After Failed Lawsuit Against 'Copying Competitor' CEO Admits That The Competition Made Her Company Better

from the well,-duh dept

We've pointed out for years that, contrary to popular opinion, repeated studies have shown that things like intellectual property rarely drive innovation. Instead, the biggest drivers of innovation are things like need and competition. Competition is a big one, and intellectual property works against competition by limiting the competition, and thus potentially slowing down the pace of innovation. Of course, this message is often difficult for people to realize. DV Henkel-Wallace points us to a fascinating story by the CEO of an accounting software company, who had a falling out with her VP of sales, who immediately set up a nearly identical accounting software company. The reaction by the CEO was to take the typical "intellectual property mindset" approach, which meant hiring lawyers and suing. The whole legal situation turned out to be a mess:
I initially thought that litigation would be the most effective approach. We spent quite a bit of money building a lawsuit against her and finally initiated an intellectual property action against her.

[...]

We battled it out with lawyers for months and spent tens of thousands on legal fees, but neither of the lawsuits was resolved in the end. We learned that intellectual property suits are difficult to prove and our attorney said that ultimately our legal expenses could come to seven figures, with only a 50 percent chance that a court would rule in our favor. So we dropped the suit and went to mediation, but that didn't come to a satisfactory resolution either.
So after all that wasted time and money, she finally realized that she could just try to compete in the market place, and beat her former VP by out-innovating that competitor. And it worked:
Once I realized we were wasting valuable time, resources and money in court, I decided to focus all of that energy on outdoing our competitor instead. We vowed to differentiate ourselves by focusing closely on our clients' needs. Innovation became very important. When we started out we only offered a single software option. Now we have six tailor-made modules to meet the varying needs of companies of different sizes and industries. We might not have worked so hard to build out new tools if we hadn't had a competitor biting at our heels.

[...]

More than six years later, we still compete with her product, but we've enjoyed terrific success in that arena. As devastating an experience as this was at the time, it made BlackLine stronger in the end. We're on track for more than $10 million in revenue in 2010 and are growing steadily. Even better, our current clients are happy with our software, and they're spreading the word: We added 33 new clients just last quarter. We're confident that our client-focused approach has made us the leader in our field. Above all else, I've learned that itís best to take the high road and commit all time and resources to being the best and -- not worrying about what other companies are doing.

Though my sales VPís actions were devastating to me personally and to the company, she helped us in the long-run.
No matter how many times we make this point, people still go through the natural reaction to freak out about others copying them. And it is a natural, instinctive reaction. I can totally understand that. However, when you think through logically, the best strategy is rarely to focus on things like patents or copyright, but focus on simply out-innovating the competitor. If all they really did was copy your product, they probably don't understand it or your customers nearly as thoroughly as you do. Take advantage of that and become a leader in the market by innovating, rather than holding back innovation.


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  1.  
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    fogbugzd (profile), Jan 21st, 2011 @ 6:55pm

    IE

    I think Internet Explorer is a classic example of the need for competition. IE improved steadily when Netscape was still around. Once Netscape was vanquished there was no effective competition, and IE stagnated. IE didn't really start growing again until Firefox came along. Suddenly IE got tabbed browsing, spell checking, and a lot of the other features that were attracting people to the competition.

     

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  2.  
    identicon
    Anonymous Coward, Jan 21st, 2011 @ 7:12pm

    It might be easier to comprehend if you look at businesses that don't have IP issues, like maybe building maintenance services, where the work is fairly straightforward, same for all really, so how do they differentiate?

    Service, product, and price. To a customer there really isn't much more than that. It has ever been thus.

    We can all understand the innate need to protect what we have, what we've done or made, but to focus on just protecting is looking backward, not forward.

    Customers don't care about your protectionist problem (unless you make it their problem too, never recommended), and they aren't going to hang around while you figure it out.

     

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  3.  
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    Anonymous Coward, Jan 21st, 2011 @ 8:01pm

    I take issue with the idea that it is a natural, instinctive reaction. It is a conditioned reaction to the natural stimulus of encountering competition for scarce resources. Why makes 100% mimicry special? What makes 95% mimicry special? What makes 0% mimicry special? When someone begins to compete with you, whether they use your approach or not, you freak out. The notion that you have been handed some strategic weapon because of whatever % of mimicry happens to be going on, or that you have some exclusive right to the approach youve chosen, is purely a matter of environmental training.

    Please don't conflate freaking-out with the entire socially structured junk monolith of intellectual property--because it is from there that the sense of entitlement to ideas--approaches--unique implementations--comes from.

     

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  4.  
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    Anonymous Coward, Jan 21st, 2011 @ 8:28pm

    Re:

    You are looking at this wrong.

    Human nature is to protect their own means of survival at all costs, that is why you always, always will find that people oppose anything that is perceived or otherwise a threat to their survival is an animal instinct and we are just like animals in that regard, there is no arguments to be made, those people won't let go without a fight and that is fine, copytards will loose in the end because the number of people who don't agree is just to great to ignore, their survival is not in the interest of the rest of the group.

     

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  5.  
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    Anonymous Coward, Jan 21st, 2011 @ 8:56pm

    Rarely a good idea, but then again there are certain industries (the defense industry, for example) where this may be a valid option, but certainly not the only one.

    Admittedly, the defense industry is highly unique.

     

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  6.  
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    Rekrul, Jan 21st, 2011 @ 9:44pm

    We've pointed out for years that, contrary to popular opinion, repeated studies have shown that things like intellectual property rarely drive innovation. Instead, the biggest drivers of innovation are things like need and competition. Competition is a big one, and intellectual property works against competition by limiting the competition, and thus potentially slowing down the pace of innovation. Of course, this message is often difficult for people to realize.

    It's not difficult at all to understand. What you fail to realize is that, with some exceptions, most businesses don't want to innovate. Innovation takes time and costs money, so they don't want to compete if they can avoid it. As long as their customers aren't unhappy and they're making a profit, that's all they care about.

    Just look at how the various cable TV companies cut deals to be the exclusive suppliers of cable TV in their areas. Look at how Microsoft worked out deals to get Windows installed on virtually every new Intel based computer sold for the last 10-15 years.

    With some exceptions, companies only innovate when they're forced to do so. Either by competition or by the need to continuously keep turning out new versions to sell to existing customers. If a company thinks it can use legal action to wipe out a competitor and leave itself as the sole supplier of a particular item or service in any given market, 90% of the time, they'll try.

     

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  7.  
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    bozozozo, Jan 22nd, 2011 @ 4:34am

    Re: good point

    you are so right

    there is little incentive to innovate in the absence of competition: it's just an added cost, and not only that, the innovation is often difficult to sell. the emergence (or discovery) of new markets also helps innovation: in the example above, it's catering to other sized companies.

    Christiansen's book, the innovator's dilemma, makes that point. IBM's engineers developed smaller disk drives: IBM went to their customers and said, we have a new dd form factor, what do you think, and their customers said, no, thanks, we want more storage on the form factor we have now. it was the emergence of the minicomputer market (for 8 inch drives) and the PC market (for 5.25 inch drives) and laptops (for 3.5 inch drives) that fueled those innovations, and the succession of companies that made them.

     

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  8.  
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    staff, Jan 22nd, 2011 @ 8:14am

    duel

    Not all competition is fair. When the courts permit a larger competitor to use an invention without the inventor's permission, it's like having a duel where your challenger has your gun and all the bullets. Think again...or just think!

     

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  9.  
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    Michael Kay, Jan 22nd, 2011 @ 8:16am

    Absolutely right

    You're spot on. I built my business by playing leap-frog with my competitors; we all took each others' ideas and improved on them; we all benefited as a result, and the customers benefited most of all. I've tried to make this point in my response to the UK government's consultation on a proposal to offer tax incentives to companies that take out patents - the stupidest idea I have seen for a long time (though I was more polite in my response).

     

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  10.  
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    Anonymous Coward, Jan 22nd, 2011 @ 10:09am

    Actually, this story really isn't about product, it is about service. In the accounting world, it isn't just a software product that makes a difference, it is also the people, the service, the support, and so on.

    10 companies can all have the same product, and they will be different by service. It is, in the end, not entirely dependent on the product. Merely replicating the product doesn't make things work out.

    All that really happened here is the owner woke up and realizes they weren't a software company, but rather a service company. That makes all the difference in the world.

    It is also important to note that 33 new customers is a huge advance for this very narrow niche company. Their experience wouldn't apply to more commodity software companies, where the product is most (if not all) of the transaction, rather than support, service, and customization.

    A nice story, but nothing to wave the freetard flag over.

     

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  11.  
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    Hephaestus (profile), Jan 22nd, 2011 @ 10:25am

    Re: Re:

    "You are looking at this wrong."

    Actually he isn't. If you expend a ton of money fighting competition, thats just that much money you haven't used to become more competative in your choosen market. Its a recipe for disaster, because things change, and if you fail to adapt, you end up on the business darwin award list.

     

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  12.  
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    The Groove Tiger (profile), Jan 22nd, 2011 @ 7:16pm

    Re: duel

    It's more like, you have a gun, and your competitor doesn't. Then you both have a gun. Then you can't just win by default, you actually have to learn how to shoot.

     

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  13.  
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    Marcus Carab (profile), Jan 23rd, 2011 @ 10:20am

    Re:

    Haha wow you totally missed the mark. What you just said is exactly the point.

    One of the number one things TD suggests to musicians, software companies and any other creators in IP industries is that they should focus on the scarce aspects of what they do. Service is one of those. By beating the competition at the things they can't trivially copy, you make it unimportant if they do just copy other things. It's the same principle as musicians touring and selling merchandise.

    All that really happened here is the owner woke up and realizes they weren't a software company, but rather a service company. That makes all the difference in the world.

    Heh, you sound exactly like Mike there! Awesome, I guess you're coming around!

     

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  14.  
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    nasch (profile), Jan 24th, 2011 @ 9:56am

    Devastating?

    Though my sales VPís actions were devastating to me personally and to the company, she helped us in the long-run.

    It's odd that after all that, she still claims it was devastating to her company. How can it be both devastating and helpful? It sounds like she hasn't totally gotten over the emotional issues.

     

    reply to this | link to this | view in thread ]


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