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Re. No NDAs: What SHOULD Idea People Do?

April 20th, 2012 13 comments

The other day I got this email:

Hi John,

I just finished reading your post regarding not signing NDAs and I was wondering if you might be willing to share your insight as to how I might want to proceed in something similar (in other words, what is the appropriate way to develop an idea when one does not have the programming skills)?  Everyone wants to protect their ideas, but how do we do so and see them through to fruition rather than be a simple pipe dream?

 

Just like in your post, I have an idea which I can not implement and it is rooted in a couple of ideas/websites.  I do not necessarily consider it original, but I do see an opportunity for it as it has not been executed yet.  I actually want to approach a specific website with this idea as I believe they would be the best fit for this project/expansion.  I believe I fit into your A category; I know they would blow me out of the water if I were to develop my idea independently of them.  My problem is that I am not really sure how to get my foot in the door and be taken seriously, while at the same time protect myself from them just saying “thanks for the idea, the door is over there.”

 

I did appreciate your point on the “90/10″ split.  I have always thought that I would love to get 10% for my idea, but my assumption has been even that would be extremely high considering the web site would be putting up the money and doing all the work (and “the door is over there”).

 

I would greatly appreciate it if you might be able to give me some feedback and pointers as to what I should actually do.

 

Thank you for your time,

After meticulously detailing the ins and outs of NDAs for developers, it’s super interesting to consider things from the other side of the table.  What is a good way for someone in that position to see their idea become something?

I mulled it over a while, and this was my reply:

Hi ______,

Your situation is a tricky one to make work in the way that I think I’m hearing you want it to: getting 10% for putting up the idea and little else.  To folks like me and people running already off-the-ground companies, there is virtually zero appeal to what you are describing, and as you surmise they are apt to indicate to you where the door is.

 

Why?  It’s not that a good idea might not be a net win to execute fully for 90% of the market reward, that could happen.  Though a long shot, it conceivably might make economic sense to do.  The thing is that that premise is predicated upon “they’re all out of ideas, and would love to jump on the chance to do something new”.  That is almost NEVER the case: most businesses, (especially in the web world with its ever evolving and innovating nature), have no shortage whatsoever of ideas and initiatives that they could be pursuing to further and better their business.  Everything they do is a trade off against other conceivably great things they could do, which makes picking something that entails a dormant idea partner highly unattractive.

 

I think the thing is for you then that you’ve gotta bring something more to the table than the idea.  Something about how you are the best person in the world to lead its execution and willing to come on board as part of the team to make you baby fly, or how much secret sauce and tangible development you’ve already done and our willing to share, or the resources or connections you can bring to the party.  Any of these constitute a tremendous boost to the desirability of your offer.

 

If you’re not prepared to do so, there may be to confront the bitter truth that the idea, though great, might not fetch by itself what you think it should fetch in the market.  At which point you can either offer it up gratis and see what happens (and perhaps see what credit and esteem as an innovator it fetches you), or keep it to yourself (either forever and let it die with you, or until the someone else thinks of it independently, or until things shift where you have an stronger opportunity to get it going either solo or in partnership).

 

Whew, I think I just wrote out a flow chart in that last paragraph!  I hope this, while probably not an ideal assessment of your situation, is useful food for thought, and of course it’s just my opinion–certainly not the final say on how things will necessarily go in the real world.

 

Thanks for the shout out, and good luck!
John

Like I said to her, this probably isn’t an ideal assessment: it’s kind of a downer, and I’m stumped to offer up a more constructive take1.

I’m also completely open to being wrong on this one: I’m just one dude, and come from a vantage point that is certainly sensitive to and biased against overvaluation of ideas.

Can anyone help me with this?  What would you offer up as advice to this situation?

Notes:

  1. There is though one facet of my reply that I goofed on: I wrote as though she was hoping for 10%, but to her credit I see now she already knew that was probably too high.  My overall response would be the same for 2%.
Categories: Business Tags:

Why I Won’t Sign Your NDA

April 11th, 2012 51 comments

The other day I got to chatting with a lovely woman who reached out after reading my blog.  She was interested in talking about an idea she had, how she might get it off the ground, and if I might be a good fit into the process in some capacity or another.

“I saw what you did with Spotlight Denver, and I’ve got an idea that could revolutionize the whole deal-of-the-day industry.” is how she broached the subject.

It’s always a treat to chat with folks who have taken a shine to me from my online persona alone, and taking 20 minutes to offer up whatever perspective and insight I can is a welcome break from programming.  I was happy to lend an ear and wax entrepreneurial.

It wasn’t long into the conversation when she mentioned she would soon have a lawyer draw up a Non-Disclosure Agreement regarding the project, at which point I had to interject.

“Ah, let me stop you right there for a sec and let you know this up front: I will almost never sign an NDA.”

She was curious as to why.  This is the explanation I gave her, spread over a couple of distinct but interrelated concepts.

There’s Nothing New Under the Sun

Between a first-time web entrepreneur and one who’s been for years working on many ventures, there is a huge gap in perspective regarding the importance, rarity, and uniqueness of ideas.  Namely if you have this one great idea and that’s your ticket into entrepreneurship, you’re apt to overlook (or simply be unaware of) how interconnected and overlapping innovations are, and correspondingly unable (or unwilling) to see traces of your idea in and around stuff that’s already out there.

This perspective gap is most easy to recognize when someone alludes to their confidential idea as being like [existing web thing] for [some other niche].

“It’s like twitter, but for construction field workers”, “It’s like Yelp, but you only see reviews of people you know, like your Facebook friends”1, “It’s like AirBNB, but for wife-swapping.”

Even a revolutionary take on the deal-of-the-day industry as alluded to by my new friend has, by virtue of being rooted in an established business model, an upper bound on its originality (to say nothing of the likelihood that the million-dollar marketing or biz-dev teams of Groupon, Living Social, etc. have already had and/or explored similar ones).

Ideas are Plentiful, Good Execution is Scarce

It’s a well documented phenomenon how idea-havin’ first timers just need a programmer to bring their vision to life, as though the idea is somehow half the battle (or 90%, as folks like me often get offered sweat equity deals–10% seems to be a popular number).  But if you’ve ever tried to bring even one venture to market, you know perhaps all too well that ideas are just the starting point, and take by far the least work, time, and capital.

Gary Vaynerchuk said it perhaps best in his talk at the 2011 Big Omaha: “ideas are shit, execution’s the game”.  Watch it2.

It’s Not a Good Sign

Say I’m just first meeting you to discuss your idea.  If you prize your idea so much (in relation to everything else it will take in order to make it succeed) that you feel the need to put in legal protections from me, it’s a tell that you don’t have much going for you in this endeavor.

How do I know this?  Because if confidentiality matters to you when talking high-level particulars (meaning anything shy of at least a 10 page business plan), either one of two scenarios apply.

Either (A) you’ll be blown out of the water in the open market soon after you release (this is the case in which the idea really is all it takes, which implies stronger incumbents will easily be able to catch up), or (B) you are vastly underestimating what it takes to execute successfully.

Scenario A rarely ever happens (if ever), but is understandably often feared by those with the newcomer’s perspective described above.  Scenario B is much more common, and should make the thought of tethering oneself to broad and vague legal obligations even less desirable.

Your NDA Treads Heavily Upon My Right to Work

Overlap in innovations and concepts found among disparate parts of the web is ubiquitous.  Any agreement that I sign to not disclose or use information shared with me in a casual engagement opens up a whole world of potentially contentious confusion about what is or isn’t okay for me to do in the future.

In an ecosystem where ideas are borrowed and remixed constantly, an NDA is a poor man’s patent that can be levied only against the signer.  Never mind the existence of clear competitors: the confusion of whether or not any “secret sauce” information was shared is enough to entertain lengthy and costly litigation.

I had a fellow make a bid to buy my CoachAccountable business not long ago.  Great guy, but when I ultimately decided to decline his offer he resorted to legal threats that I better not use any of the ideas we talked about, and expressed regret that he hadn’t had me sign an NDA.

In reality, if had he offered one up I simply would’ve declined.3  Signing one could have compromised my ability to build upon my business or sell it to the next suitor, and by corollary, compromised my negotiating position in the sale.  It would have been the poor man’s patent in action.

NDAs Have Their Place

Are there some situations where NDAs are appropriate?  You betcha.  They are appropriate when there exists something both significant and tangible to disclose, representing more than just whatever popped into your head in the shower.  The 10 page business plan alluded to above makes a reasonable cutoff, necessary but probably not sufficient.

The importance of having something significant and tangible is that it’s something you can point to and say “there, THAT’S what is confidential”.  Without it, the reach of an NDA is too vague and undefinable. An NDA that is not highly specific nor describes boundaries to what it applies is not worth signing: sloppy legalese at best, a malicious trap at worst.

An NDA should also be dependent upon the signer being compensated in some non-trivial way, as in a condition of being hired or part of terms of a sale.  Requiring one prior to that is highly suspect, and signing one, I say, is highly inappropriate.


So that’s why I won’t sign your NDA.  It’s not because I don’t like you, it’s not because I want to steal your ideas, it’s not because what you’re up to isn’t important.

It’s because the ideas you are likely to share with me over coffee or in a phone conversation are otherwise plentiful, worthless in isolation, and, to some degree, completely unoriginal and already known to the world.

View the discussion on Hacker News

Notes:

  1. Actually had this one come up.  Even though their idea had roots in TWO existing websites, they were surprised I wasn’t willing sign an NDA.
  2. His riff about ideas starts at 25:24 in.  Vimeo has problems jumping to the middle of a video until it’s loaded, but it’s worth the wait for the download, or just watch from the beginning–the whole talk is great.
  3. After all, it would be weird to presume that in his several months of thinking about it he would have more ideas that my partners and I had come up with during the 18 months we were actually building it.
Categories: Essays Tags: