5 lessons learned from not protecting my business idea

WOCinTech chat

I am part of an entrepreneurial Facebook group (we’re now over 7,000 members strong). Let’s divide the group into two; techies and non techies. One of the most asked question by the non techies is, “I have an idea for an app and I’m looking for a developer. How I can I protect my idea?” In order words, how do I prevent a developer from running off with my idea, claiming it as his own, working on the idea himself and making millions of dollar off it? The response is usually the same; make him/her sign a non-disclosure agreement (NDA). This question always reminds me of my own experience with my second developer which I will share with you.

I first met him in the summer of 2014. I got to know he was a developer during our introduction but I was still poking around my idea so I said nothing. Over the next few weeks, our friendship grew. When I had figured out exactly what I wanted to do, I gave him a call and discussed my idea briefly. I also told him I wanted to build a small team; no more than four -including both of us. He said he could help with this.

The next time we spoke, he informed me that one of the developers he had available was going to work for Google and would not be available. The other developer was working on a project. He advised me that the best way was to get started with just the two of us . In the meantime, he wanted a one page Word document about my idea. I wrote a one and half page explanation of my idea and emailed it to him -without a non disclosure agreement. For many other reasons, it all fell apart. We never got started; neither did I ever speak with his developer friends. Here is what I have learnt since then;

1. Execution is all that matters

Ideas are like opinions. Everyone has one. I know that’s not how the saying goes but you catch my drift right? Do you realize how many million people are in the world? Do you know how many million people are thinking of the same idea you are thinking of? Well, I’ll put it this way then. A person can steal your idea, but cannot steal your vision. Like the non techies in the group, I was afraid of my idea being stolen that I became worried sick, almost lost appetite and drove myself crazy with paranoia for no reason. Do you know how much willpower it takes to execute an idea? Even if your idea is stolen, the execution will be different. No two executions are quite alike.

2. You are the visionary

As the non techie, if your idea holds any depth, meaning, you’re not looking to make a quick buck. You truly want effect change in a particular industry and change the world, you are the visionary. As the visionary, it is likely that you’re more committed than anyone else will ever be. As it is right now, I am mentally, physically, wholeheartedly committed to OneSavvyDollar and creating value for my readers in ways I cannot even begin to describe to you.

3. Domain protection

I have always been an advocate of getting a good business name and buying the domain name. It is a relatively inexpensive way to protect your business. Most companies run domain name promotions periodically. Even if the developer steals my idea tomorrow, surely, it will never be named OneSavvyDollar. He is going to have to pick a different name.

4. Ideas change upon implementation

Until you actually begin to implement an idea, you never quite know how it will turn out. What I wrote as a one page document does not even begin to surmount to the changes and challenges my developers and I faced the moment we started working on this. But an idea does not necessarily stay in its original form from inception. The interesting part, the idea continues to change because I let my users guide me to what they want (to a reasonable extent.). You can only understand this when you begin to match action to words.

5. A rule is only as good as its enforceability

It’s one thing to have a non disclosure. It’s another thing to be able to be able to pursue it should there be any violations. We watch movies and believe the rules apply all the time. But it doesn’t quite happen that way. In the case of the Face book lawsuit between the Winklevoss twins and Mark Zuckerberg, the Winklevoss twins had the resources. Here are five fast facts about them:

  • They were born in South Hampton and lived in Greenwich (read as ritzy areas).
  • They attended Harvard.
  • They are Olympians and competed in Beijing 2008.
  • Their father is a professor at Wharton, an author and entrepreneur. He owns a technology and consultancy companies.
  • They hired a high power law firm.

Can you understand now what I mean by resources? Truthfully, you most likely do not have the luxury of the time or the resources to pursue developer should the idea become a hit; particularly, if you are the sole business owner. Don’t forget it’s a game of probability; an idea could either be successful or not. If Facebook wasn’t successful, they never would have bothered.

To disclose, or not to disclose: Striking the right balance when making a case for your business

As promised in Navigating The Catch-22: Successfully Fundraising For Your Business, this segment discusses, in detail, the nuts and bolts of confidentiality agreements. Also referred to as Non-disclosure Agreement (NDA), the NDA  keeps certain aspects of what an entrepreneur will discuss or disclose with a potential investor a secret.

While an NDA is an important document that helps protect your new venture’s confidential information, entrepreneurs should endeavour to strike the right balance between protecting their business secrets and sharing relevant information with potential investors to attract capital or other resources.

1. Timing is everything: Relationships come first

Indeed, the know-hows of your new venture might necessitate the execution of a NDA. However, this does not mean that you should walk into a potential investor’s office for the first time offering a NDA as a substitute for a handshake. This singular act may, in fact, be counterproductive as it may scare away savvy investors! The use of the words “scare away” is intentional. Indeed, this choice of words begs the question, “Why would a potential investor be reluctant to sign an NDA, if they do not intend to breach the agreement?” A few answers are listed below:

  • Most potential investors sit on numerous pitch competition boards. They encounter numerous entrepreneurs in their professional lives and are often asked to sign NDAs. Consequently, your NDA may be number 500 on the request list. As such, a potential investor’s reluctance to sign your NDA may not be because they intend to disclose your trade secrets, rather, it may be due to the practicality of keeping track of thousands of NDAs that they receive.
  • From a practical standpoint, it gets really challenging to track thousands of NDAs especially where entrepreneurs submit pitch decks with similar ideas.
  • Investors are not only attracted to an idea but to other factors such as your team, track record, probability of success etc.
  • Given that NDAs are important legal documents, investors will often want their lawyers to review these documents before they sign. This costs time and money—two things that have huge opportunity costs for an investor.

Notwithstanding, if you are concerned about a potential investor’s ability to protect your confidential information, you should vet them. This can be easily done by utilizing your networks to find out more about a potential investor. If you are not satisfied with the results of your due diligence, then consider safeguarding your proprietary information.

You have to strike the right balance between keeping your business know-hows a secret and attracting investors. The free flow of ideas is an important factor in further developing your product and raising capital. However, you do not need to disclose every minute detail of your business to an investor if you do not feel comfortable doing so.

2. Practical consideration when reviewing an NDA

When you get to the NDA stage, it is imperative that you carefully review the NDA, negotiate the terms, and participate in the drafting process. If there are provisions you do not understand in the NDA, don’t feel embarrassed asking about the intent of that provision. Below are a few items you should consider when negotiating your NDA:

  • Ensure that the party that signs the NDA has the authority to do so. Check to make sure that individual is an authorized officer of the company.
  • Ensure that the NDA details what the word “confidentiality” means. If the definition is too broad and contains everything under the sun, you might get a lot of push back from your potential investors. So, be practical about the scope of the definition!
  • In the same light, your NDA should clearly explain what doesn’t constitute confidential information. Remember, exceptions are equally as important as inclusions.
  • The NDA should also detail the manner of the disclosure that will be kept confidential. For example, will both parties treat oral disclosures as confidential information?
  • It is also important that you carefully think through your negotiation strategy during the NDA drafting phase and that you negotiate from a practical perspective. Spending too little negotiating a NDA might create an impression that you are not a savvy businesswoman. This perception may hurt your negotiating power with your potential business partner in the long run. On the other hand, overly negotiating a NDA might make you appear as one who might be difficult to work with. It is essential that you find the right middle ground. As a general rule of thumb, entrepreneurs should not negotiate past three drafts. More drafts may be required for an extremely complex project.
  • Treat the NDA negotiations as a pre-investment negotiation interview. During this stage, your potential investors are just getting to know you. This is your opportunity to show them that you are savvy businesswomen with excellent negotiation skills.
  • During the drafting phase, be cognizant of who will have access to the confidential information. Will all employees have access to the information? What third parties will have access to the information? All these considerations are important as they let you know the individuals that will be privileged to the information you have provided.
  • Your NDA should also list each party’s responsibilities or burdens.
  • Ensure that the NDA contains remedies that are reasonable.
  • Most importantly, research your potential investors or business partners to ensure that the individual or firm is a reputable and fair player in the market.

To summarize, it is imperative that you carefully consider the timing of requesting an NDA. When it becomes necessary to execute a NDA, carefully negotiate your NDA and ensure that you understand every word on the agreement before you sign on those dotted lines.

In the next segment, we will discuss the art of successful negotiation. If you would like insights on a particular topic, write to us! We are listening.