Double danger

Written by Harvey Schachter

The first hint of trouble for Bravado Designs Inc. came when its relationship with its U.K. distributor started going sour. Out of the blue, letters came accusing the Toronto-based maternity bra manufacturer of being “belligerent” and “impossible to deal with.”

Bravado president Shery Leeder was baffled. Her relationship with this wholesaler had never been problematic. And Bravado Designs had been making big inroads into the U.K., selling its innovative, colorful and comfortable nursing bras through grassroots distribution by childbirth educators and midwives. For a two-year-old home-based business, they were heady times — proof that if you built a better bra, the world would come to your door.

Two months later came a nasty surprise: the distributor revealed it had developed its own bra and would stop selling Bravado’s. A copycat had struck, and from within the extended Bravado family. “I was personally devastated that somebody in that position would knock off the product,” says Leeder. “I felt betrayed.”

Imitation may be the sincerest form of flattery, but for any company whose success depends on innovation, it’s a critical threat. When copycats steal your ideas, they can flood the market, confuse customers and be a drain on your time, resources and bottom line.

Achieving real success depends not just on getting to the top, but staying there. That means coming up with strategies to stay ahead of competitors whose only tactic is following the leader. Knowing their best defence is a good offence, savvy companies use a wide arsenal of tactics to widen the gap between them and those who want to be them.

Ironically, pioneers should worry if they’re not being copied. “As soon as somebody is making profits that are worthwhile, somebody will jump in,” says Ajay Agrawal, professor of strategy at the Joseph L. Rotman School of Management at the University of Toronto. Failing to attract imitators could indicate your idea isn’t resonating with the marketplace.

So, what’s an entrepreneur to do? Innovate, create barriers to entry, defend your intellectual property and turn your customers into stark raving fans.

All you need is love

Hoping to thwart Bravado’s imitator, Leeder jumped into action, writing a carefully worded letter notifying British customers that there was a problem with the firm’s wholesaler, but that Bravado was still eager to serve them. Loyal British customers rallied by her side, ordering direct from the company. Eventually, one childbirth educator and her husband took over U.K. distribution.

Along with the emotional trauma, Bravado spent months trying to recover US$25,000 the former distributor owed for previously shipped goods. (The amount was covered by insurance purchased from Export Development Corp.) Then there was the time and expense of extra trips to London to make new distribution arrangements.

No question, copycats steal ideas. But they won’t be able to steal your customers if you can build some special value into your brand, notes Agrawal. Generating loyalty can go a long way toward protecting yourself against knock offs that lack emotional appeal. This is particularly important for categories in which consumers have difficulty measuring quality on their own, says Agrawal: “I have no idea about shoe technology, so I trust my favorite shoe company and don’t switch to the competitors.”

Bravado chose that route after Leeder discovered early on that patenting her bra design would cost thousands of dollars. “To pursue anything legal is a huge cost,” says Leeder. “It’s incredibly diverting. We needed to give attention to developing the business.”

Patents can cost $5,000 to $20,000 and take anywhere from eight months to eight years to secure, says Rob Woodbridge, manager of Ottawa Capital Network, a not-for-profit organization that helps entrepreneurs raise capital. “If you’re bootstrapping it, the idea of getting a patent is ludicrous if it means you may not be able to grow the company.” Still, if you can afford the time and money, patents can effectively keep imitators at bay for 20 years.

Without the cash to seek a patent, Bravado focused on forging an emotional connection with customers. “It’s brand quality that is our protection,” explains Leeder. “You have to make sure your name rolls off [customers’] tongues — that they will feel indignant if somebody tampers with what they think is their own little discovery.”

Because of the nature of her product, Leeder expected to draw imitators. “A bra is two cups, a clasp and a strap,” she notes. “In some ways, they are all rip-offs of each other.” What’s more, when Bravado developed its product in 1992, nursing bras were simply regular bras with semi-detachable cups; the emphasis was still on fashion. Leeder developed a nursing bra that uses stretchy fabrics and wide bands — and no deleterious underwire — to adapt to the physiological changes women undergo during pregnancy and nursing. The sassy designs in leopard and polka-dot prints were fun to boot.

Sure enough, copycats followed — four so far. Not one has had much impact on Bravado’s sales, which rang in at $5 million in fiscal 2003, up from $2 million five years ago. For one thing, Bravado leveraged its first-to-market advantage, establishing strong relationships with people who could help it reach expectant mothers; namely, midwives and childbirth educators who share Bravado’s family-centric philosophies. “Women like the fact that we are celebratory about pregnancy,” says Leeder, “and daring and fun and cheeky.”

Leeder, a breastfeeding advocate and trained labor coach, made the rounds at North American tradeshows, building a tightly knit community of healthcare professionals who praised Leeder’s design for its comfort and lack of underwire, which they believe causes infection. “They know Bravado,” says Leeder. “They know their clients have a good bra that will fit well and enhance breast feeding rather than cause problems.”

Selling bras is a competitive business. “We go out of our way to please customers,” says CEO Kathryn From. “When people speak with us, we want them to feel that we’re taking care of their needs. As a result, we have stores that will buy product just because it comes from us.”

The image is enhanced by Bravado’s support of local and international breastfeeding initiatives. “We’re more than just the product,” says From. “We’re the whole experience. And that separates us from our competition.”

Of course, Bravado enforces its trademark, which prevents others from using its mark or brand to market look-alikes. Typically, a call or a letter notifying offenders of the infringement is all it takes, says Leeder: “It generally goes away. I’ve never had to take it to the next step.”

Bravado is not resting on its laurels — nor is it counting on ownership of the bra market. The firm recently introduced maternity thongs (“Why shouldn’t pregnant women be comfortable and fashionable?” asks Leeder), washable breast pads and maternity sleepwear.

Sew up the market

When Linda Butler started Kidzpace Interactive Inc. 11 years ago, it never occurred to her that people would copy her ideas. But the producer of video-game consoles and other electronic games for children has seen four copycats come and go. “It was a challenge learning to accept the fact there are companies that will steal your designs, knock off your product and then try to market to the same industries,” says Butler, whose firm is based in Collingwood, Ont. “But I have now learned that this is normal practice for many.”

Butler got the idea for Kidzpace after attending an event held by Sega Canada that featured a retail display unit allowing kids to try video games. She decided to transfer the concept into locales in which kids faced stressful situations, including dentists’ offices, hospitals and funeral homes. After orders poured in from her test market — orthodontists’ offices — she knew she was onto a good thing.

So did one of her customers, an orthodontist who decided to make some extra money by hawking an equivalent product, but with a Nintendo display. Butler fought back by being better. Kidzpace began manufacturing models of various sizes and prices compared with his one offering, and beefed up its service to customers. Butler developed service performance guidelines that guarantee immediate phone response, same-day parts shipping and 100% customer satisfaction. “It caught up with him, and people started calling us to fix his broken products,” says Butler. “Others saw it was better to stick with someone who has a proven track record.”

Three other copycats have followed, although not one lasted long. “We’re too far ahead,” says Butler. In 2003 Kidzpace revenue hit $8.6 million, and Kidzpace now boasts an array of 100 contract salespeople who attend more than 50 tradeshows a year.

That depth and credibility has helped Butler form strong connections with games manufacturers, including Nintento, Microsoft and Sony, giving her access to the latest games. For example, some Kidzpace units housed Sony PlayStation’s popular EyeToy, a video game that allows the user to become part of the game, a few months before it was available in North America.

But Butler’s exclusive contract to supply her wares to interested McDonald’s restaurants outlets worldwide is what makes Kidzpace untouchable. And every entrepreneur should aim for such a deal, advises Daniel Muzyka, dean and professor of entrepreneurship at the University of British Columbia’s Sauder School of Business. Exclusive distribution agreements are an ideal way to shut out competitors, he says, while providing the opportunity to build a critical mass that’s hard to beat. Another effective barrier is locking in your suppliers, especially if your product is produced with unique parts or materials.

Butler’s coveted contract with McDonald’s started fortuitously, and her chutzpah sealed the deal. In 1996, a local operator saw a Kidzpace kiosk at a hospital and decided he’d like one for his restaurant. After a three-month test installation boosted sales 15%, Butler won Canadian distribution rights.

She then headed south. When 17 McDonald’s outlets in the U.S. expressed interest, Butler happily spent $298,000 to build and ship products for a three-month test run. “I was willing to do it,” she says, “because I knew it would be a success.” The kiosks passed durability tests, proved a draw for kids and increased restaurant sales. Within three years, McDonald’s had approved the purchase of Kidzpace products by 27,000 restaurants worldwide. The contract allows Butler to attend McDonald’s bi-annual conferences, at which franchisees view the latest ideas for their stores. It also brings to her door gaming companies who are looking for a way into the fast-food king. “I have one U.S. competitor now,” says Butler triumphantly. “But they can’t get into McDonald’s, and never will.”

Innovate or die

Chip Wilson, the visionary who pioneered Vancouver-based yogawear retailer Lululemon Athletica, takes competition seriously. No wonder: he constantly faces challenges from both retailers and manufacturers looking to cash in on his company’s success with look-alike products.

Wilson, who formerly created clothing for skateboarders and snowboarders, was looking for a new opportunity in 1998, when he predicted that yoga was likely to be the next exercise craze. He figured it would beg for specialty clothing. Wilson developed fashionable Lycra gear that is comfortable, anti-microbial and wicks moisture away from the skin. Within five years of opening his first retail outlet, he owned a chain of 10 stores, including one in the U.S. He knew there would be imitators. “In the clothing business, nobody expects not to be copied,” he says. “I expect to only have a six-month lead.”

Knowing the world is on his tail forces Wilson to innovate, add value and keep changing Lululemon’s designs. For starters, in addition to being first to market, Lululemon built in the advantage of using local designers and manufacturers, which gives the company the ability to respond almost immediately to customer demands and market shifts.

New styles are introduced every few months; colors change every 60 days in line with fashion, seasons or the need to shake up the market; and Wilson sources high-end performance fabrics that others can’t afford to match. It’s expensive, Wilson concedes, but it provides extra quality that keeps the firm’s edge. Wilson also uses top-tier sewing machines — worth about $35,000 apiece — that ensure quality stitching. It’s a small detail that contributes significantly to a superior product.

Then there’s Wilson’s penchant for generating buzz. To promote the opening of a Vancouver location, for example, Lululemon offered free clothing to the first 30 people to arrive naked on opening day. One magazine advertisement in Yoga Journal invited readers to compete in the very un-yoga-like Lululemon Invitational Yoga Pose Off. Rattled readers didn’t notice the competition was to take place on April Fool’s Day.

Such strategies have kept Lululemon ahead of legitimate competitors. In Wilson’s case, illegitimate comlpetitors have posed a more serious threat. Last September, Wilson spotted a pair of pants bearing the Lululemon name and a round reflective icon that, from a distance, resembled the Lululemon logo. He promptly filed a lawsuit against Vancouver-based Madmax Worldwide Sourcing Inc. for alleged infringement of certain Lululemon designs and trademarks. He had already spent about $40,000 to register his trademark worldwide, and the legal action was to cost him another $20,000 to $50,000. But he had no choice. “If you don’t protect your trademark,” he says, “you lose it.”

Wilson says a settlement is near. He hasn’t dwelt on the counterfeit case, however, because he believes it’s unproductive. “That’s what competition is about,” he says. “What doesn’t kill you makes you stronger.

Copycat countermeasures

  1. Speed: “Be decisive. Go to market early,” says Daniel Muzyka, dean and professor of entrepreneurship at the University of British Columbia’s Sauder School of Business. “Staking out territory will force others to back off, or do nothing.”
  2. Product differentiation: From the start, figure out how to differentiate your product from potential competitors, and continue to differentiate as their products come online.
  3. Intellectual property protection: Use patents, trademarks and copyright to guard against imitators. These measures are common in such industries as life sciences, technology and software, but it can be expensive to go through the legal paperwork and then to defend yourself.
  4. Branding: Make your product or service so compelling that knockoffs will lose their appeal. “Set expectations of quality and value — a promise to the customer — that can’t be beat,” says Muzyka.
  5. Lock in your customers: Conceive of ways to prevent your clientele from switching to a competitor.

Stop, thief!

One of the best ways to protect yourself against intellectual property theft is action. Here are four ways to keep your ideas to yourself:

Patents: If your innovation is truly new, useful and not obvious, you can file for patent protection that could prevent others from making or selling a similar product without a licence from your firm. The flip side is that the patent, even the application itself, is a public document. Anybody can examine your idea, and sidestep it to come up with another innovation that has the same function. Another problem with patents: cost. Patent agents charge $5,000 to $20,000 to prepare an application, which you then must defend in “prosecution”, a process lasting 18 months to several years.

Copyright: Originally for literary works, copyright protects the expression of an idea, but not the idea itself. It is now being applied in areas such as the writing of computer code. For $15 and a few hundred dollars in legal fees, you can gain copyright protection by filing at the Canadian Intellectual Property Office in Ottawa.

Trademarks: This protects your company’s mark or brand from somebody trying to pass off their product as yours in the countries in which you register your trademark. Registration costs about $2,000. You can also gain protection by using your mark over time, but you will have to prove that any violation caused damages.

Trade secrets: Protect what you have invented by keeping it secret. Think of Coca-Cola with its secret formula. “But if somebody reverse-engineers your invention, tough luck,” warns Toronto lawyer Arshia Tabrizi. Unlike patents, a trade secret is protected only for as long as you keep it a secret.

© 2004 Harvey Schachter

Originally appeared on PROFITguide.com