THE STARTUP CHAT

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 Steli@close.io 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.