Someone Stole My Startup Idea – Part 2: They Raised Money With My Slides?!

In my 21 years of startups, I had my ideas “stolen” twice. See part one for the first time it happened. This time it was serious.

As a reminder, this post is not legal advice, it’s not even advice. It’s just a story about what happened to me.

Customer Development
We were starting Epiphany, my last company. I was out and about in Silicon Valley doing what I would now call Customer Discovery trying to understand how marketing departments in large corporations worked. The initial hypothesis for Epiphany (from my much smarter partner Ben) was that as departments in the enterprise (manufacturing, finance, customer support sales) became automated, the marketing department would eventually get its turn.

I remember presenting our ideas for Marketing Automation to one VP of Marketing in a large Silicon Valley company. His enthusiastic response was, “This will revolutionize marketing departments!” He continued: “I’d like to convince my boss so our company can be your first customer.” I should have been suspicious when he said, “I’d like to take a copy of your presentation to show him.” Caught up in the enthusiasm of hearing what a great idea we had, I violated one of my cardinal rules, and left him a hard copy.

Fast Forward
Fast forward nine months. After talking to tons of customers and almost as many VC’s, we got Epiphany funded as a company that was going to automate Marketing Departments. After a ton of unreturned phone calls, I had written off the enthusiastic VP of Marketing who wanted to show my slides to his boss and moved on with building our company.

By now we had found a few customers and learned a lot more about the market from them and other prospects. Our business model changed as we realized that to become a large company, we needed to automate more than just a few marketers. As we were out looking for our Series B round, our company had gotten the attention of “name of big VC firm here” who wanted a play in enterprise software.

Are These Your Slides?
During the due-diligence process, I sat down with one of the partners who pulled out a set of slides and asked me: ”Have you seen these?”  I quickly leafed through them and replied, “Sure they’re our original slides. Why?” He said, “Look again.” They had all my words from a year ago, but hey wait a minute, there’s someone else’s logo on my slides?! What’s going on?  He said, “That’s what we’re trying to figure out.  These guys just got funded, and they sound a lot like you guys.”  Luckily I had the original slides and could prove who came first. Still the fact was a competitor had raised money using our idea and our slide deck.

And who was this competitor? The VP of Marketing who a year earlier had wanted a hard copy of our slides. He was now CEO of a new company in our market.

I felt like I had just been kicked in the stomach.

Disbelief, Anger, Resignation and Acceptance
My cofounders and I went through the stages of disbelief, anger, resignation and acceptance. Here was a competitor who had appropriated our idea and gotten funded. (Welcome to the Internet bubble.) There was lots of venting as we talked about lawsuits and issuing nasty press releases.

We consciously didn’t ask potential customers to sign a Non-Disclosure Agreement (NDA). In Customer Discovery we were learning as much from them as they did from us. And we figured that unless litigation was going to be our business strategy, NDA’s would have inhibited the back-and-forth that made us smarter. We concluded that, at least for us in this market, an NDA would be a bigger impediment than asset. Now we started asking ourselves, “Did we make a mistake?  Would have getting a signed confidentially agreement deterred this person?” On further reflection, (and their track record since) not in the least. But that still left us with a problem. What should we do about this competitor copying our strategy?

Finally, we concluded, “You can’t drive forward by looking in the rear-view mirror.”

Our competitor was executing on hypotheses we had developed 9 months ago, and their strategy remained static. We on the other hand, had moved on. We had discovered detailed information about what customers really needed and wanted and turned our original hypotheses into facts. We had validated our new assumptions by a set of orders, and we had pivoted on our business model. Our original idea had been nothing more than an untested set of hypotheses. Truth be told, we were no longer the company in those stolen slides.

While the common wisdom said that our success was going to be determined by which company executed better, the common wisdom was wrong. In a startup success isn’t about just execution, it’s how well we could take our original hypothesis and learn, discover, iterate and execute.

Never Get Even, Get Ahead
With a set of orders from brand name customers, we had growing confidence that we had achieved product/market fit. We were within three months of formally announcing our company and products at a major industry trade show. We made sure our competitor knew this. In fact, we made sure they knew what day at the show we were going to announce. Just as we predicted, they picked the day before us for their announcement in an effort to preempt our company launch with theirs. We made sure they heard how shocked and upset we were that they were going to beat us to an announcement in our market.

Our competitor announced on a Monday solidifying their position in the small market we had abandoned because we realized it was unprofitable and would not scale.

We announced the next day, positioned as a player in a much larger and broader market with new positioning, strategy and customers.

Our copycat competitor was now publicly locked into a company and product strategy that was obsolete and untenable.

Over the next two years we left them in the dust.

———

While how you iterate and execute your idea is more important than the idea itself, there are parts of your intellectual property a startup does need to protect. More on this in the next post.

Lessons Learned

  • Your business concept is not a company. Lots of people have ideas. Typically they are just a set of untested hypotheses.
  • Successful companies are about the learning, discovery, iteration on your initial ideas. If someone can do a better job iterating hypotheses and executing than you can, you deserve to fail.
  • No business plan survives first contact with customers
  • The real value is finding the product/market fit.  That’s not found in a set of slides.

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There’s a Pattern Here

After my eighth and likely final startup, E.piphany, sitting in a ski cabin, it became clear that there is a better a way to manage startups. Joseph Campbell’s insight of the repeatable patterns in mythology is equally applicable to building a successful startup. All startups (whether a new division inside a larger corporation or in the canonical garage) follow similar patterns—a series of steps which, when followed, can eliminate a lot of the early wandering in the dark. Looking back on startups that have thrived reflect this pattern again and again and again.

So what is it that makes some startups successful and leaves others selling off their furniture? Simply this: startups are not small versions of large companies.  Yet the processes that early-stage companies were using were identical to that of large corporations. In hindsight it appeared clear that startups that survive the first few tough years do not follow the traditional product-centric launch model espoused by product managers or the venture capital community. Through trial and error, hiring and firing, successful startups all invented a parallel process to product development. In particular, the winners invent and live by a process of customer learning and discovery. It’s a process that doesn’t exist in large companies with existing customers and markets.  But it is life and death for a new venture.

I call this process “Customer Development,” a sibling to “Product Development,” and each and every startup that succeeds recapitulates it, knowingly or not.

The “Customer Development” model is a paradox because it is followed by successful startups, yet articulated by no one.  Its basic propositions are the antithesis of common wisdom yet they are followed by those who succeed.

It is the path that is hidden in plain sight.

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