An NDA, or nondisclosure agreement, is a document that I find fascinating. The basic idea behind an NDA is simple – if you are about to discuss confidential information with a party who may be able to help, but who may potentially ‘steal your idea’ or share it with other parties, you can get them to sign an NDA which legally prohibits them from sharing the information you share with them to anybody else.
Legally the NDA is not very interesting – it basically says exactly what you’d expect: that the party signing it must keep the information discussed confidential, not use it for their own purposes, not disclose it to anybody else, and that they must return any company materials to the company without making copies for themselves.
Much more interesting than the provisions of an NDA are people’s reactions to them in the startup world, and the subtle implications behind them. Many VCs and people you would want to sign NDAs refuse to, and the more I have learned about starting a company the more I understand why.
One thing almost every entrepreneur with experience learns is that “ideas are cheap, but execution is expensive”. In other words coming up with the idea is the easy part; it is actually turning that idea into a profitable business that is the challenge.
I’m the kind of person who is always coming up with new business ideas, and even now I keep a log of my ideas, which I actually think are feasible to put into action down the road. Since the past year or so I have been single handily focused – almost obsessed – with Sportaneous, I’ve had to put all of these ideas on the back burner and over the past few months, I’ve seen many of “my ideas” get put into action by a different person or startup. This led to my first realization: most good ideas are solutions to problems that many people face; to think that you are the only one or even the first one to come up with an innovative solution to an existing problem is preposterous given how many smart people there are in the world. If you don’t find any existing competitors, you should always operate under the assumption that at least five other people have the same idea you have had around the same time.
The second realization I’ve come to over the past year or so is how hard it is to implement an idea into a business; it is necessary but not sufficient to recruit a great team, build a great product that actually provides value to customers, and start to figure out ways to make money – all with almost no resources. Almost every successful entrepreneur I have talked to admits that a big part of why they are successful is for some set of factors that were not in their control – in other words, good fortune or luck.
The third realization I’ve had is that when you just getting your company off the ground, there is a direct relationship between the number of successful/smart/relevant people you meet with and the likelihood of your success. Some of the best outcomes we have had at Sportaneous were because Mr. X helped us, where Mr. X was a friend of Mr. Y who was a friend of Mrs. Z who was cousins with Mr. Q – who was somebody that I knew and met with. Although you need to be careful to not waste time by meeting with anybody willing to listen, if you anticipate raising money, I would meet with every investor you can (just for ‘advice’ before you need money), and if you anticipate entering an industry which you do not have experience dealing with, I would meet with every senior leader you can in that industry.
How the Three Realizations Relate to my views on NDAs:
Although there are a limited number of circumstances where an NDA makes sense – if you are sharing a proprietary piece of technical knowledge or know-how with a potential competitor – I think that asking every person you meet with to sign an NDA because you are worried about them ‘stealing your idea’ reflects a certain immaturity, inexperience, and lack of knowledge about how startups work, in that (again) it is the execution part that is difficult, not the idea part. Most investors, advisors, or potential partners (the kinds of people you are probably meeting who you may ask to sign your NDA) are likely to help you with executing your idea, which will often involve discussing your idea with people in their extended network. Asking them to sign an NDA is therefore not only pointless, but it also very subtly establishes an immediate dynamic of distrust and fear, which is not the best ‘vibe’ you want to establish in a meeting where it is very much up to that person how much they decide to go out of their way to help you.
My three realizations have made me almost never insist on an NDA; in contrast, I share my idea with everybody who will listen since I find that it is often the most unexpected people that come from three or four degrees of separation that have helped me the most.