Killing the Messenger: Keeping Startup Secrets

Posted by | October 21, 2014 | business, culture, management, startups, strategy | No Comments

What’s the Big Idea?

Secret Startup -- Should you tell everyone your secrets?

One thing about Entrepreneurs is that we are all dreamers. If you cannot dream, you cannot imagine a better world in which you and your company played a part.

And when it comes to entrepreneurialism, the creation story that has made names like Thomas Edison and Steve Jobs mythological figures in our collective imagination is that of the great idea, the bit of information that can be turned into a product that changes lives, makes the inventor rich, and leads to jobs and progress for our communities.

So if you have a great idea, you typically need time to develop it into a product and even a company. But at the same time, how do you perform all-important team building and funding while keeping a core secret? It’s actually a bit controversial.

I have a huge respect for Scott Weiss’ take on most of the great things happening right now in tech startup world… but I wonder if it is always in the best interest of founders to divulge everything, all the time, as suggested in his article:
Why You Should Risk Sharing Your Idea in which he states:

One of the rookie mistakes first-time entrepreneurs often make is to be too guarded about their idea – in fact, many will actually spend their first $25,000 on patent lawyers without ever fully vetting their product. In order to gain credibility and attract investor attention, it’s critical to aggressively seek out the most relevant people in the world and get their feedback. I believe most young entrepreneurs massively overestimate the chances of someone stealing their idea versus the benefits associated with sharing it.

Hard to argue with that, to be sure. And to be clear, I don’t argue that secretiveness for its own sake is ever a good idea when trying to be a transparent leader and promote trust and gather feedback and advice.

In fact when I was starting out, unlike the “rookie” that Scott mentions in his article, I was prone to oversharing. As someone who gets enthusiastic about ideas and product vision, if anything I tend to overshare. But in hindsight I think a few times I was really not helping myself by talking to certain people.

So, I’m just suggesting that this is a finer-grained issue than meets the eye, and in fact every situation is different, and if you have a secret sauce worth protecting, using a balanced “need to know” approach can also be important.

So if you’re here, part of the dreamer class, I want to discuss how this mythology and dynamic plays out in one important aspect of startup world.

As a founder, chances are that when you started, you had an idea upon which the company was founded. Like many before you, there is a conflict. Unless you literally plan on executing the entire company by yourself (not advised) — you will have to share the idea with others. And that means the possibility that once the idea gets out in the wild, it will no longer be yours, that you will lose it to a competitor who has an unfair advantage over you and all the life you expended chasing the dream will be wasted.

If you are like me, you have some secretive and protective instincts when it comes to your best business ideas — we all carry around a vague horror failing to protect our innovations, only to be outwitted by a savvy businessperson that takes the product to market and gets all the riches and fame.

On the other hand, especially from investors and VCs and others that see a *lot* of ideas come and go — we hear a lot of advice that says, don’t worry about it, just share away!

So, which one is it? Disclose or defend? Trust or bust?

The reality is that every idea is different, and that surely there are cases where great ideas are poised to take off and telling the wrong person will end up in tears.

Here’s one example:

You’re an industry outsider, you have a new idea for how to run an efficient chain of dry cleaners. But you haven’t fully developed it and you’re looking to partner with a chain of dry cleaners to license your idea.

Now let’s say you’re at a dry cleaners convention attempting to meet new partners.

The risk is someone better positioned in the industry will cherry-pick it and will become a fierce early competitor instead of an early adopting customer. Ouch!

So, just as a reality check, let’s start off by asking just who really needs to know about the idea and why.

In my next installment we can wrap up by thinking through what makes secrets work and which ones are worth defending at all.

Potential Co-Founders

To be fair to potential co-founders, you will have to disclose a lot. This is really important but if you don’t trust the potential co-founder enough to share this, then it’s probably not a good fit anyway.

Back of Napkin Analysis

need to know

98%

Spouse/Family

Spouses and family in general have a varying need to know. Family and close friends can be your strongest support when you need it most. Often you will look to them for advice, support, and they may eventually even invest in a “friends and family” round.

But like any close relationship trust is a paramount issue and like anyone you’re speaking with, don’t over-share if you don’t think the person can keep your secret in the first place, or if there are envy/equity/power issues in the relationship.

Back of Napkin Analysis

need to know

80%

Potential Investors

Potential investors are where it gets interesting.

You have to pretty much divulge everything that will impact or even make/break their investment — so of course they will need to know how their investment works once their money is at work.

Are the firewalls between an investor’s portfolio companies and your idea strong enough to protect your dreams?

I recommend a “dribble” approach. Triage the bits of info you keep as trade secrets, and retain implementation details of your strategy until after there is a term sheet in place.

Back of Napkin Analysis

need to know

80%

Potentially Potent Peeps

Okay this is a hard one. You know it takes great peeps to keep your dreams alive. But get a bit too fast and loose with a super-competent person that doesn’t have your interests at heart…well, who knows.

  • potential business partners
  • fellow entrepreneurs
  • former colleagues
  • potential newhires
Back of Napkin Analysis

need to know

50%

Don't Talk to Strangers in Strange Places

And then here is the obvious group. Don’t talk to these people until your product is already launched, profitable and defensible:

  • potential competitors
  • strangers at industry conferences
Back of Napkin Analysis

need to know

5%

About John McMahon

John is a serial entrepreneur and full-stack developer. John is currently CEO of Starter Inc. a mobile and web development company, and is the founder of Humor Me Inc. maker of the Chukles consumer mobile humor app. John also currently serves as the CTO for MatanzasGroup, a Global Pharma Consulting Firm. John founded Extentech in 1998, growing it into a leading Web 2.0 spreadsheet tools vendor. In 2012, John sold his 100% stake of Extentech to Infoteria Corporation -- a publicly listed Japanese company. John has recognized expertise in startups, mobile and web development, open source, and cloud computing. John has been a contributor to Accounting World and has been interviewed and featured in stories on PandoDaily and Forbes.com.

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