Climbing Back Up

When the founders of X-It Products saw a billion-dollar rival imitate the design of their sole product, they didn't have much hope that their tiny start-up could survive. Amazingly, it has.

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When the founders of X-It Products saw a billion-dollar rival imitate the design of their popular new fire-escape ladder, they didn't have much hope that their tiny start-up could survive. Amazingly, it has.

Andrew Ive couldn't sleep one night in his dorm at Harvard Business School. The smoke alarms were blaring again. Ive assumed that the alarm was triggered by a fellow student's microwave popcorn or perhaps another's cigarettes. But what if -- heaven forbid -- there was an actual fire?

The next day Ive went to a local store, bought a fire-escape ladder, and tested whether it could support his then-215-pound frame. Watching the rehearsal was classmate Kevin Dodge. "Andrew was hanging out of the second story, and the ladder broke," Dodge recalls. Ive's feet went right through the top rung, forcing him to hang on to the windowsill until someone pulled him inside. It was the fall of 1996, and Ive had found his project for Professor Marco Iansiti's product-development class.

But he needed someone to build it. One of his best friends at HBS, Aldo DiBelardino, had an engineering background and was also in Iansiti's class. While DiBelardino built a new and improved ladder, Ive polished what would become X-It Products' business plan. The plan stated X-It's intention to "set the quality standard" in the $3.4-billion fire-protection market. Among the hypothetical exit strategies for the business: an acquisition by market leader Kidde Safety, a U.S. division of billion-dollar Kidde PLC in England.

Less than three years later X-It was a real company with a hot new product, and Kidde was indeed trying to acquire it. But that's where the fairy tale ends.

X-It's future was looking bright right up until the 1999 National Hardware Show in Chicago's McCormick Place. It was X-It's second year at the industry's megashow, at which some 3,000 companies display their wares to the Wal-Marts and Home Depots of the world. Already, thanks to the ladder's light weight and extreme compactness -- it collapses to nearly the size of a shoebox -- X-It had cracked the Southwest region of Home Depot and also was selling ladders through Amway and Kmart.

X-It and Kidde had already had two exploratory meetings and had arranged to get together on the second day of the show. On the show's first day, Ive, who was by then X-It's CEO, dropped by the Kidde booth to say hello to his potential new partners. He was stunned by what he saw: Kidde was displaying a ladder almost identical to X-It's. Kidde's packaging even appeared to be the same, right down to the photograph on Kidde's box that showed DiBelardino's nephew and sister-in-law using an escape ladder. To make matters worse, says Ive, a Kidde rep was showing the ladder to a buyer from Wal-Mart. In disbelief, Ive entered Kidde's exhibit booth and approached Kidde Safety president Michael Apperson. Apperson, says Ive, took him by the arm "and basically escorted me off the stand and said, 'I'll talk to you tomorrow.' "

On the second day of the show Ive stopped by the Kidde booth for his scheduled discussion with Apperson. Ive complained bitterly that Kidde's ladder infringed on X-It's intellectual-property rights. Apperson disagreed with Ive's protest on the grounds that X-It's patent was still pending. As for the picture on the box, Ive says, Apperson told him, "You don't own that photograph. It's probably some stock photo." Ive countered that the subjects were DiBelardino's relatives. Kidde employees later blotted out the offending images with black marker.

In the weeks following the show, Ive says, his independent sales reps -- who were in discussions with Wal-Mart, Target, and Home Depot's other regional buyers -- stopped returning his calls. Ive's theory: "These salespeople all work on commission. And what they saw was the market leader coming out with an identical product." Fearing that their start-up would die if they just did nothing, DiBelardino and Ive soon decided to sue Kidde for copyright infringement, misappropriation of trade secrets, and six other counts of business misconduct.

That was in late 1999. It would take until August 2001 for the trial to conclude. Those two years would be a harrowing period for X-It. In 2000 sales would slump 31%, to $248,000, and the company would lose $400,000. Its total legal bills would surpass $3 million. But despite setbacks that might have done in many a company, X-It would manage to stay alive -- partly because of the deep pockets of its Harvard connections and partly because of an entrepreneurial scrappiness that belies the company's crimson pedigree.

X-It's story is striking for other reasons. The company was founded by top-of-the-line business-school students. Its product had gotten great publicity, with mentions on national television and in a profile in Inc (July 1999). It was backed by an all-star group of affluent, plugged-in Harvard professors and alums. It took reasonable legal precautions. Yet in spite of those strengths, it was unable to prevent a much larger competitor from jumping into the market with an almost-identical product. If that could happen to X-It, could it happen to any entrepreneur with a nifty new concept? And if so, what does that mean for American innovation? To the folks at X-It, those are some of the broader implications of their case against Kidde Safety.

Mind you, they are not the only ones using the fate of capitalism as a rallying cry. In closing arguments at the trial, Kidde's lawyer maintained that X-It's legal assault was nothing more than an attempt to cover up its own inability to thrive in a free and open market. "What happened here was competition, surely. You might even think it was hard-nosed," says Laura Luger, Kidde's attorney. "But that is the American way."

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