231: Competitive Combativeness

The Startup Chat with Steli and Hiten

In today’s episode, Steli and Hiten talk about how industrial espionage, or corporate terrorism, is plaguing the industry in a big way. Competitors often resort to employing dirty tactics to extract valuable information, such as one’s product roadmap and/or funding. Steli and Hiten talk about the various steps that you can take to avoid falling prey to such tactics. At the same time, they caution organizations against focusing too much on this issue. If it draws your focus away from your customers and product, then it’s taking too much of your energy and time.

Time Stamped Show Notes:

• 00:05 – Today’s episode is about competitor’s resorting to industrial espionage and ways you can deal with this situation
• 00:42 – How can you avoid leaking information to your competitors?
• 01:40 – Steli used to think that it’s better to be laser-focused on your product and NOT on your competitors
  • 01:49 – Steli has realigned his thinking and now feels that understanding your competitors will give you better insight into your customers
• 02:30 – A competitor may pretend to be VP of innovation of a big company and call up a board member in order to extract information
  • 03:17 – They may attempt to extract information such as the product roadmap or what’s happening with your fundraising
  • 03:35 – A gullible board member could give out a ton of information
• 04:14 – Hiten says that people play dirty and extract confidential information that will stunt the growth of their competitors
• 04:43 – Hiten says that companies are often faced with a moral dilemma when competitors resort to dirty tactics
  • 05:03 – There is NO right answer
  • 05:08 – What you do depends on your beliefs regarding what you feel you need to do to stay in the market
• 05:28 – Executives using questionable tactics has become commonplace
• 05:48 – Steli talks about the dubious tactics used by Uber against Lyft
  • 06:09 – Where do you draw a line?
  • 06:14 – The legal line is not negotiable, but the ethical line is, unfortunately, quite negotiable
• 06:47 – Organizations tends to get flustered when a competitor is extracting information
• 07:00 – Steli questions whether competitors will get a huge edge if they manage to extract information via questionable means
• 07:34 – Avoid overreacting
• 07:55 – Some wise defense measures for companies looking to prevent theft of information
  • 08:07 – Mutual NDA signed before a demo call
  • 08:14 – Redirect people to a LinkedIn page to see who is viewing your profile
  • 08:37– People with the same demo and in the same city can join together to exchange strategies
• 10:16 – Are your competitors doing anything to extract information?
• 10:51 – What do you do to get some nice competition?
• 11:22 – How you behave in the marketplace is a demonstration of your values
• 12:27 – Hiten suggests updating customers if the competitor’s behavior goes overboard
  • 14:15 – Some factors to consider before going public with information about a client resorting to corporate espionage
  • 14:38 – Talking to the competitor’s investors would be another option
• 17:00 – “Play to win and not just play to play”
• 18:28 – Do not let your competitor’s tactics shift your focus from your product and your customers
• 20:05 – Steli’s parting advice is to always think carefully before reacting to a competitor’s strategy
• 21:04 – End of today’s episode

3 Key Points:

1. Beware, some people don’t mind playing dirty and will extract confidential information if they believe it will stunt your growth.
2. What you do to stay competitive in the market is a reflection of your beliefs and ethics.
3. Think through each reaction carefully before you respond to your competitor’s tactics.

Steli Efti:

Hey, everybody, this is Steli Efti.

Hiten Shah:

This is Hiten Shah. Today, on the Startup Chat, we’re going to talk about competitors. In this context, what we received is we received an email from a gentleman, and I’m sure Steli has it pulled up, and he was just asking about competitors and wanted us to do an episode on it. I don’t think we’ve ever really done a single episode on competitors, I’m guessing this might be one of a few that we end up doing. In this context, it’s really about competitors and how you avoid leaking information to them, would be how I describe it, but Steli, maybe you have more color on where you want to go with it.

Steli Efti:

Yeah. This gentleman, basically, this founder, he is in a highly competitive market, and basically was asking us for advice on how to deal with some of the strategies that their competitors are using to extract more information from them, and at the same time giving us a window into some of the strategies that they use to “fuck with their competitors” or to gain information from them. I think both, for you and I, it was surprising to what lengths these companies go to mess with each other. We’ve talked about in episode 24 about competitors in a very broad sense, and I think both of us … I tended to be much more on the side of don’t worry so much about them, just focus, laser-in on your customers, and we recently talked about this and you gave me a new perspective on it, which was, yes, your customers and their problems should always be your number one priorities but your competitors can be a way to understand your customers better. It can be a way for you to learn more and gain more insights into your customers. We talked a little bit about that in a recent episode, but this is going into a completely different direction. All right, so one of the problems he was describing, and then we can go through some of the things that he was encountering, we can just react to that. But as we mentioned before, lots and lots of competitors in the space that they’re in … A recent trick he was describing as one of the challenges they have, a recent trick that they’ve been hit with, is that people or the competitors would call in and basically tell them … Or, represent themselves as the VP of innovation of one of the big three US department stores, that they’re trying to get as a customer, and then they would be calling their board members. That’s [inaudible 00:02:52] as well. Usually, you just call the sales people, the sales departments to get some information, but in this case the competitor … Somebody would call, would represent themselves as the VP of innovation from one of the big companies that they would want to have as a customer and actually call a board member, telling them they’re trying to reach out to the leadership team and learn more about the company before they decide to make a purchasing decision and they would want just a 10, 15 minute call to get more information about the roadmap, the product roadmap, where the company is going, fund raising, all these kind of things. He was telling us that he would pick up on this as being a competitive strategy and bullshit, but one of the board members didn’t, and that person, that board member apparently gave them a ton of information that they weren’t happy about giving. Let’s just pause there because there’s lot more here, but that’s pretty aggressive. I’ve never heard anything like this before. I don’t know about you.

Hiten Shah:

I’ve heard all sorts of stories, this is pretty aggressive. I mean, faking that you’re somebody calling an investor or a board member, and then trying to learn more about the company … It just feels slimy in a lot of ways because there’s multiple lies there. Yeah, I’ve heard stuff like that and I’ve seen people do stuff like that. I think people get dirty, would be what comes to mind for me when they just think that there’s information they want to get on a competitor and really believe that that’s important to them. Then, people get dirty stopping competitors from growing in the market as well. On one hand, I’m like, “Oh, this is bad. You shouldn’t do that.” On the other hand, I’m like, ” What do you do if a competitor is doing that and you’re not, and somehow they’re gaining information that helps them succeed in the market?” This ends up being more moral, ethical, and all this dilemmas, or you can take a whole different way, in the opposite way, and just say this is just business. I don’t actually believe there’s a right answer. I think it has a lot more to do with what do you believe as a business owner that you think you need to do in order to win in the market? That point of view, that perspective, is really what shapes what you’re willing to do or not do.

Steli Efti:

That’s such a powerful statement. I think recently, funny enough, there’s been a lot of news about companies acting not ethically, executives of companies doing things that are very questionable, even in totally different spaces. But even if we go back a few months ago, there was a lot of just competitive stuff that companies would, which is calling competitors or … With Uber and Lyft, I think, having certain teams at Uber in certain cities, pretending they want a ride and then canceling just to create all kinds of confusion and problems, all kids of what you can call unethical behavior in order to be a pain in the ass to your competitors or crush your competitors or be able to advance your business. It’s an interesting question where you draw the line. Now, a very personal one, to a certain extent … There’s the legal line, and that’s not negotiable, but then there’s the ethical line, and that’s very much negotiable apparently, depending on who you are and what company culture you have. One thing that’s interesting with competitors having information about you is always the question, what is the true consequence of this? A lot of times I feel like … And I’m not above this, a lot of times I feel like people tend to just freak out when they find out that a competitor is messing with information, either signing up for a trial and playing with the product or getting information by calling the sales team, in this case a board member. But when you step back, I’m not always convinced that whatever information they acquired is really that consequential in the end of the day. What is changing now that they know we’re going to build X, Y, Z? Of course, I know that there’s some company that, especially that are so competitor, where if you know what they’re building next, that could be a make or break type of a situation, but I’m not sure if that’s really true for every company. I would go on and say that I think it’s the exception where this type of information really makes that big of a difference. The question is, how much do you react to this? Because reacting can also be a way to take your eye off the ball. If you overreact … It’s almost like competitive terrorism where you do a little bit of something, but the overreaction is really the negative consequence. Much more so than the harm you made by your actions. Let’s just go through some some of the things that this founder shared with us in terms of their defense measures to deal with this. Here’s some of the things that they are planning to put in place. Mutual NDA signed by two parties at the same organization before demo call. They send a link to how they compare to their competitors but really redirects to a LinkedIn page so it shows them who’s viewing that profile. He’s saying, “This is amazing rat trap because everyone wants to see how a competitor represent them.” Competitor IP’s redirect to random websites and LinkedIn profiles. Customers in the same city joins in person for demo to share strategy. This is a [inaudible 00:08:59] with this validation. This is regardless of having a competitor or not. This is a good strategy if you have large deals you’re trying to close, bring a customer with you. That a dope strategy. Then, he says, the wild goose chase roadmap, a 10 minute call to confuse the hell out of the competitive team for days. Not exactly sure what this means. I assume it means that you call the competitor or you give the competitor a false information about your road map, but I’m not 100% certain.

Hiten Shah:

I think that’s what it means.

Steli Efti:

Okay. These are some of the … What is this? This is five bullet points you shared with … Their defense measures. Even using language like defense measures is interesting to me. It’s unusual to me, and it shows how competitive that space is that they’re not just fighting for the customer, they’re fighting each other actively every day with competitive intelligence and misinformation and all that stuff. What do you think about that? When you read the email, you were on the … I forward you the original email, I think. When you look at that, what’s your response? What would be your advice to this founder of this company in terms of how to deal with their competitors?

Hiten Shah:

Yeah. I mean, I wonder how justified his actions and his point of view are, and that’s where I start in thinking, is there a better use of his time than worrying about what a competitor does or what a competitor is trying to do? The other questions are … Well, there’s a whole, as they say, tit for tat, so the question is, are they doing anything to extract information about their competitor in the way that the competitor is or in other ways? Because I would say that this goes back into game theory, it goes back into just the idea that you’re either defensive or offensive, or you’re at war. All these analogies to which I, myself, I think in some markets they’re all applicable, in others there’s a lot of what they call coop-petition or frenemies, and all those concepts. To me, having experienced really nice competition, nice meaning they would hide things from us out of respect, not out of spite. Then, I’ve had other competitors that would go even further than what this gentleman is describing to get intelligence, or more importantly, sabotage sales deals for us, so I see both sides of it. My personal opinion of when I … In running a business is to be more perceived as the nice company. At the same time, I just feel at the end of day, I feel like this is a demonstration of the other company’s values, and then you have to decide what you want to do. Are you having fun with it? In some ways, this founder, I think he’s having fun with it, to be honest with you. He was telling us he would put these LinkedIn links and say, “this is the roadmap,” and they’d go to a LinkedIn page and they would know who saw it because it would go to someone’s profile, like his profile or whatever. That’s really cool to me in the sense that you can get some tracking and know exactly who’s viewing it and clicking, which is really neat because you can just look at who viewed the profile. There’s a lot of cool stuff like that to me is just more making fun of them or just making fun out of the situation, I like that. Again, it just comes down to how low do you want to stoop, if you consider it stooping low? Are the customers going to understand and respect or disrespect the values that this company is demonstrating? There’s a lot of small things you can do, if you want customers that don’t appreciate this stuff, then I think the simplest thing I would do would be in my sales calls, because this sounds like these are really large six, seven-figure deals potentially for this business or this market, I’d probably go after it and just basically start describing to my customers exactly what the competitors are doing and let them make the decision. “Look, we have a competitor, you probably know their name, here’s what their name is, and they are doing all these things, and they’re doing them to us, and I thought you should be aware because it’s likely that you might get caught up in it. It’s not our doing. It’s their doing. Obviously, as a business, you get to choose who you do business with. I’m just letting you know this that way, one, you don’t think we’re doing anything like that or if you have some values in your own company that would go against what they’re doing, then you would know exactly who you’re dealing with on both sides.” To me, that would be more of a transparency strategy where you’re being transparent about what someone else is doing just so that your customer is aware and the customer gets to make the choice. “But by all means, if you want to work with them, we’re not going to spite you or we’re not going to think you did the wrong thing, but we think you should know what’s happening in the market.”

Steli Efti:

Let me ask you this, because it reminded me of a number of times when companies get ripped off in terms of [inaudible 00:14:25] design of something else and they decide to go public with it, so the founder decides to write a letter or a blog post describing what the competitor did and sharing it with the world, what do you think about that? When is that a good ideal or a bad idea? When have you seen this work or not work? A way of reacting to a competitor messing with you or doing espionage in some ways could just be to go public with it, do you think that’s a good idea?

Hiten Shah:

It depends how aggressive it is and how it benefits your company. If you can see how it benefits you, great. There’s a PR strategy that I would go totally into communications and PR strategy and thinking about what it does for you short, long, medium-term, does it really stop them? Does it chain them? But, really, what does it do for you? Because often times it doesn’t do anything for you. I just had actually a similar situation recently, very recently, where a company I’m advising, run by a good friend of mine, was being spammed by another much smaller company, and I happened to know their investors so I introduced him to their investors once he asked for it. I wasn’t going to do anything until my friend, the founder of the company, who in this case would be the victim of the situation requested that I make the intro because it’s not on me to decide what to do. People inside the company were actually debating what you just said, which is, should we shame them? I told them directly, “I don’t think shaming them is going to accomplish anything for us.” Instead, what they decided to do was go talk to their investors and just say, Hey, this is what’s going on and it’s no good because you’re spamming our users, basically. Ironically, I will mention this, it’s a feature I didn’t want added to the product and recommended that they don’t add it in the way they did because of many reasons, including this one where it was susceptible to another company spamming, or spam in general, and they still did it, but that’s okay. The reason I mention that is you can predict things like this, you can predict your vulnerabilities and actually do something about it. To me, there’s multiple sides of it, there’s something you can predict someone else is going to do, even prior to understanding their behavior, but there’s other things where once you have learned their behavior, you should start thinking about not what you can do as much as what do you think they’re going to do next and how do you actually prevent that or soften the blow to your business and your customers based on what they’re going to do? We started doing that really well at one of my companies where we were really dealing with a competitor that was doing things that we would never do, and once we got pretty good at knowing it, we found ways to dissuade them by getting them to focus on other parts of the market, not our future side or what we were doing, and that was really helpful. But again, I think to do this well if you’re in an aggressive market, you have to strategizing. I don’t think there’s a blanket answer. I’ve seen all kinds of ways work.

Steli Efti:

Yeah. I think that what’s really important here, and this is going to be part of my tip, what’s really important is to, A, play to win and not just play the play. It’s easy to get tricked into playing your competitor’s game, but always being a step behind or doing something that doesn’t work in your company culture, versus stepping back and really thinking, “Okay, what are they doing and why? What are they gaining from this? What will they do next? What do we want to decide to do about this in a way that’s not always a step behind and very reactive and in a way that is playing to our strengths?” If we think we’re good bad guys and we can out-bad them in their tactics, “let’s crush them with evilness.” If we think we’re good guys and then these guy are super aggressive bad guys … Just to over simplify this, we’re not going to win a street fight with them so we have to go about it in a different way. I think he sent me a follow-up email asking about us talking about espionage tactics and counter-espionage tactics, and where to draw the line and what’s legal and ethical and all that, and, honestly, I think, probably there’s some good ideas that you can put in place in terms of stopping your competitors to messing with your customers and messing with your employees and stuff like that, but asking yourself, “how can be proactively now get information from them just to retaliate?” I’m not sure that’s a good idea or how useful that really will be. Also, everything has a cost associated to it. If you’re playing with this and you have some fun, that’s cool, messing with your competitors. That’s fun. But once it starts to become the focus of your thinking, and now you’re telling your employees, or the sales team, “Stop what you’re doing, our competitors are calling is. When somebody asks this question, don’t give them information.” Now, you, your board, the executive team, your sales team, your marketing team, everybody is worrying about the competitor more than about the customer. In an attempt to protect you from your competitor, you’re not protecting your business from new customers because you’re not open with them, because you’re always looking for cues to see if they’re a competitor or a real customer. Don’t let this mess with your mind. You might want to have some defense mechanism in place, but do you really want to go on the attack and do you really want to spend a lot of time espionaging your competitor? For what reason? What is the gain that you’re getting other than getting “back to them”? I would really ask myself these questions and make sure that I don’t just tricked into playing a game and focusing on something that really doesn’t help. Not to say that always the good companies win. A lot of bad companies and dirty tactics and aggressive companies in that past that have lied and cheated have won, so sometimes the best way to deal with a bully is to punch them in the face. There’s no niceness around it. I think my summarized feedback here or tip, is make sure you take a step back and think clearly and put a good strategy in place before you just react to what they’re doing or overreact to what they’re doing without ever asking yourself if this makes real sense to your business and if this is really a game you want to play and you can win. Yeah, that those are my finishing up thoughts on this.

Hiten Shah:

Yeah, I couldn’t agree more.

Steli Efti:

All right, this is it from us on this episode. This is a fascinating episode. If somebody has more interesting cases like this of espionage within startups and competitive terrorism, if that’s even a term, or whatever, any really interesting stories, any unique cases, just share them with us. Either send us an email at [e-mail] and Hnshaw@gmail or tweet at us and let us know. I’m curious to learn more about this. This was definitely an interesting email thread and interesting topic to discuss on this episode. I think is it from us.

Hiten Shah:

Later.

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