berkus_ventures_300ppi copy

Berkonomics

Associate with competitors. Share carefully.

        Many of us belong to industry associations and find ourselves at conferences and trade shows with time to spend with competitors.  Some of these are old friends; some even former associates.  It is natural to want to associate with these people for many reasons, certainly socially. Most CEOs want to obtain information about their competitors in the most subtle and non-obvious ways.  And of course, most are willing to trade information to get information.

                In my former industry, I became an informal centralized source for knowledge about the revenues of each of the many competitors, with a special skill for asking just the right questions to obtain the information.  How many employees does the firm have today? Are you profitable yet?  Can you guess what percentage your revenue comes from recurring sources such as maintenance revenues?  In return for the answers to these several questions, I was usually able to guess a company’s gross revenues within a few percent and would state my guess to the CEO.  His reaction would guide me to increase or decrease my estimate appropriately.  He’d be a bit amazed with the quick fancy math work, and I would have yet another piece of the puzzle helping me to gauge the total size of the industry in annual revenues and the growth and size of competitors.  All of this was immensely helpful in strategic planning and marketing, even though to this day I do not think those CEOs were aware of the value of the information so easily given.  And none of this is especially considered a trade secret, violating the unspoken covenant between competitor CEOs that there is a limit to such exchanges.

 [Email readers continue here…] On the other hand, often a sales person or marketing manager would show up at my door with a complete package of a competitor’s materials, including price lists, a proposal with discount percentages clearly shown and a list of feature functionality meant to reinforce the proposal.  The source of this information was typically the purchasing decision-maker for a friendly customer or candidate customer.  The question is one of ethics, since the competitor certainly did not volunteer any of the information, which would have been the competitor employee’s violation of confidentiality and cause for being fired.  What does a CEO do with this wonderful, rich information dropped at his door at no cost or obligation? Few would destroy it and ask all to forget that it was ever in their hands. Most would absorb the information and then admonish those who had seen it to not repeat to anyone that it was in their hands.  If you’ve been in business for long enough, you’ve seen your share of this gray market information.  My advice is to be very careful, think of the golden rule, never use this information publicly, and certainly never reproduce it, let alone disseminate it internally.

                As to sharing information to get information, CEOs and executives are bound by a duty to their corporations not to share trade secrets with anyone who has not signed a confidentiality agreement, including consultants to the company.  For CEOs on the corporate board, it is a large part of the “duty of care”, a legal requirement of board members to protect the assets of the corporation first and foremost, one of those assets being the trade secrets of the corporation.

  • Bob Leisy

    Regarding the receipt of competitive information from a purchasing manager working for a friendly customer or candidate customer – as delivered by a sales person or marketing manager: If the sales person works for the competitor, he should be fired by his company, as you say. In that case, bringing it to the attention of the competitor’s CEO, and returning it without reproduction, perhaps gives an opportunity to open up a constructive relationship with the competitor’s CEO, demonstrating that this behavior is not acceptable for his company or yours.

    If the sales person is one of yours, and he obtains the information from the customer purchasing manager AFTER an adverse bid decision – in an effort to be more competitive next time, it would seem that the sales person is just doing his job, and that the information could be used internally as you see fit.

    On the other hand, if the information is made available by the purchasing manager to your sales person BEFORE the bid decision, it would seem that a frank discussion is in order with the customer – on the premise that ethical, honest customers are the best, as he might disclose YOUR competitive information BEFORE another bid decision. To make the point, it might be well to return the material to the purchasing manager in line with your Golden Rule, non-dissemination guidelines.

    -Bob Leisy

  • Andre

    I get peppered with these questions all the time. I suspect I’m more transparent than most, but as you say, you can pretty much guess revenue by headcount and the ‘are you cash flow positive yet’.

    I often wonder if I’m doing the right thing when I disclose information related to how things are going. I guess on one level, people view our company as a proxy for how our market and industry is doing. So I can see how ‘it’s going well’ might simply embolden future competitors. On the other hand, when people know we’re doing well, it builds confidence and adds to our credibility as the leader in the space.

    Like everything, pros and cons need to be weighed. I definitely feel what you disclose as a CEO is almost a tell on who you are as an individual and your leadership style.

  • Moral decisions in business are an fascinating topic. Keeping the high road pays a number of dividends, not the least of which is that your employees and partners can see and appreciate setting a proper example.

    Twitter and social media in general provides even more clues and pieces from which an astute observer can see ‘inside’ a company.

    Richard Sudek at Chapman U. has an series called “Hard Entrepreneur Choices” that offers a series of real life stories similar to this one. He gives them to B School students and it causes a lot of head scratching. Learning how to identify and deal with moral hazards is a critical skill set.

Leave a Reply

Your email address will not be published. Required fields are marked *

Share

Sign up for
Dave's weekly emails

Most Recent Posts

Category