How I Beat a Competitor Who Stole My Ideas

By Therese Tucker, CEO and Founder, BlackLine Systems, Calabasas, Calif.
One day, over six years ago, my accounting software company's VP of sales stormed out of the office and quit over a minor issue. I didn't hear a word from her for six months -- but then I received a call from a potential client asking about our account reconciliation product. He said that he'd seen another program that looked just like ours. I was surprised, since we had custom-built our software, and I didn't think that anyone had a similar product.

When I went online to research the company he'd mentioned, my jaw dropped. It turned out that my former VP created her own company based on all the ideas and work that we'd developed and outsourced production to create the software to directly compete with us.

At the time, we'd been in business for two years and were making just $250,000 in revenue annually. We were still struggling to gain traction, and this shocking news seemed like the nail in our coffin. We worked with attorneys to seek a remedy, but eventually decided the best strategy was to outperform our competitor in the marketplace instead of in court.

Battling it out in the beginning
I had considered my VP of sales a close friend. We'd shared a nanny, and I'd had her over for Thanksgiving dinner. The personal betrayal was the most difficult blow for me to handle.

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.

She turned around and countersued us. She was our only sales person, and we had mutually agreed that she would be paid as the sales were brought into the company. But we hadn't put that agreement in writing, so she came after us for back wages and penalties. I can't stress enough the importance of having all contracts, agreements and letters -- whether with employees, partners or vendors -- put in writing.

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.

Outperforming the competition in the marketplace
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.

We also made a conscious decision not to compete on cost. In fact, we've heard that when our competitor loses a deal to us, they often go back to the client and offer their product for half our asking price. It rarely works for them though. When most clients in our industry decide on a product, it's not about price; it's about quality and service/support. And that's where BlackLine shines.

Staying ahead
My one-time VP of sales ended up selling her company to a larger business for $5 million. She stayed on for two or three years after the sale and then ended up in contention with them, too. I have no idea what she's doing now, but I no longer harbor any bitterness towards her. I had to forgive and move on.

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 it's 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 VP's actions were devastating to me personally and to the company, she helped us in the long-run. There's a biblical proverb: "Iron sharpens iron; so a man sharpens the countenance of his friend." I think having a rival to compete with can improve the quality of everything your business does.

Therese Tucker previously served as CTO of SunGard Treasury Systems.
-- As told to Kathryn Hawkins

Resources:

• Read five tips to avoid intellectual property theft.
• Find out how to protect your small business startup.