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Startup NDAs: Why you shouldn’t be afraid of someone stealing your startup idea

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This is probably the biggest topic I run into when I talk to would be founders. They ask questions like:

  • How can I protect my startup idea so no one else steals it?
  • I want to find someone to help me work on my startup / raise investment, but I’m scared that if I talk about my idea, they’ll just take it any develop it without me
  • Will you sign an NDA?

The answer is that you shouldn’t be afraid about someone stealing your startup idea.

There’s a few reasons for this:

The idea isn’t the hard part, it’s the execution.

It’s commonly believed in the startup community that if no one else has had your idea before, it’s probably not very good.

It’s like music — every chord progression has been written before somewhere.

The key is that there are so many different ways to execute the same idea. And your job is to figure out the right way.

Think about the number of times a text or photo-sharing website or application has become successful. There was blogger, and then Twitter, and then Tumblr. Facebook, and then Instagram, and then Pinterest. Each of these is essentially the same idea, executed in very different ways.

But on top of that, the most important part of the execution is things you don’t see: the team you’re able to put together, the culture you’re able to build, the way you manage it, your marketing strategy. All of those things are equally important as the product itself that you’re building.

One of my favorite sayings about this comes from Jake Schwartz, CEO of General Assembly:

If all it takes to steal an idea is hearing about it, it’s not a good idea. Not to diminish an idea, they have power. But it’s about all the hard work. — Jake Schwartz, CEO of General Assembly

There’s a distinction between what you’re going to do and how you’re going to do it. You might want to consider talking a lot about the first and less about the second.

No one cares about your idea

Most people are too preoccupied working on their own thing to care about yours. It’s like walking outside and assuming everyone’s judging you, when in fact, everyone is worried about being judged themselves and no one cares about you.

If you don’t believe this, Dave McClure came up with an exercise for you: take your list of ideas and pick the 3rd or 4th. Not the idea you love the most, but one that you don’t care about as much.

Then try to call up a company that could be a competitor and try to convince them to steal your idea. You’ll be surprised how hard it actually is. They’re working on their own thing and they don’t have time to steal your idea. Ideas are work.

Being precious about your idea will prevent you from being able to execute it

This is probably the biggest reason why you shouldn’t worry about someone stealing your idea. If you’re worried about that, then you’re not worrying about actual important things, you’re just being paranoid.

Honestly I think the paranoia comes from how startups and startup ideas are portrayed in movies like The Social Network. Where all it takes is a flash of insight and a few hours of coding to make an idea happen. That’s not real life.

Your job as a startup founder is quite the opposite of trying to hold onto your idea, it’s to try to tell everyone about it and convince them that it’s a good idea. You have to be going around talking about your idea constantly, because you are your own best marketer.

Your pitch will suck at first, so you have to do it hundreds of times before you figure it out. How are you going to do that if you’re afraid to tell anyone in the first place?

You also have to find the right team, including investors. How will you find those if you don’t tell people what you’re actually working on.

Keeping your idea close to you is safe, but it’s also stupid. It’s a great recipe for not actually ever building it, and then being bitter years later because someone else built the idea that you “had first.”

No one will sign an NDA

Some people think, can’t I just get everyone I talk to to sign an NDA (Non-disclosure agreement) preventing them for sharing the information?

No, not really. First of all, no one in tech will sign an NDA. Especially investors. They hear thousands of startup pitches and if they had to sign NDAs for each one, they wouldn’t be able to do or say anything. They’d have to spend all their time keeping track of NDAs.

Also you have no power when you just have an idea. So why should some stranger sign your NDA? Whenever I get an email from someone saying they want to share their idea but they want me to sign an NDA first, I say “No thanks.” Why should I?

You don’t have the resources to enforce an NDA anyway

Even if you could get someone to sign an NDA, it takes lots of time and money to enforce an NDA. That’s not the kind of legal battle you can afford to get into when you’re starting a startup. It’s unlikely that you have the money.

So that’s it.

The Hard Thing About Hard Feedback

When you’re a founder, you take a lot of feedback on different things. It doesn’t quite get annoying, that’s not the right word for it. So what is it like?

Sometimes it’s helpful because you see something new (rarely).

Sometimes it’s just another new data point.

Sometimes it’s frustrating because you know it’s something you should be doing but you’re not (often).

Talking to people is an essential part of your job. You can’t run away from them.

You’re talking to investors, employees, directors, customers, and everyone else. What are you going to do when people tell you your idea sucks?

How do you deal with that?

You don’t. You thank them for their feedback and you move on.

The hard part is knowing what to conclude from people’s feedback.

Some things to consider:

  • Listen
  • Assume people want to help you. The fact that they’re giving you advice means that they care about your success. So don’t take is an as attack.
  • Be aware of how it’s making you react. Are you getting upset? Are you getting frustrated? Are you getting excited? Those are all okay. But it’s worth being aware so that you don’t let those emotions blind you and make you do something or respond in a way that you shouldn’t.
  • One data point is not enough. You have to do additional research and talk to more people.

What is Payment Processing?

Key Takeaways

Payment processing allows you to accept payments online. Here are three options to get you started:

  1. Easy: Services like Gumroad or Shopify are easiest. They come with basic themes and customizations.
  2. Medium: The Stripe checkout button. You’ll need basic development skills, but in exchange, you can customize the experience a lot more.
  3. Advanced: The Stripe API or Paypal API. You’ll need expert development skills however, you’ll have 100% control over customization.

Your Assignment

  • Decide which payment processing option is best for you. To get started, read about GumRoad, Shopify, and Stripe Checkout (20 minutes). If you have questions about getting started, contact us at teachers [at] onemonth.com.

Additional Resources to Keep You Learning

What is Growth Hacking?

Key Takeaways

Growth hacking is marketing + coding. It includes things like: landing page optimization, SEO, public relations, advertising, and copywriting.

Three things that a Growth Hacker might do in a typical day:

  1. A/B testing landing pages
  2. Capturing emails before you launch your product
  3. Optimizing the virality of your product so that more people use your product.

How to Learn Growth Hacking Today

  1. Read “Growth Hacker is the new VP Marketing” by Andrew Chen (5 minutes)
  2. Read “Find a Growth Hacker for your Startup” by Sean Ellis (5 minutes)

Additional Resources

  • Growth Hacker TV — Over 100 episodes where the experts on startup growth reveal their secrets. Multiple new episodes released every week.
  • One Month Growth Hacking — learn growth hacking in 30 days or less with Mattan Griffel

LLC vs. Corporation: Which is Right for Startups?

If You’re Starting A Startup:

If you’re starting a startup, and you want to deal with equity, you’ll need to start something known as a C-Corp.*

The two major ways you can create a company are as a C-Corporation (C-Corp for short) or a Limited Liability Company (LLC). If you want to have equity in your company, then you shouldn’t start an LLC. An LLC is just for multiple partners owning a business. A C-Corp will let you take investment and have equity in your company.

Another important thing about a C-Corp is that you’ll have a Board of Directors. That might start out as just you and your Co-Founder, but as you grow and get more investors, they may join as board members as well.

For now, you probably don’t need to know about A-Corps or B-Corps (but if you want to geek out, we won’t stop you from Googling). Focus on LLC vs Corporation.

*Of course, for questions specific to your particular situation, it’s best to seek the advice of an attorney or accountant.

Key Takeaways:

  • If you want to take investment (and have equity in your company), you’ll need to start a C-Corp.
  • The two main forms of company structure are C-Corp and LLC.

Why Should You Incorporate Your Startup In Delaware?

Startup Series: Why Delaware?

Why should you incorporate your startup in Delaware, even if you’ve never been there?*

A whole lot of companies in the US are incorporated in Delaware, even if the company doesn’t actually exist there. One Month, for example, is incorporated in Delaware, even though we’re headquartered in New York (and we’ve never been to Delaware)!

The reason? There’s a body of law in Delaware where many court cases have already been tried, so companies and potential investors have more certainty about how different legal disputes will turn out. It’s riskier to incorporate your startup in a state where the outcomes for legal problems don’t have any legal precedent, and it’s unclear what would happen if a case were to go to court.

For investors, it’s also more attractive for them if they know you’re incorporated in Delaware, because this gives them more certainty. If your business has a legal question and it needs to be figured out in the court system, investors prefer the certainty of knowing that previous cases have established precedent (known as case law) in this state.

*Of course, for questions specific to your particular situation, it’s best to seek the advice of an attorney or accountant.

Key Takeaways:

  • Ideally, you’ll be incorporated in Delaware (you don’t have to live there to incorporate there) because many of the laws and cases have already been figured out
  • The steps to incorporating a business are fairly simple, hence there are people who can do it for you.
  • If you try to do it the manual way, it can be more complicated, but still do-able.

More Links:

Startups + Fundraising Series:

If You’re Not Embarrassed By Your Startup, You Launched Too Late

“If you’re not embarrassed by the first version of your product, you’ve launched too late.” — Reid Hoffman

If your startup is successful, no one will remember how ugly your product looked the day you launched. (And if it’s not successful, no one will care.)

When we think about successful companies like Google, Facebook, and Twitter, we tend to forget the modest beginnings from which they came. As Paul Graham recently wrote, “Think of some successful startups. How many of their launches do you remember?”

In celebration of modest beginnings, here’s a dose of reality: I recently came across the landing pages of some of the most successful companies we know. This is something everyone should see.

The moral of the story: don’t name your company BackRub. Also, don’t worry about making something pretty, worry about making something people love. As Reid Hoffman (the founder of LinkedIn) once said, “If you are not embarrassed by the first version of your product, you’ve launched too late.”

It’s easy to say “have a growth mindset,” and “follow lean startup principles.” It’s a lot harder in reality, when you have to launch quickly, and put out versions of your product that feel unfinished, raw, or even ugly. Take a look at the startups below, and how they launched their first product — and maybe you can launch a little earlier. Or a lot earlier.

(Credit goes to Phil Pickering for finding these.)

Twitter’s first landing page:

Early Facebook screenshot:

Early Google homepage (from 1997):

The precursor to Google, BackRub:

An even earlier Google homepage:

Yahoo!’s homepage in 1994:

Early tumblr dashboard screenshot:

Early Amazon homepage screenshot:

Apple circa 1997:

AuctionWeb before it became eBay:

Burbn (a Foursquare clone) before it pivoted to… Instagram:

The first ever prototype of Foursquare (shown at SXSW in 2009):

Reid Hoffman’s original LinkedIn:

And finally… Reddit (some things never change):

What stands out to you? How would you have designed things differently?

It’s easy to think that you need to have a great design and get everything polished before you release it to the world. In reality, you should launch things as soon as you can, as quickly as you can, to get validated learning. The Lean Startup talks about this as validated learning — getting immediate feedback from users as to what they actually want, not assuming you know all the answers.

How can you launch a beta version earlier? Why is getting feedback on a somewhat-shitty design more valuable than perfecting a design that no one wants? Post your thoughts in the comments below.

What Are Convertible Notes and Why Use Them?

Throughout our previous entries on raising funds as a startup, we’ve been talking about raising money for your company by sharing equity with venture funds.

When you’re a company in its early days, sharing equity is difficult. Moving equity from your company to another requires a lot of time to hash out an agreement everyone can live with. It requires lawyers to work out the actual contracts. The whole process can cost upwards of $50-$100K. That is a lot of money for a company still looking for its first round of seed money.

Rather than dealing with the hassle of transferring equity, a lot of venture funds find it better to offer funding to startups using convertible notes.

Convertible notes are debts that convert into equity when a startup raises an actual equity round of funding. In essence, the venture fund offers to give you a loan of whatever amount. Instead of paying them back in actual money, the startup agrees to pay them in preferred equity. The venture fund gets the same agreement as whoever has invested in the series A round, with a bit of a discount as a good faith offer for investing earlier.

Early investing venture funds often find working with convertible notes preferrable to working with equity transfer for a few reasons:

For one, issuing a convertible note is easier. It can take weeks of discussion to transfer equity, but you can really issue a convertible note in only a couple of days. They also make it easier for the venture fund to work out the valuation of the startup by putting the discussion off until the series A round, when there is actual data to base their valuation on (rather than just a hunch). That considerably lowers the risk of their investment.

For startups, the convertible note also simplifies things. Convertible note agreements are short, maybe ten pages at most. They can often be found online and modified according to the template.

Instead of the high cost of hiring a lawyer to transfer equity, the documents for a convertible note can often be found online. As a result, they can help generate quick funding in exchange for onle a few hundred to a thousand dollars. For a company that has limited time and financial resources, that is a tremendous advantage over complicated agreements.

Key Takeaways:

  • Convertible note are a form of debt taken on during seed funding that converts into equity when a startup begins an actual equity round of funding (usually in series A).
  • Convertible notes are preferrable to startups because they are quicker, easier, and cheaper to issue than equity. They are better for venture funds because they make valuation more flexible.
  • You can find a lot of online templates for convertible notes that you can use. Usually a lawyer is only needed in a limited capacity when working out a convertible note agreement.

Links

Storytelling For Startups

In light of our recent Storytelling for Business course announcement, this Founder Friday, I wanted to talk about storytelling for startups and how you can improve your ability to pitch your startup.

I have four basic pieces of advice:

  1. Set up a problem. Do this before you talk about your startup or what you do. Convince the listener that the problem your product is trying to solve is real and significant.
  2. Stop with the Jargon. Don’t talk about about “leveraging big data analytics and optimizing the social graph” because no one knows what that means. Really dumb down what you’re talking about to the level that a five year old could understand.
  3. Make it personal. Tap into people’s emotions by using language that relates to the five senses — show rather than tell. You ideally want to make it concrete and somehow relate to your listener. At the very least, you should be engaging your listener in a dialogue instead of just talking at them.
  4. Use common storytelling beats. Such as the 3 act structure (Exposition, Rising Action, Climax), the 5 story beats (Introduction, Incident, Stakes, Event, Resolution), or Dan Harmon’s Story Circle