3 Reasons NDAs Stifle Startup Innovation
And 3 Times They Can Protect It
Pretty much every day for the first 10 years of my career I signed a Non-Disclosure Agreement (NDA). They became a precursor to doing business with someone new. But as soon as I started out in the entrepreneurial world it became apparent how obstructive they are.
Startups are widely regarded as being hubs of innovation. They’re known to push the boundaries of what already exists and to come up with sparkling new ideas. Think Airbnb, Uber, Instagram…Yes they’re massive corporations now, but how did they begin? With ideas. Startups have the agility to innovate by their very nature.
In other words, the startup is a blank slate. The conversations and the synergy of ideas that can happen as a result of this are what create innovation. After all, ideas need feedback in order to evolve and the blank slate of a startup facilitates this perfectly.
For this reason, one of the most important things you can do as a startup founder is to encourage conversation and facilitate innovation. Wherever possible, let the ideas flow!
You might have the next big thing in your hands, but there are 7.6 billion people in the world. Statistically, the chances are your idea is probably already out there in some form or another. The way to push your iteration of the idea to the forefront is to allow it to evolve in conversation with others.
The only barrier to conversation early is the propensity to overuse NDAs…
NDAs are legal agreements between two parties. They are signed so as to prevent the sharing of company secrets; many startups believe they are totally necessary to success. I did too, until I looked further into it…
Did you know that NDA’s can’t actually stop people “stealing” your ideas? They just mean that they can’t tell anyone else about them. This is just one of the many flaws of the NDA. They don’t do as much for your startup as you might think they do.
Sure, an NDA is necessary at times- as I’ll touch upon- but it’s important to keep in mind that they can also hold you back. Signing is a formal agreement, and really only necessary when you’re in the deep details of business. Other than that, NDAs can be hugely suffocating to innovation. Here’s what I’ve learnt…
3 Reasons Why An NDA Stifles Startup Innovation
1. Preventing Business Feedback
Sharing your business idea is key to getting the idea off the ground. I’m sure like me you’ve had that ‘eureka’ moment. You’ve got the next big thing. That is until you talk to a few industry professionals, and then you discover it already exists.
Practically speaking, you can’t get business feedback in early stages if you require everyone you speak to to sign an NDA. These conversations are key not only to preventing you wasting time on an idea that won’t work, but to enable you to learn from other’s mistakes and build something where there is a true gap in the market.
The risk that someone would steal your idea or pass on company information to someone who would is much less than the risk you take by not having these conversations. These conversations are what allow you to strengthen beyond the competition anyway.
Whilst working on our startup for the last two years we’ve seen over 10 competitors establish and fail in the last 2 years. Clearly, the idea of our business is already out there. Competition will always be there. It’s how you execute that matters.
2. Blocking Customer Feedback
Beyond the feedback of business professionals, establishing customer demand for your product or service is crucial right from the off. When you reach out to prospective customers, you want to be able to present your idea in all its glory and not to hide behind vagueness or the restriction of an NDA. Take feedback where you can and be bold in going out to get it!
3. Adding Roadblocks For Investors
The third, and possibly the worst, case in which NDAs can stifle your progress is in conversations with investors. Angels and VC’s both see hundreds and hundreds of startups a month. You need to be in conversation with them, and make their lives easy in addition to standing out. Paperwork or a legal barrier does the opposite- no one wants to sign a NDA before they read your pitch!
Remember that, particularly if you’re pitching to ‘strategic’ industry investors, they’ve likely seen similar ideas a few times before. An NDA is just a roadblock here, between you and people that can accelerate your business.
3 Situations In Which An NDA Protects Your Startup
1. With Contractors, Business Partners & Employees
There are two reasons why you will want anyone you work closely with to sign an NDA. The first is that workers and business partners will naturally see a lot more of the details of what you’re doing. Once you’ve agreed to “do business” with someone, it makes sense to confirm formally and mutually that you won’t share each other’s secrets.
The second is that it encourages a long-term relationship and sets things off on the right foot. In establishing trust and confidentiality, it makes contractors and workers in particular feel a part of a professional setup.
2. Using Proprietary Technology
If you’ve got some proprietary tech, or are onto something special that might be, then it makes sense to keep it under wraps. Remember those initial conversations can often be had without going into the detail of how your technology works. So if you aren’t going down the open source route, it makes sense to protect your code / product.
3. Where Actual Financials Are Involved
If you get to the stage where people might be privy to the details of your actual finances, then it makes sense to have protection. There is a distinction. Talking about your monetisation strategy in an early stage pitch to investors, that’s one thing, and given it’s based on projections probably doesn’t need an NDA. However, if you’re sharing detailed information about the whole of your operations (say to a business partner or an accountant) then that’s another, and an NDA can ensure your finances aren’t spread to the world.
Ideas + Feedback = Innovation
At the end of the day, everyone is trying to build a new future. We live in a world full of ideas. Take all the feedback you can get and execute it so that your idea becomes better than the rest. Don’t hide your ideas in a vacuum. Save the legal stuff for when you really need it.