For the rest of this month I'm republishing some popular blog posts of last year. This one about NDAs from September 2015 is probably worth a repeat performance.
A couple of years ago, I lost an important client for my startup because I asked them to sign an NDA. The relationship limped on for a while after, then finally conked. Official cause of death: a lack of trust. Thinking back on my naiveté still makes me blush. Me who was supposedly steeped in the cool, startup culture of New York, and a seasoned entrepreneur on my second startup.
A couple of the discussions I had last week brought me back to this painful experience. John Hurley, the CTO of Ryanair, told me that entrepreneurs often tell him their ideas are “top secret” and share such scant details that it’s hard to offer them any meaningful feedback. Then, a colleague brand new to mentoring startups, told me he was asked to sign an NDA. He was confused and annoyed by this request, and I understood why.
For sure, there’s a time and place for NDAs, like when you’re ready to “open the kimono” on your company’s IP. But asking for an NDA at the idea stage of a business or before a relationship has even begun to have traction just makes the entrepreneur look like an amateur drowning in hubris. I mean really, what were the chances that my prestigious client in New York would first pay to use my product, then “steal” the idea and then reassign their precious engineering resources to build their own version? I had a better chance of winning the lotto.
So early stage NDAs imply a lack of trust and generally speaking, they’re a sign of a weak or immature entrepreneurial ecosystem. Where there’s no trust, there’s no electric flow of ideas between individuals and networks. Entrepreneurs - and all other stakeholders in the entrepreneurial ecosystem - are supposed to be out there, morning to night, selling their ideas to anyone who’ll listen, getting feedback and iterating as quickly as possible. This just cannot happen in a culture of top secrets.
We must encourage our young - or first time, or just naive - entrepreneurs to talk more openly about their ideas and businesses. Help them to recognise that without execution, their ideas are worth nothing. In fact, they’re as insignificant as dots. And to paraphrase Mark Suster, one of my favorite VCs: People invest in lines, not dots.