The role of Industrial Espionage in Startups

Today, the headline in the official German government news Tagesschau was a wild

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accusation that the US used the NSA and Prism to systematically spy on German high-tech company to pass on trade secrets to US companies.

I have worked for over a decade with US high-tech companies and I have never witnessed any of that. I work in cyber security and obviously there is some intersection between the NSA and our industry, I cannot go into details about this. But one thing I can assure Germany, there is no officially sanctioned industrial espionage where the NSA is passing along trade secrets to high-tech companies for the gain of a competitive advantage. I have no doubt that this might be a bit different in the defense sector, but then the motivation is not a competitive advantage but a military one and I believe this is part of fair-game in the intelligence community.

It made me a bit upset that such an accusation is coming from a country whose Internet economy is based almost exclusively on the outright cloning of US companies’ IP by exploring soft copyright loopholes, with very little self-innovation.

In any case, the US is one of the most innovative countries in the world, if not the most innovative, and that for good reason: because it values its engineers. Though, the interesting point is that “technology transfer” is actually an engrained part of our high-tech culture, which is the reason that we see at the same time multiple companies coming up with the same solutions, albeit with quiet a lot of differentiation

The reason is behind that is that the same key people are making the round. Developers, product managers, sales engineers, and professional services consultants, all rotate within their industry. You see the same faces popping up again and again. They might get tired of their employers, lured by a more exciting project or better position, or outright “bribed” with large on-boarding, relocation, or comp plans. Btw, this is perfectly lawful as long as no proprietary information is shared, specifically in hard form such as on paper or digital storage media. Most technology states, such as California, do not permit non-compete clauses, and even if they do, such as Texas, non-competes need to be reasonable. Furthermore, many folks in the industry would never sign one.

Those kinds of technology transfer made the technology universe to the powerhouse it is today. Ideas are free to be shared and do not enjoy the same kind of protection as the investment it would take into refining an idea into a product. This is the key point on how Germany differs from the US: while Germany believes it is perfectly OK to just scrape off an US Web site, translate it to German while even “recycling” server code, in the US this might violate copyright laws. Even if those are hard to enforce, it is usually looked down on and would give a startup a bad reputation, hindering it from raising further capital. There is little value in plagiarizing the work of somebody else.

But it is about those ideas, which we as Americans believe should be freely shared. You can alter those ideas, combine different ideas, compare ideas, add or subtract to ideas, and on that outcome create value and develop something new. And often you learn which ideas work and which not, which again is the reason why the fast-follower is often more successful than the company who first came up with something. Many of our successful high-tech companies are not the great inventors, but they listen, watch, and observe. Then take the right kind of ideas and come out with something incredibly new.

There is lots of work to be done between an idea and a marketable and commercializable product. Even given the same amount of capital, any two companies would come up with different results because of their company culture, the internal organization, the skillsets of their people and their background, skill distribution, the culture of communication and conflict resolution, the moral of the company, their outside network and many more. All of that is the cornerstone of capitalism in a free market economy like ours, dynamic and constantly adapting. Such of an approach is of course much harder to understand for our European allies whose economies are based on a strict class-society and a century old stiff picking order.

To come back to the first paragraph, the best way to protect your ideas from leaking is to make yourself desirable for talent and be ready to share. If you have happy talent, which feels valued, they stick around longer. If you just suck them dry, put them in their place, because they do not “own” the company, and their class is not measuring up to your “eye-level”, they will leave for the next best offer, and take their brain full of ideas with them. And guess what, many of them will be leaving to the US – eg Germany is suffering a brain drain of an estimated 100k skilled workers each year.

This is what European companies have to learn: help your engineers to get out of those dorm rooms and help them to live a decent lifestyle with family and creature comforts. This is one main reason, among others like risk taking, why startups are flourishing in the US – but not so much abroad. To address Germany: stop making desperate accusations and fix your startup culture. Your US ally is happy to assist you – we love sharing our minds full of ideas and thoughts. (SB)

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