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
    bozozozo, 22 Jan 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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