Tuesday, September 20, 2011

NDA Stealth Mode and Sharing Your Startup Concept

One of the readers asked my opinion around sharing your startup concept:

My first question has always been - how do you protect your idea while shopping around for feedback, partners, developers, etc.? Especially if the idea could be whipped-up by a few 24-year olds in a few weeks?

imageLots of thoughts here.  First, if your idea really is something that a couple programmers can whip up in a few weeks, then you may not have much of a business here.  But let's leave that aside for a minute.

My basic claim is that you MUST HAVE LOTS OF EARLY CONVERSATIONS.  As Chris Dixon says in Why you shouldn’t keep your startup idea secret.  He tells us you'll get the following benefits from talking to lots of people:

There are lots of benefits to talking to people.  You’ll get suggestions for improvements.  You’ll discover flaws and hopefully correct them.   You’ll learn a lot more about the sector/industry.  You’ll learn about competitive products that exist or are being built.  You’ll gauge people’s excitement level for the product and for various features.  You’ll refine your sales and investor pitch.  You might even discover your idea is a bad idea and save yourself years of hitting your head against the wall.

Niel Robertson in The Stealth Mode: Trada’s Position on Staying Stealth captures the basic communication needs of early stage startups pretty well:

In the beginning there are three basic things every startup needs: experts to give you input on your product as you’re building it, users to help you beta test your product in a real-life setting, customers who will give you real money for what you’re building and take real risk in doing so. You need all of these people to bake the cake.

He left out capital sources, but it's still a pretty succinct list of the types of people / communication you should be having early stage. 

What is Stealth?

imageWhat's also interesting in Niel's piece is that he defines Stealth Mode not as not having conversations, but rather he says it's not make public pronouncements.  Seth Levine in To stealth or not to stealth says this pretty well:

There are varying degrees of stealth, ranging from companies that won’t tell anyone what they are up to, to companies (like the one I’m referring to)that don’t have a web site and haven’t made any announcement of their business intentions or funding but aren’t hiding what they are doing in daily industry conversations, etc.

The reality is that Stealth is defined differently in each case.  What we are talking about is a spectrum of how you restrict early communications around your business:

  • Who you will talk to including the public / press / etc.
  • What you will convey in your conversations
  • What protections you will place on those communications

For example, you might decide that portions of your concept will be controlled more closely (a secret algorithm). This will only be disclosed when there is an NDA in place.  But you will be able to convey other aspects freely, even publicly. 

How Stealthy Should You Be?

This is going to be fairly specific to the company.  I would suggest that it's best to be as open as possible.  My general take is similar to Chris Dixon.  In that same post Why you shouldn’t keep your startup idea secret where he argues to make things open, he defines only one group of people that you may want to avoid having a conversation with:

The handful of people in the world who might copy your idea are entrepreneurs just starting up with a very similar idea.  You can probably just explicitly avoid these people, although by talking to lots of people your ideas will likely seep through to them.

I might also be concerned about taking my idea directly to a large, well funded competitor who is know for innovation.  And I probably will not announce detailed specifics publicly prior to creating them.  Beyond that, I want lots of conversations with experts, users, customers, VCs, partners, etc.  I may decide to hold back some detailed specifics around algorithms.  But generally I'm going to favor being open.

Since I fall into the expert category, my belief is that you should be pretty open with me.  Startups that come to me and ask me to sign an NDA in order to get Free Startup CTO Consulting really are missing it.  And getting into a discussion but not being able to tell me about your business also hurts you.  "We are doing something in mobile advertising."  Ummm ... "Good luck with that."  What can I say.

I like how Mark Suster handles the question in 10 Marketing Lessons for Early-Stage Tech Startups.  Definitely take a look at he suggests you balance the choices.

I also will point out that in the The 15 Mistakes of First Time Entrepreneurs:

9. I don’t want to share my idea because someone might steal it – the benefit of sharing is greater than detriment- investors won’t sign an NDA.

And there's more via StartupRoar in Stealth Startups including:

  1. 7 Reasons For Your Startup to Skip Stealth Mode
  2. Stealth mode is back. Long live stealth mode!
  3. Startups in stealth mode need one piece of advice
  4. Startups in stealth mode need one piece of advice - Discussion
  5. New Thoughts on Stealth Mode
  6. Stealth Mode
  7. Why go stealth?
  8. Stealth Mode Startup
  9. Startup Myths #1 – You Need an NDA
  10. Ultimate Advice to Stealth-Mode Startups: Just Stop
  11. Stealth Mode, Schmealth Mode: The Real Reasons Why Startups Don't Talk
  12. Why It’s Not Healthy To Be A Stealthy Startup
  13. Is "Stealth" the Best Way to Build Your Business?
  14. Someone Stole My Startup Idea – Part 1: Are Those My Initials?
  15. Someone Stole My Startup Idea – Part 2: They Raised Money With My Slides?!
  16. Someone Stole My Startup Idea – Part 3: The Best Defense is a Good IP Strategy
  17. First Rule of Fight Club Does NOT Apply
  18. Worry About People Listening To You, Not About Them Stealing Your Ideas
  19. If you love your idea, set it free….

NDAs or Other Protection

imageSo you decide you want to be able to share with experts, users, customers, VCs, partners, etc. in order to get the benefits that come from those conversations.  You decide what you will convey in those conversations (and what you will not).

Again, relying on StartupRoar this time looking at NDA for Startups, I found some good stuff that you should definitely go through in more detail.

Startup Reality Distortion #3: The Fallacy Of the Non-Disclosure Agreement (NDA)

Don’t rely on an NDA to protect the truly “secret” stuff.  It’s likely not going to give you the protection you think it is.

More more via StartupRoar in NDAs for Startups including:

  1. Don’t Ask Known Investors to Sign Non-Disclosures
  2. Three Simple NDA Rules for Entrepreneurs
  3. On NDAs (revisited)
  4. One More Time: No NDAs

Don't Lead with Protection

I want to close this with one bottom line thought.  Please don't make protection of your idea a major topic early in conversations.  This is much like condoms.  You don't bring the topic up early in conversation.  Condoms like protecting your idea can come up naturally later in the conversation.  Instead go in knowing what you will share and won't share with this person.  Try to be as open as you can, but be prepared when questions reach the border.  Simply say that you have some secret sauce in that part of it and aren't prepared to share it.  And make sure that does preclude you from sharing enough to make it an effective conversation.

You really should go read Brad Feld's Implied Suspicion Versus Implied Trust.  It captures the typical scenario and some of the logic and emotion that goes along with early conversations. 

Entrepreneur: Following is an email describing my idea.  Since you won’t sign an NDA, you agree that by reading beyond this paragraph you are agreeing not to share my idea with anyone, forward this email to anyone, or discuss the idea without my consent.


Feld: You seem to be operating from a perspective of “implied suspicion.”  I don’t work this way – I much prefer to operate from a perspective of “implied trust.”  Since you clearly don’t trust that I’ll behave responsibly, then I don’t think I’m a good match for working with you.

Definitely read the whole thing.

More Reading

Finally, if you are reading this, then you probably should be reading more about Startup IP (Intellectual Property) and definitely follow Jill Hubbard Bowman's IP Law for Startups.  Some resources on this:

  1. Intellectual Property is More Than Patents
  2. Does My Startup Have Intellectual Property?
  3. The Top Five Reasons Entrepreneurs Should Learn About IP Law
  4. What Can a Well Drafted Contract Do For Your Company?
  5. Track the Ten Elements of Value for Your Venture
  6. Intellectual Property Concerns for Software Startups
  7. Entrepreneurs, Use Patents to Protect Your Intellectual Property and Create Value for Your Start-up Company
  8. Startups Beware: Patents are Like Umbrellas. False Confidence.
  9. Barriers: The Best Defense Is A Good Offense
  10. How Ideas Grow: Seth Godin Inspires an iPad App
  11. IP 101 for Startups
  12. Venture Deals: Chapter 13: Legal Things Every Entrepreneur Should Know


Eric Schwartz said...

Great information on this topic. I would think some concepts are by nature more 'borrowable' than others, and sometimes one company's concept is the missing piece to a potential competitor's existing product. Other ideas - maybe like twitter or foursquare were so unique that they were more likely dismissed than to be stolen in the formation stage. Either way, I guess a startup that makes it to launch, must be prepared for cross-pollination with competitors, unless somehow protected by IP.

Tony Karrer said...

Eric - great point.

My guess is that someone would have similarly thought that it would only take a few weeks to build twitter in the early days. There was a lot more to it than that.

Max said...

Great post. I am impressed that you provided plentiful resources on the subject of Intellectual Property. Ignoring IP while developing tech is like driving your car with your foot flat on the accelerator and not looking our the windshield!

Eric Schwartz said...

Tony - my reference to a 'few weeks' to implement an idea is aimed more at an existing platform that can quickly integrate new features, taking the wind out of one's sails, or worse. That could be a startup competitor who is further along, or one of the big players morphing their platform.

It sounds like the answer lies somewhere in between putting up a startup idea on kickstarter (which for obvious reasons the technology section has more opensource/public advocacy and hardware ideas) and total stealth.

I guess another way to look at it is if an idea is really good enough to be stolen, then get it out there (perhaps using Ries' Lean Startup methods), and try to be a victim of one's success (i.e. scaling, keeping ahead of competitors)