Startup’s Guide: The NDA Foul
Today I learned a lesson. It surprised me quite a bit as it counters a lot of my basic understanding of business contracts and relationships. It happened twice in one day and a little search on Google confirmed that this wasn’t some odd exception.
Two successful entrepreneurs I respect and trust enormously refused to sign our NDA. At first I was confused and worried. You see I was raised on the belief that in business, loose lips sink ships. I was under the impression that the proper procedure with any business idea was to get an NDA before sharing. I have a close relationship with both of them and asked why not. It appears that the business culture and realities of their trade make signing such a document unrealistic.
To quickly frame things, we are going to be launching a new company / service March 1st. We are really excited and if you know me at all - I don’t poke a stick at things or try 15 ideas hoping one will work out. I bid my time carefully and sprint when the timing is right. Over the past few weeks we have been madly working out details, refining the business plan and preparing for the launch. We will be having a private beta mid February, so hit me up if you are interested.
Back to my story.
Rather than try to reword it, I’ll let my friend explain it to you as he did to me:
I remember that when I started my last venture I was paranoid to tell people about what we were working on. I too had a boiler plate NDA and had people sign it before I shared our direction. I started to realize that the people whose opinion I really wanted were unwilling to sign the NDA. They claimed that they were exposed to so many ideas each day (i.e. venture capitalists and other entrepreneurs) that it would be impossible to sign and honor NDAs. Especially since in most cases many people are working on the same ideas or at least variations of the same thing. What I realized was that I had more to gain from hearing their opinions than by shielding myself from the potential threat of them taking my idea and running with it. In fact, if an idea is so easily copied then there is a problem either with the strategy or ability for the team to execute.
I’d write more but he makes his case pretty well. The question is simple. What is more valuable: their wisdom, advice and support, or secrecy? That may depend on your idea, but in our case, I’d like to have these two on our side. Does it mean I won’t ever ask other people to sign an NDA? Probably not, I am sure they have their place and time. Though I did learn not to ever ask a VC. In the end, the whole secrecy thing may be a bit over the top. The execution of the idea will be 1000x more important anyways. After all, Google sure wasn’t the first search engine, not the first free email provider, not the first online document replacement…
Yes, I’m interested in the private beta, but of course it’s hard to say without knowing anything if I’m in your target group or not.
I think NDA’s serve a specific need. The company I work for (parttime now) uses them frequently, when information sharing is regulated for instance (governement / defence contractors), but also to protect intellectual property.
I totally agree that execution is the most important one, followed by (Guy Kawasaki will hate me for this) first mover advantage. But the latter is overrated too. Digg wasn’t the first yet they beat the competition (although things may be changing for them).
Filing patents (in Europe anyway) is often also not very beneficial, taking your innovation in a practical form to the market is. Being there as the first or the best counts more is my belief.
So I would say, go for the wisdom and advice, as they will make you even better. And trust your gut-feeling when it comes to people. Not talking to people you don’t trust completely is way better than having the NDA anyway.
Hey Shane, first off: good luck with the new venture. If I knew just a little about what it was, I might ask to be on the beta list, too (hint).
Second, you asked me a while ago about how the Open Source thing works. While this is a bit OT, one thing that publishing our software as Open Source does for us is eliminate the whole NDA experience. Truth be told, we do still use NDA clauses in our contracts to protect our and our clients’ IP. Still, one thing fewer to worry about.
Hi everyone. We will be putting up the beta invite page with a description very soon and I will link to it. In fact I will blog on it!! A bunch of people involved will.
Ooh. A shiny new beta to play with? Sounds fun.
In regards to non-disclosure agreements, I’d tend to agree that they aren’t that important, unless for some reason you suspect that the person you’re talking to would intentionally try to “steal” the idea and run with it on his own.
But then, never having had to deal with them, my opinion is a bit speculative.