Had Connor MacLeod been tied to a Non-Disclosure Agreement, rumors of immortals would have never spread, the feeling they each get that draws them to one another would have been squelched, and the Highlander and others would have never found one another, to work together, to kill… one or the other… okay, so maybe The Highlander isn’t the right analogy to fully appreciate the challenge that NDAs present. I want you to seriously think about the pros and cons of restricting your success out of fear of spreading ideas.
The Non-Disclosure Agreement
Also known as a confidentiality agreement, confidential disclosure agreement, secrecy agreement, or proprietary information agreement, an NDA is a legal contract between at least two parties outlining confidential material, knowledge, or information and committing the recipient of such information to binding consequences should such information be shared.
Elena Mazhuha, Investment & PR Director with Flyer One Ventures, wrote a wonderful piece on the matter and given I continue to be asked to sign an NDA daily, it was clear that it was time to share some formal thoughts of my own.
It’s easy to spot founders who are likely to want an NDA. What their deck lacks in numbers and traction, it makes up for unambitious market forecasts. They want to be in stealth mode for ever. In other words, everything is VERY TOP SECRET.
– Elena Mazhuha, Investment & PR Director with Flyer One Ventures
By going around making everyone sign NDAs, you just look dumb.
(Of course, the lawyers rushed in to point out why she was wrong)
It was Brad Feld who planted a seed in my brain, years ago, as he shared Why Most VC’s Don’t Sign NDAs, “If you think you have something super secret that no one else should know, just don’t tell me about it. Oh – and check your assumption in that case – especially since the value is in creating the thing, not simply having the idea.”
Do you have an idea or do you want traction?
Guy Kawasaki in his Venture Capitalist Wishlist post:
“Before you even start addressing the hard stuff, never ask a venture capitalist to sign a non-disclosure agreement (NDA). They never do. This is because at any given moment, they are looking at three or four similar deals. They’re not about to create legal issues because they sign a NDA and then fund another, similar company–thereby making the paranoid entrepreneur believe the venture capitalist stole his idea. If you even ask them to sign one, you might as well tattoo “I’m clueless!” on your forehead.”
Mazhuha highlighted that all ideas are untested hypotheses. While you might think your experience, validation, and confidence are more than enough to be right about what you’re doing, as far as anyone else is concerned, no matter how successful and accomplished you are, two things remain true:
- Until you DO it, it’s nothing more than a hypothesis. Even if everyone agrees, it’s still just a hypothesis in consideration of whether or not YOU can succeed with it.
- More importantly (and less frequently shared in advice about NDAs), if you are afraid that someone else can and will steal your idea and do it better, it’s likely because that’s true. And if that’s true, why would people invest in you?
NDA or Traction – there can be only one – and most would agree (the people you want to work with would agree), what matters is that you get traction, not keep an idea under wraps.
I wrote a bold proclamation to founders not long ago, that it’s time for the idea to die. My assertion, of course, was not that brainstorming, ideation, and your inspiration to start should stop, but rather that society is too fixated on “The Idea,” as though startups and entrepreneurship are the results of an idea bringing forth a solution the world just has to have.
Startups and successful ventures are the result of countless ideas, proposed, tested, discarded, or executed, quickly and efficiently. There is a reason Steve Blank distinguished a startup as a “temporary organization designed to search for a repeatable and scalable business model” and why Elena Mazhuha highlighted that what you have is an untested hypothesis until a business model is proven and operating. You’re still validating IDEAS on your journey of possibilities.
PlutusKuber Ventures‘ Sandeep Muju published research last year, Increasing Pace of Innovation: The Innovation Cube Model, in it, citing, “The internet exponentially enhanced the pace of global innovations. With lower entry barriers and relatively easier availability of financing, innovators are increasing in numbers. In fact, new out-of-the-box innovations are emanating from smaller entrepreneurial startup organizations.”
The bottom line? In a world of 8,000,000,000 people living in an era of humanity called “The Information Age,” your idea is neither original nor unique. You must socialize what you have in mind so that you might find the right co-founders and partners, quickly validate or discard hypotheses, and get yourself from possibility to opportunity. “Lower entry barriers” Muju noted, don’t add to those barriers and a conversation blocked that could otherwise lead to your success.
“There’s some bizarre mythology that’s been created in the startup realm that ideas themselves have an incredible monetary value. Spoiler alert: they don’t.”
– Wil Schroter; Startups.com
Finding Traction
A practical and somewhat amusing real-world example of how media helps you get insight into ideas? How easy it is to research what you have in mind? I always turn to Google Trends, to drop in words related to ideas or topics I have in mind. Google Trends because it’s a freely available tool that aggregates all the searches related to a topic and gives insight into the interest in the word over time. With that data set available, Trends also uncovers Related Topics, Breakout Terms (new trends or ideas emerging), and Regional interest… hopefully you can appreciate how that’s a gold mine of (free) market data that you can use to better inform what you might be starting, and how you start.
Interesting… what’s that spike in July 2021? Why the sudden curiosity in NDAs? Is that something that we, “our startup,” could learn from to validate something, use, or promote?
I bought a secret house when I was seventeen (Ha)
Haven’t had a party since I got the keys
Had a pretty boy over, but he couldn’t stay
On his way out, made him sign an NDA, mm
Yeah, I made him sign an NDA
Ah! 41,321,055 people caught Billie Eilish on YouTube with her July 2021 single from Happier Than Ever: NDAs
Why do I share Billie Eilish? Not only is it a neat way to advise you of the value and potential of Google Trends‘ intel, while being relevant to our topic here, her song and what has transpired shows us the implications of non-disclosure. That, it was only when Eilish opened up about the meaning behind the lyrics that the world learned of her experience; dealing with the realities of celebrity, a restraining order against a stalker is often an unfortunate implication of life, but for the world to KNOW what she had gone through, and to explore the challenges of that reality together, she had to tell her story, as she did with Alyssa Bailey and Elle.
Getting your story out and sharing your passion, the problem you’re hoping to solve and overcome is critical to uncovering the right way forward.
As the track progresses, Eilish can’t help but wish her life were different and didn’t require her to navigate the obstacles she faces. – Annotation from Genius
Starting a venture on the right track, finding traction before you even start
1. Talk to 500 people. Not customers, random people. Only share your elevator pitch and vision (should take 2 minutes, MAX!) and then listen. Ask not If or Would, ask Why. Record all the negative feedback and take that to heart more than the positive feedback. Positive feedback is dangerous and misleading.
2. Stand up a landing page communicating your value proposition (not what it is, what it means of value for others), and a form. Promote the hell out of that and prove that people are interested.
3. Add a fee for the service. You don’t actually charge, add it as though there is a cost and then let people know what you’ll be in touch when it’s ready. Prove that some people will pay for it by tracking the click to pay.
All that should take only a few weeks, or you’re doing it wrong (granted, 500 people is tough under 2022’s remote work circumstances but that’s why we (and media) can help you uncover how to reach people online! Reach us here if you want to work together to find success).
4. Funnel all those people into some online community (social media) so you have some momentum.
5. Fill the gaps in your skillset with cofounders or advisors.
6. Now get a Minimum Viable Product “MVP” going, keeping in mind that MVP means Minimum Viable, not first release. Do something everyone values and work backward through this list to confirm those who said they would, do.
7. If that works, you have something. Promote the hell out of it and get to an initial full release.
— If starting at #1 still seems too elusive, do more marketing: history, SWOT, competitive analysis. You should more or less KNOW what to start with, before starting.
$0 spent until maybe number six
THAT’S how to start a startup.
There can be only an idea or an NDA because without validating your hypothesis quickly and efficiently if you start by spending money to build something just to test it, you are wasting your resources and time.
Start a conversation and find traction.
Can you not alone capably execute this better than others? If not, is closing that gap not the most important thing to do first? After all, if someone else can do it better, they will, NDA or not. If you can, why does an NDA matter? What would an NDA protect anyway… other countries could care less about U.S. contract law and such protections (in fact many countries notably copy new ideas and products). Promote and ask about what you can, to get enough traction and momentum that you FIND and engage others who want to work on what you’re doing so that the notion of protecting things becomes irrelevant.
Do it better than others, or it probably won’t work out anyway… because you can’t stop competition 
Great piece Paul!
Paul, is this LinkedIn mention in breach of our NDA?
Very true Paul O’Brien. Being protectionist about one’s idea in today’s globally empowered distributed innovation environment with machine intelligence more or less ensures starving their idea of oxygen to take shape. Execution is key. Without the follow-through, an idea is just that, an idea!
Sandeep (Sandy) Muju it was a pleasure discovering your study. Great connecting with you and thank you!
Paul O’Brien Another spectacular post. Love love love this. A must-read for founders in love with their ideas.
Jon Weisblatt I greatly appreciate it. A ton of fresh ideas coming to paper, so to speak, as we keep showing how Texas does things ??
I saw a great article on this subject recently on Facebook. Couldn’t agree more. Ideas need oxygen to turn into fire.
Troy Schlicker intellectual property and successful ventures are different. In most cases NDA is used for IP protection not execution.
Everyone knows execution matters and that’s what makes a venture successful. NDA have nothing to do execution or success, it’s about protection!
Sharsch Bidargaddi there are definitely situations, reasons and times when IP protection is necessary. However the majority of entrepreneurs/founders are using a NDA to even discuss their project because they think the idea is unique.
Wonderful analogy. A pile of sticks doesn’t help anyone but dogs seeking something to fetch. Without heat and oxygen, you never get the fire that makes a difference.
Yes
I think the concern is that those with the resources and means to turn your idea into a reality will do so. I have a close colleague who was robbed by an enormous pharmaceutical company and had they not had an NDA in place, the folks who took on all the risk wouldn’t have had any case. I guess it depends what side of the transaction you’re on that determines whether it’s ethical or not. I don’t see why the IP can’t be purchased or licensed or the idea can’t be acquired through an agreement that’s mutually beneficial.
Annika O’Brien without knowing the specifics I can definitely understand requiring a NDA prior to disclosing information to a company that could be a direct competitor.
In our case it’s always about positioning ourselves for an acquisition. It’s not a rare earth mineral we’re trying to sell, it’s software and man-made chemical compounds and massive quantities of data. We have solutions that cost lots of money and time to create, if someone can just take off with it, what’s the point of raising the capital and doing the research? Why not just steal from others?
Previously I was in robotics and much of what I created was built with open source tools that were made available for free or low cost. There’s definitely a benefit to that style of sharing in the hobbyist realm. Also with things that are publicly-funded and/or can be used as a platform for various other technologies, like the internet.
Annika O’Brien it’s a valid concern. And yet, reality is much more pragmatic… The world doesn’t care about U.S. law, billions of people live in places where they want innovation copied and used, and even locally, at the end of the day, if a founder can’t afford to fight such a thing out in court, that company is going to win it out anyway.
The point of such encouragement on my part and those other notable voices in startup-land, is changing founders’ mindset.
Instead of thinking, “I should patent” or “an NDA will protect me,” instead think, “this WILL get copied. So what do I do given that?” ??
definitely something worth discussing, namely because so many have such a visceral reaction to the fear of having our inventions Edisoned. Now that I work in biosciences/tech, I see a whole world of theft and patents, millionaires stabbing millionaires to become billionaires. I guess the only time I have a strong opinion on the matter is when there’s exploitation, but that comes from my inner anti-bully rather than a desire to adhere to paperwork.
I feel you there Annika O’Brien, that anti-bullying drive is what fuels my entrepreneurial tendencies; wake up every day and figure out how to do things better, so we can end the crap that takes advantage of people ?
I guess that I could write a paper on this subject. Start with there’s a huge difference between an “idea” or a software product, and a technology that does something unique or something that hasn’t been done before.
I realize that there are many investors who will not sign NDAs claiming that they may at some point encounter a company that does something similar. My view? I think that the situation comes more under a non-compete than a non-disclosure agreement. Frankly, I see no reason why an investor can’t raise money for more than one company in a tech sector without disclosing either company’s IP or secret sauce. I guess that we have to trust?
Also, every company we are dealing with during the commercial roll-out INSIST on signed NDAs. Yet, there is nothing in a NDA that compels a company to disclose trade secrets.
Good perspective
Here’s the rub, legally, in this thought, “Frankly, I see no reason why an investor can’t raise money for more than one company in a tech sector without disclosing either company’s IP or secret sauce.” and why Guy Kawasaki added, “creates legal issues” …
An agreement shifts the burdens of proof from the prosecution to the defense. Not entirely, of course; you still have to prove a violation of the agreement, but with an agreement in place, the defense has effectively affirmed that they will recognize when a fault (and damages) stem from shared information.
The problem with that is that the defense can’t *prove* that didn’t share information.
Again, the defense doesn’t have to prove it, the prosecution does, but it is another chink in the case because the agreement itself is evidence that the information WAS disclosed.
It’s a subtle legal dance that I’ve seen play out a few times (which I why I so vehemently refuse to ever sign an NDA).
That is, do you trust me or not? If you don’t trust me, why would I want to work with you? Why would you want to work with me?? I’m not going to establish that you have knowingly given me secrets that I have affirmed I would never communicate to anyone else, when it’s very likely those secrets reach people in many many ways, and I could never capably prove/defend that my relationship with someone isn’t the cause of the information getting out.
It’s just not worth it to bother signing NDAs. If someone isn’t comfortable sharing and trusting, in working together, then don’t.
Truth!
Ironically I was at an event and talking to someone who said they were developing an app but couldn’t disclose what it was about. At the same event they talked about another app/company that got started when a guy meet some people at a networking event and they loved his idea and started working on it almost immediately.
Troy Schlicker the only early startups that I’ve ever been involved with that succeeded, had founders who constantly and heavily socialized the mission, vision, and solution.
Don’t steal my idea for a No Traction Agreement
Paul O’Brien, another insightful and fully transparent piece..thanks so much! At the risk of being equally controversial, I would argue that your argument “what matters is that you get traction, not keep an idea under wraps” can also be applied to non-competes, and companies trying to squash human capital innovation! Companies need to worry less about building a moat around their business and trying to lock their employees behind a wall, and focus more on gaining traction and building a company culture that people don’t want to leave in the first place… would love to hear your thoughts
Cheers Ken Schmitt
I love controversy; it makes for a much more meaningful discussion that might uncover answers and solutions!
Herein, I think you might be being controversial with others because certainly not so with me. I agree.
What matters is that you get traction, not keep an idea under wraps, applies to non-competes, and companies trying to squash human capital innovation.
Innovative and impactful companies KNOW they can’t compete with the risk tolerance or pace of change of startups. The companies we all should support as consumers and partners are the companies that SUPPORT entrepreneurs: intrapreneurship programs, sponsorship of incubators, participation in events, and being accessible as mentors. BE THERE to as startups are working to emerge, and they’ll turn to you (The Company) for help.
In turn, our economy drives more innovation, entrepreneurs are better supported, and the company gets access and visibility to potential deal flow (corporate venture investment & acquisition targets) by being part of the community rather than stifling it.
Companies lose to startups all the time. And no moat, nor agreement, will prevent that. Either participate and benefit from being part, or hinder, and cause everyone to subconsciously work toward your demise to get you out of the way ?
Thanks Paul O’Brien, I couldn’t agree more! That’s the main reason why I’ve been volunteering for Junior Achievement of San Diego County for 8 years, specifically in their high school “Entrepreneur Program”! It’s all about fostering and encouraging innovation and breaking the mold – even at age 17 and 18 🙂
Solid perspective of course….but it makes me nervous, as I’m sure it does other founders. How much do I show and tell. Where is the line? I’m guessing that is a question you can work through with mentors at an in incubator. The big outstanding question is this: who can I trust to do the right thing? And there are just so many stories we hear of poor brilliant ideas being stolen.
Annie Joey Lanier Hardy I wonder though, how many of those stories are legit stories vs. presumptions? I know FAR more people who claim “stolen” or are even angry that “stolen” (some in Austin) and yet I also know for a fact that their idea wasn’t… that it wasn’t a unique/original idea and that there were many others working on something similar.
This fear and concern are WHY VCs (and people like me) won’t sign NDAs. Odds are HIGH (very high), we know other people doing similar things, and the companies that are doing similar things. Ergo… odds are very high that what someone is doing, is also being done by someone else that people like me know.
My experience? FWIW
1. You only share what you are comfortable sharing
2. You always focus on trust first. Build the relationship. Never share cold.
No. Switch up #2 and #1. ALWAYS build the relationship and trust first. Look people up online, study who they are, ask around, and dig in on what they’re doing for a living. I find it’s not often as challenging as it might seem, to validate if someone is trustworthy or not. Still risk involved in sharing? Yeah, of course, always; that’s why your focus must be on overcoming those risks, not merely seeking validation and traction
If your idea is one that anyone else can execute on better than you as soon as they hear it, how are you going to survive launch?
Richard Stanford I can’t count how many times I’ve pointed that out and added, shouldn’t your first and only priority be figuring out all the gaps in your vision and finding people who will ensure someone else won’t do that to you??
some great advice I got from one of the blockchain meetups – start building things – just focus on building.
Begging the question implicit in much of what I write and we teach in our incubators, build WHAT? Careful builders, too many builders/developers start ventures just by doing what they want, what they think; building, without marketing, is dangerous.
Paul O’Brien yup building what the market wants 🙂
Thanks for featuring my article, Paul!
My pleasure Elena! Thank you for being among those preaching and teaching founders about the priorities and focus that really matters and makes a difference