faces the company, in general terms, whatever results from their ideas belongs to the company,” said Wells. 

But there are cases where employees who are not employed for the purpose of coming up with ideas end up coming up with them, he pointed out.

“It’s never going to be a problem when the product is a failure, but if somebody hits a home run … there are going to be instances where if there is a lack of clarity in the agreement, suddenly the employee is going to decide that it’s all theirs and the company can go get stuffed,” he said.

Jennifer Perrier-Knox, senior research analyst at Info-Tech Research Group Ltd., said the P3 model is a win-win for employees and the business. “You hear a lot about people having things on the side that they do and that they are not willing to share because it can be taken away from them,” she said.

One day, the employee may decide they want to pursue their side project, so they quit the company and start their own business, said Perrier-Knox. “What Fusenet is able to do is actually retain that talent and grow that in a way that they can benefit from that as well,” she said.

While some organizations are experimenting with innovation-driven models that allow employees to spend 10 to 20 per cent of their week doing whatever they want to do, Fusenet’s approach is very unique, said Perrier-Knox. They are actually taking on “the ‘Lion’s [Dragon’s] Den’ approach,” she said.

Companies that adopt a similar model may see a lot more employees willing to share their ideas, she said. “I think by offering that equity in their own idea, they would get a lot more people coming out of the woodwork,” she said.

Perrier-Knox said the model would work in companies with mandates that are very innovation-focused and want to capitalize on the seed ideas their employees have while providing support for “budding entrepreneurs” at the same.  

A model that provides a degree of flexibility and creativity can also be a very good morale and attention booster for employees, said Jennifer Combe, director of technical services for staffing firm Robert Half International in Vancouver.

As companies start to come out of the recession, “anything that can boost morale and retention is really great to tap into right now,” she said. “The last 18 to 24 months has been really hard and there are a lot of people that need to feel better about their jobs and there are a lot of companies that need to hang onto top talent.”  

Companies are also going to be fighting for top talent, especially in the IT field, said Combe. “Allowing such flexibility, creativity and entrepreneurial-focus might just be that one key differentiator that convinces that star you are trying to head hunt to come and work for you,” she said.

Fusenet’s P3 model was formalized last year, but the strategy has been with the company since it was founded in 2007, said Singhal. 

Follow me on Twitter @jenniferkavur. 

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