Latest / The Founder's Journey with Fexingo: First-Time Entrepreneurs, Failures, and Lessons Learned / How a Founder Used a Rejected Patent to Build a 40M Business
Transcript
- Lucas: So Sarah Kline filed a patent in 2019 for a modular office partition system. Think of those fabric-walled cubicle dividers but sleek, lightweight, and designed for the open-plan era. Luna: Right, the thing every coworking space says they want but never actually buys. Lucas: Exactly. The patent examiner came back with a rejection on the grounds of obviousness. Basically said the prior art was too close. And Sarah — first-time founder, no legal team — had a choice: fight it, or let it go. Luna: And she let it go. But the interesting part is what she did next. Lucas: She didn't abandon the idea. She abandoned the patent path. But the core insight — a modular, tool-free assembly system — she kept that. And she started thinking about where that insight actually had value. Luna: Which is such a good lesson. The rejection forced her to separate the technology from the market. Most founders get attached to both. Lucas: Right. She started calling around to DTC brands — direct to consumer companies that were popping up at trade shows, pop-ups, retail events. And she realized they had a huge problem: their displays were custom-built, expensive, and took weeks to install. Luna: And her modular system could be assembled in minutes, no tools, and flat-packed for shipping. That's a different value proposition than office partitions. Lucas: Totally different. So she pivoted. She founded ModuWall — not as a manufacturing company but as a design and license firm. She licensed the design to three display manufacturers and took a royalty on every unit. Luna: Wait — she never built her own factory? Lucas: Never. She raised zero dollars for manufacturing. She bootstrapped by licensing. By mid 2020, she had a contract with a big DTC skincare brand that needed a pop-up in 12 malls. ModuWall delivered 120 units in three weeks. Luna: And that was the proof of concept. Once one brand used it, others saw it and wanted the same thing. Lucas: Exactly. The network effect of physical retail. By the end of 2021, she had 18 licensees and was doing about 12 million in revenue — all royalty-based. By last year, 2025, the company hit 40 million. Luna: And she never got that patent. The rejection actually saved her from wasting time and legal fees on a dead end. Lucas: It's a great example of what I think of as 'strategic abandonment.' Knowing when the path you're on doesn't lead to the mountain you want to climb. Luna: And being willing to walk back down to the trailhead. Lucas: Now, the interesting wrinkle here: ModuWall's intellectual property is actually stronger without the patent. Because the designs are protected as trade secrets — the assembly mechanism, the material specifications. And since she never published a patent application, nobody knows exactly how it works. Luna: So the rejection gave her a better IP strategy. That is counterintuitive. Lucas: It is. Most founders think patent equals moat. But for a physical product in a fast-moving market like retail displays, trade secrets can be more durable. Patents expire after 20 years; trade secrets last as long as you keep them secret. Luna: And you don't have to disclose anything to the public. That's the flip side. Lucas: Right. Plus, enforcement is easier. If someone reverse-engineers your product, you can sue for trade secret misappropriation, which has stronger damages than patent infringement in some jurisdictions. Luna: So the patent rejection was essentially a lucky break. But it didn't feel like one at the time. Lucas: No, she told me she cried in the bathroom of her co-working space after reading the rejection letter. She thought her entire business idea was dead. Luna: And instead, it forced her to find the actual market fit. That's the part I love — the rejection didn't just change her strategy, it changed her understanding of what she was building. Lucas: Yeah. She went from 'I'm building a better office partition' to 'I'm building a rapid-deployment physical retail infrastructure for emerging brands.' That's a much bigger market. Luna: You know, listening to this, it reminds me of something. If these conversations have moved your work forward in some small way — maybe you're thinking about a pivot, or you're in the middle of a rejection yourself — I just want to say that this show exists because of listeners like you. Lucas: And if today's episode was worth a coffee to you, you can find the link at buy me a coffee dot com slash fexingo. It's the smallest possible ask for the thing that keeps this ad-free and independent. Luna: Even a dollar helps. No pressure, no guilt. Just if it felt worth it. Lucas: Alright. Back to Sarah. So after the pivot, she faced a new challenge: quality control across multiple licensees. Luna: Because she didn't control the manufacturing directly. If one licensee produced shoddy units, it hurt her brand. Lucas: Exactly. She solved it by creating a certification program. Any manufacturer who wanted to license the design had to pass an audit, produce 50 test units, and submit them for destructive testing. Luna: Destructive testing meaning they deliberately break them? Lucas: Yeah. They test load limits, joint durability, material fatigue. If a unit fails any test, the entire batch is rejected and the manufacturer has to fix the process. Sarah's team keeps the certification data confidential, so manufacturers can't easily copy each other's methods. Luna: That's a clever way to maintain quality without owning factories. It also creates switching costs — once a manufacturer is certified, they don't want to lose that status. Lucas: Right. And it gives her leverage. If one manufacturer starts slipping, she can shift volume to another licensee. She has five certified manufacturers now, and she rotates production based on performance. Luna: So the licensing model plus certification gives her a scalable system without capital expenditure. That's a good blueprint for any hardware founder. Lucas: I think the key takeaway is this: the patent rejection wasn't a failure of the idea. It was a signal that the idea needed to be applied differently. Sarah listened to that signal. Luna: And now she's sitting on a 40-million-dollar company built on a rejected patent. That's the kind of story that makes you think twice before giving up. Lucas: Absolutely. For me, it's a reminder that 'no' from one gatekeeper can be the best possible guidance you'll ever get — if you're willing to hear what it's actually saying. Luna: And then pivot like Sarah did.