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.

Filed Under: competition, innovation


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  1. identicon
    Rekrul, 21 Jan 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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