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Suing Gartner Won’t Solve Your Magic Quadrant Problems Part Deux

The folks at ZL Technologies just can’t help themselves.  Earlier this year you may recall that ZL Technologies sued Gartner for over $1.6 billion in damages after being placed, for the fifth year in a row, in the Niche Quadrant of Gartner’s Email Archiving Magic Quadrant.  The Federal District Court for Northern California dismissed ZL’s lawsuit in early November.  In their original lawsuit, ZL raised seven claims, all of which were dismissed.  In an effort to quash further litigation, Gartner has asked the Court not to allow ZL to amend their original complaint.  On five of the seven claims the Court did that, but they left a small window open for ZL to take one more bite at the litigation apple.  On December 4th ZL did just that by filing an amended complaint citing defamation and trade libel.  You can read the entire amended complaint here.  To avoid another dismissal, ZL will need to prove that Gartner’s statements were “made with actual malice, hatred, ill will, improper and malevolent purpose and with knowledge of falsity or with reckless disregard for the truth.”  For anyone who has read the actual Magic Quadrant report you’ll see how high a hill ZL will have to climb to prevail on their allegations. 

Perhaps ZL should consider suing in the UK where libel laws are different.  As the New York Times’ Sarah Lyall noted in her recent article ‘Britain, Long a Libel Mecca, Reviews Laws’:

“English libel law is the opposite of America’s in many ways. In the United States, the plaintiff, or accuser, must prove that the statement in question was false; public officials must also prove that it was made maliciously, with “reckless disregard” for the truth.  In England (Scotland has its own system), the burden of proof rests on the defendant, whose statements are presumed false and who has to establish that they are true.”

It has ceased to amaze me how far ZL will go down the litigation route.  Even when the current case gets dismissed I am sure they will declare some type of Pyrrhic Victory. Perhaps ZL could consider the advice given by Vivek Wadhwa in a recent TechCrunch post.  Vivek “is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. Follow him on Twitter at @vwadhwa.”  I met Vivek almost 20 years ago when he was the CTO of a major competitor of mine.  I’ve competed against him, almost joined his company, and later partnered with the follow on startup he created, Relativity Technologies.

In his recent post, “It’s All About Selling for Survival”, Vivek explains that from his perspective that the best sales people in a startup are its developers, not the $500,000/year enterprise software elephant hunter sales guys.  I am going to quote rather liberally from Vivek’s article because it best explains how ZL might have a shot at turning their business around:

I started my career as a geek. I ended up as Chief Technology Officer of Seer Technologies, a software startup which we grew from zero to $120 million in revenue and took public in a short five years. And then I became CEO of my own very successful startup called Relativity Technologies (until I burnt myself out and needed to shift gears).  A number of skills helped me through this ascent. I learned a lot about motivating and managing people who were sometimes smarter than me, about understanding markets and communicating effectively, and also a few really boring things like accounting, finance and law. But if I had not learned how to sell then my company would never have made it past three guys in a room with a phone and some laptops.

. . . Then I got the chance to become CTO of a startup which would market technology which my team had built. Selling became an even more important skill. We all were living on borrowed time and the only thing that would give us more time was sales to put money into company coffers. We had a truly amazing product, much better than that of our competitors. But the stark reality was that unless we could really sell well, our competitors had a big advantage. They were a known quantity. They were not going out of business tomorrow. They played golf, went out for beers, and had lunch with our competitors.

My guru and mentor was my boss, Gene Bedell. One of the first things Gene did when we launched our company was to put everyone through a sales training boot camp. Gene had run billion-dollar businesses and reached the executive levels in investment banking. He had even convinced IBM to seed our company, a software spinoff from Credit Suisse First Boston. At first my technology team protested at being taught to learn about qualifying prospects and closing sales rather than the latest version-tracking software tools.

Within months, we were closing multimillion dollar sales with blue-chip customers across the globe. We did this with only two experienced sales reps and part-time sales support from our development staff. That’s because developers with sales training are incredibly valuable as a part of the sales process. They have two essential ingredients that make people persuasive—credibility and trustworthiness (for the most part).  So while a prospect may not really believe a salesperson, for example, when he says a system is reliable, they’re far more likely to believe a developer they respect.  This is a very powerful ingredient in the sales process, and one we used regularly.  We would compete with some of the largest software companies in the world—and win the sale almost every time. As CTO, I also took it upon myself to sell strategic partners. My biggest catch was a deal with IBM-Japan worth $8.6 million.

With a culture that put customer support and sales above everything else, we grew  into a profitable $120-million-a-year revenue machine. Our developers formed long-term bonds and friendships with our customers. They would go to great pains to understand customer requirements and build products that would sell. More often than not, new development projects would be funded directly by customers. Whenever there was a customer-service problem, our top engineers would voluntarily work around the clock and fly all over the globe to personally provide support.

There are some parallels here for ZL to consider.  ZL believes that they have the best product out there, just as Vivek believed.  They were in markets that were dominated by much larger and more established players.  Vivek addressed his sales problem by making everyone on his team a strategic sales person.  At this point in time it looks like ZL has decided they can’t compete with the big guys and would rather embark on a Don Quixote-like quest to gain victory through litigation.  For 2010 perhaps ZL might consider a different strategy and purchase a copy of Gene Bedell’s book Three Steps to Yes: The Gentle Art of Getting Your Way.  The $780 it would cost to give every member of the ZL team a copy of Gene’s book would definitely yield much more revenue and success than any lawsuit will.

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