Sleeping With the Enemy

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Neither would they have the opportunity to test overseas markets on their own. "Our product is still so high-end that the guy on the other end would never want a full container of Full Sail," says Chicvara. "But collectively, we have a portfolio that is very diverse and compelling." Over the past two years Chicvara and seven other guild members have together exported about six shipping containers of beer to Japan, where the appeal of craft brews is just beginning to catch on. They've also wielded their collective clout at home. Last spring they shared a booth and expenses at a Chicago trade show, where Chicvara landed a distribution deal with a 90-store chain in Indiana--not for himself but for four of his competitors.

Five years ago Bill Hanley, CEO of Galileo Corp., a $34-million Sturbridge, Mass., fiber-optics company, was faced with a dramatic decline in the military contracts that had long constituted the lifeblood of his industry. "When you're faced with a market segment that's shrinking, companies can't start competing with each other more voraciously, or they end up doing each other even more damage," he says. "I viewed the whole industry as being at risk." Hanley's proposal to five of his competitors: come together to promote the Sturbridge area as home to a fiber-optics brain trust. Together they would develop fiber-optics applications for new markets such as the telecommunications and analytical-instrumentation industries, utilities, and hospitals. "We focused on making the pie bigger by marketing ourselves together," says Hanley.

The group--now comprising 12 companies--formed a separate nonprofit entity called the Center for Advanced Fiber Optic Applications, which markets the combined capabilities of its member companies. Hanley says there are currently a dozen cooperative projects in the works and that "companies are also forming independent alliances on projects outside the center." It seems that cooperation, once mastered, becomes a possibility that one carries into each new business opportunity.

But does it also create an uncomfortable interdependence among networked competitors? What happens when such relationships go sour, as some ultimately will, or when they simply dissolve? Harry Brown has seen such things happen; so has Nick Harville. The question often is not whether such a scenario will play itself out, but when and how. In an economy where nearly everyone competes globally and where the only predictable factor is that things will change, one can reasonably expect partners to come and go. "The networks last only as long as the opportunity does," says Harville. How do you know that when your partners leave, they won't take a chunk of your business with them? You don't. But consider what is at stake. "The risk is extraordinarily high if someone cheats," says Hanley. "The group would make it very difficult for that company to participate in the community; a natural process sets that company up for failure." Also bear in mind that an economy driven less by transactions than by relationships fosters an environment in which a loyal customer is less easy to steal. But while "coopetition," the consultant's word for what we're describing, seems to carry with it a set of internal and external checks and balances, it is surely no more risk-free than any other aspect of business. For many, the greater risk is one of lost opportunity.

In the end there are no assurances, no guarantees, no proven formulas for a successful competitor network. "They're all experimenting," says Sabel of Columbia Law School. He worries that people focus too much on the experiment itself and are ultimately blinded to its larger implications. "There's a vision of this network idea that assumes that any form of cooperation is as good as any other form," says Sabel. "But that's just too general. It doesn't put discipline on anyone to change. The real problems have to do with mastering the model of decentralized coordination. You need to be small and flexible in a way that allows you to coordinate with others that are small and flexible." It's like a 6-year-old with a Lego set, meticulously building and rebuilding a model that is a significant expression of ideas and desires that are, nonetheless, ephemeral. There is no expectation of permanence; disassembling comes quickly, with little regret. After all, the marketplace, like a 6-year-old, has a limited attention span, and expects--even rewards--continuous creation and destruction.

Competitor networking is a concept that should revolutionize the way business owners think about producing and marketing a product or service, about capital investment, and about employees, because the proficiency with which CEOs run their own companies will no longer determine how much or how fast those companies grow. Everything will depend on how CEOs manage the process of cooperation within and beyond the boundaries of their companies, the agility with which they recognize a market need, put together the talent to meet it, disperse that talent, and then bring it together again in a way that they--or you--might not have imagined yesterday.

It isn't a particularly tidy way of doing business; it is dynamic and risky, and it defies the labels of "big" or "small." It is a third way of operating--and is as complex, challenging, and mysterious as the other two. Call it competitor networking if you must, but understand that the label is merely a convenient, albeit inadequate, conceit. Before anyone put a name on it or declared it a trend, it was simply the way people like Harry Brown and John Anson did business. It will be the same for Ron German. It will be the same for you.

Donna Fenn is a contributing editor at Inc.

Close Encounters of the Third Kind

Running a "competitor-networked" business isn't like running a small company or a big one--it's a third way of doing business altogether. Here's what we know about competitor networks--and life inside them--after a decade of their existence:

It's Not Easy
"The biggest problem is CEO ego," says Bill Hanley, chief executive of Galileo Corp. "You get five people together who are used to running their own show, and now they have to become part of a team that is interdependent. That's difficult." Hanley says it took 18 months for his group of fiber-optics companies to coalesce and develop trust--18 months of hand-wringing doubt, of wondering, "How much information should I divulge? Could I have this client to myself? Am I jeopardizing my own position in the marketplace?" If there is one phrase uttered most often by CEOs involved in competitor-network relationships, it is this: "It all boils down to trust." Not just trust that your competitor won't steal your secrets or your customers, but trust that forfeiting some of your independence will yield a handsome return.

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Donna Fenn

Inc. contributing editor Donna Fenn is the author of Upstarts! How GenY Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success (McGraw-Hill, 2009). Both this blog and the book examine the ways in which GenY is changing the entrepreneurial landscape with new approaches to starting, growing, and managing their companies. Learn more at http://www.upstartsrock.com/.

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