Nivi · December 24th, 2009
Matt Mireles, Founder of SpeakerText:
“More than anything, being secretive, being stealth and making people sign NDAs up the wazoo sends a message that you don’t trust them, that you think they might fuck you. And when people get that vibe, they assume (consciously or not) that you yourself are not trustworthy, that you might fuck them. This is not the message you want to send to people you’re gonna ask to commit to a journey filled with hardship and that will probably fail.
“As they say, you want missionaries, not mercenaries.”
Read the rest of Hiring & The Benefits of Radical Transparency to learn how Matt inspires people to join SpeakerText.
Related: Our posts on NDAs.
Topics NDA
I understand very well the argument of why NDAs are bad, but have you considered why entrepreneurs love them? As a startup we take risk, a lot of risk, we drop our day jobs, to build our idea. The only asset we have most of the time is those ideas, features, business models. While I do love to get feedback and discuss ideas in detail with people, it really hurts when you see your ideas go to your competitors. In technology the differentiators are often these ideas and strategies, and if they get out there before you got a solid business you might as well prepare the coffin for your venture.
Now your argument is that is not in other peoples’ interest “to fuck” an entrepreneur. And I would agree with you, people are not in the business of “fucking others” — that said your interest is not their first objective because first of all they are not in business of “fucking themselves”. Now, because of this self-interest first rule, a person can “fuck me”, not because it was his intention but because of his self interest!
Now in my little experience with being a startup, I must say to you I see a lot people with that self interest in mind, which is in conflict with mine (or other entrepreneurs). I will give you two examples:
– Signed an NDA with a prospect customer. Signed their NDA, which was really strict. I had to pay money in lawyer fees to review and sign. We sign it, and guess what — a few days later this prospect customer goes and tell my main competitor about us and what we are up to.
– Second example, was talking to someone who is working very closely with a VC. That VC (un-named) chose not to invest with that particular start-up. Later on they figured out the idea was really good, so they decided to do their own venture in that space — they hired people to build a prototype, business dev…
So to your point… are people there “to fuck” with entrepreneurs? We don’t know, we do know some are greedy and will fuck with us, and others are not — so is not a question of do I trust you or not, but what is your interest and do we have a conflict of interest.
Agreed that people usually do things to serve their own interests and not to harm other folks. Unfortunately, your idea is often a small differentiator — execution and adaptation are the big ones.
I guess the alternative to the NDA is trust. Trust takes a lot of time to build. So you either do business with a very select number of people you’ve trusted for a while, or you invest a lot of time in building trust.
For many startups, these two approaches are impractical because for them, time is of the essence.
I think there are other alternatives. Like assuming the idea is already out there. Or that the value of spreading the idea is higher than keeping it secret. Or not sharing anything that should really really remain secret (most things don’t fall in this category).
NDAs make sense in a small set of situations. They’re not a blanket that startups should throw on every conversation.
I have a lot of sympathy for both sides of the NDA argument here, but tend to favor practicality, which is hardly ever mentioned in this debate.
As “Some Startup Guy” mentioned, you can sign an NDA and then still be betrayed. Legally it is very difficult to prove damages and almost never worth the cost of litigation in terms of time and legal fees. So what is the point of an NDA?
Often NDAs are often just paper served as a method for bureaucrats and lawyers to cover their asses with no appreciable value. Unless you have a whole department of aforementioned lawyers to litigate such breaches and they have nothing better to do, I would not waste my time. The value of an idea is more often in the execution, not in the conception. If you’re idea is so easily copied by someone just hearing about it, I recommend thinking of a idea that is more defensible.
Merry xmas!
I agree completely. A successful startup is in the execution of your idea. If your market is a hot market, then you’ve got to figure a thousand other people are brainstorming ways to profit there. A few of them will have a pretty similar idea. Success or failure is in execution.
I enjoyed Vivek Wadhwa’s piece on stealth startups for Techcrunch on this topic:
http://www.techcrunch.com/2009/12/19/stealth-startupsget-over-yourselves-nobody-cares-about-your-secrets/
Agreed. But I think it’s wrong to say that NDAs don’t have value because you’re not likely to enforce them. The NDA alone can incent people not to share your idea.
Interesting discussion! One reason lawyers insist on signing NDA’s with service providers/partners etc is protection of trade secrets:
The legal argument is that if you ever want to claim protection over your trade secrets or intellectual property, then you should show that you have taken all reasonable precautions to safeguard those, and inform anyone that comes into contact with your proprietary information of the proprietary nature of such information.
Now, what is “reasonable” is always a fun little legal game. Operating in a business culture where NDA’s are customarily signed will probably make a judge/jury consider the signing of NDAs’ to be “reasonable”, and a departure from that practice to be “negligence” at best.
That is the unfortunate thing about our precedent-based legal system. Sticking your neck above the heard may cause your head to be chopped off.
As long as you understand this risk and are willing to take it, then all power to you!
Awesome. I think startups should research and consider the implications of asking or not asking for NDAs.
What stage am I in? Who am I talking to? How will the other side react to asking for an NDA? Is it a norm for them to sign NDAs? Can I differentiate myself by not asking for an NDA?
Unfortunately, startups often try to throw NDAs down as a blanket on all their conversations because they think their idea is so damn important.
I think it’s worthwhile to note that I wasn’t talking about all scenarios, but specifically when hiring people at an early stage.
I’m a sales guy for a start-up. NDA’s used to drive me nuts. There was a partial implication of un-trustworthiness mixed with the feeling that anyone that would ask for an NDA must be with some major bureaucracy that will take forever to complete a deal.
A few weeks ago, in a fit about NDA’s, I went back and looked at all of the companies that had asked me to sign an NDA to see if they were truly a waste of time that I had thought that they were.
A funny thing happened. I discovered that 80% of the companies that had asked me to sign their NDA closed deals with me. What an awesome number! 80%! Now instead of getting upset about the NDA, I welcome the process and even try to drive it into my process.
NDA’s should be viewed as a level of commitment by one party to another, not a mere inconvenience.
Thanks for reading and commenting Scott. What % of the companies that *didn’t* ask for NDAs did you close?
That is a much deeper question that gets into a lot of particulars about lead quality, forecasting, timing, personalities, etc.
There are so many factors, as you know, in closing a deal that it wouldn’t be accurate to state that because an NDA *wasn’t* signed that it didn’t close, therefore, it is tough to put a percentage around it.
As a barometer, though, most of my potential customers don’t ask for it.
80%? That’s surprising; I’ve seen lots of people (in particular, VC’s) talking about NDAs as the kiss of death. Case in point, Guy Kawasaki:
“[D]on’t ask any potential investor to sign a nondisclosure agreement (NDA), because asking them to do so will make you look clueless. Venture capitalists and angel investors are often looking at three or four similar deals, so if they sign an NDA from one company and then fund another, they expose themselves to legal action. If you find an investor who is willing to sign an just to hear your idea, you probably don’t want his or her money.
“I’ve never heard of a venture capitalist or angel investor ripping off an idea—frankly, few ideas are worth stealing. Even if your idea is worth stealing, the hard part is implementing the idea, not coming up with it. Finally, continuing the dating analogy, you probably won’t get very many dates if the first thing out of your mouth is “Will you sign a prenuptial?” “
Scott’s talking about startup sales, not raising money from VCs. Guy is right except ideas do get “stolen”.
I have a completely inverse experience, an “up-front” NDA (& RFPs) is a big warning… Obviously every single customer & business combination is different.
In terms of NDAs and startups. I would point out a couple of (paraphrased) points from authors and VCs that I respect:
Rob Adams (A Good Hard Kick in the Ass) has the 20, 10, 1 rule. If an entrepreneur in Austin has an idea, it is a fair bet that 10 in Boston and 20 in the Bay Area have it as well. It is about execution of the idea.
Steven Gary Blank (The Four Steps to the Epiphany): most startups fail not because the product doesn’t work. They fail because they don’t have a business model that makes money and they haven’t found the right customers.
In the end, I agree with Nivi – any legal document that you are not going to enforce, is just paper.
My experience both at the Fortune 50 and start-up levels points to NDA, non-competes, and other similar legal documents used as parts of sales and hiring processes is that they are simply paper-tigers. Even if enforceable (most are not) the cost benefit is not likely to be there. As others have pointed out above it is all about the ability to execute. I am a big believer that only 1 in a million ideas are actually original . The only way you make an idea ‘yours’ is through executing and turning it into something of VALUE. Its about unique value not ideas. For a beer I will give you 10 good ideas, to extract value from me you need to ‘show me the money’. That said the NDA and similar ‘cover-your-ass’ documents can serve as valuable qualifiers of commitment of the party you are trying to business with, but as a general guideline I would insert them into your process as an exception and NOT the rule.
Fear and Loathing of Non-Disclosure Agreements « Notions. Musings that are not quite ideas. // Jan 26, 2010 at 7:40 am
[…] I use the term “irrational” because I find that too many business people (including the very intelligent and successful) have formed pre-conceptions about NDAs despite rarely actually ever reading what one says. Some are the downright misguided. […]