Friday, February 08, 2008

Warning... Rant on Idea Thieves

Made to Stick starts with a great story about kidney thieves in Atlantic City. Warnings flew around the world to be careful about beautiful women that buy you drinks (NB: I married the first one I met). Just one problem. It's a story, a lie, an urban myth. Along with razor blades in apples, flesh eating bananas, ubiquitous shark attacks and a rash of sex crazed child abductors. But there is a reason these myths are out there. They are stories that we use to discourage behavior society doesn't like. Hooking up in bars, not telling your parents where you are, surfing alone, taking treats from strangers (I'm not sure about the bananas).

There are also urban myths galore in the area of innovation and entrepreneurship. They seem to exist as a way to discourage people from starting new businesses. I am going to discuss just one here.* This is the myth that someone will steal your idea for a start up.

Now, here's the warning. This is a RANT. I am not having a great day and am a bit grumpy. Earlier today, I read a"question" reader DanD posted on Guy Kawasaki's blog about this topic. While I was already a bit grumpy when I started to read it, DanD (and his ilk) set me off. What follows is not politically correct, or dispassionately stated. I don't even know DanD. But I hear this question all the time. You folks need help. Consider this an innovation intervention in three parts.

Part 1 Don't worry- Here's how the world works
Ideas for start ups are very common. I'd say a dime a dozen, but that probably overvalues them. Worldwide, close to 200 companies start each minute.** Pretty close to the number of iPods that are sold each minute. Stop and think about that for a minute. Ooops... there go another 200 start ups, and you are just sitting there. But back to ideas. They are worthless unless someone does something with them. This creates the great entrepreneurial opportunity. You KNOW your idea is valuable because it has infected you and you are going to go do it. Or at least invest a lot of time trying to figure out how to do it. So it is valuable to you. BUT, it probably isn't valuable to very many other people because they aren't going to do it. Unless you convince them (which is hard to do if you don't talk to them about it). If they are good, and you are too, they will want to do it with you. If you or your idea aren't so good, you are just going to have a hard time attracting resources (but why make it harder by not talking to anyone?) Plus, if you are good, you shouldn't be worried because you will think you will do it better than anyone else. And you probably will. Do you see why this is such a stupid thing to be worried about?

OK, you say, but what about those pros? Why won't experienced angels, VC's or the guys at Microsoft sign a confidential disclosure agreeement before they read your plan? Because they get inundated with ideas. Hundreds a month. Remember M*A*S*H? These guys are in triage mode. They pretty much only look at ideas that are passed on from their networks. And they still have too many. They only want the big hits. They get more pitches than movie studios get scripts. When you ask this question, you make their job easy. You have just shouted "I am beyond someone else with your money! Don't waste it on me." Because they know that you have just indicated that you don't have much confidence in your ability to execute the idea better than anyone else. Pause. Do you get it now? Would you invest in you?

What's more, think about what a professional investor does. They invest. They may have run companies in the past, but they probably don't want to anymore. And if they did, they know that their most important asset is their reputation (no, not their bags of money). If they rip off an idea, their deal flow will dry up, as will their invitations to play golf. Plus, back to the previous point, they see lots of deals. You just aren't special enough for them to rip off. Instead, they can invest in someone else who is actually going to go execute on their idea. They just don't need you.

The way the world works for an entrepreneur is that you are trying to infect people with your idea. Customers, potential co-founders, investors. This is not the same as finding a mate. Stop trying to practice "Safe Entrepreneurship". You just aren't gonna get lucky this way. You need to let people know you are "available" and "easy". And promiscous entrepreneurship doesn't hurt anyone.

Part 2 If you are still worried, here's what you can do...
Not convinced yet? Then I am guessing you are in biotech, clean tech or materials business. In some specific cases, you do need to be careful. These are where your concept involves a real invention. A patentable one. It is truly novel. And if you have a patent, you can actually enforce it (because you will be able to identify thieves). Then you may be on this other track. So, you talk to a patent attorney and you file a patent application. Until it is filed, treat this as your secret sauce. Don't talk to others about the sauce's ingredients or how it's prepared. Notice I didn't say you couldn't talk about the sauce. Because smart investors understand this, and they are more interested in whether people like your sauce, and who is helping you serve it up. What's more, patents aren't really as useful as you may think. Their value is the amount of money it will take someone else to work around it. For new pharmaceuticals, this can be a lot. But I wouldn't waste my money on most other patents in this day and age.

If it is not patentable, but is more of a trade secret, then just don't talk about that aspect of your business. Got a special recipe for hot sauce at your restaurant? Talk about the great service at your restaurant, give people a taste, wear a chicken suit, win some prizes at the county fair. Don't give away the recipe.

Not patentable or proprietary? Then your job is to hustle and execute. And talking to others freely is the way to do this. Are you doing this, and not getting any connections? No luck at getting people who want to work with you... or buy your product... or invest in your company. Well, its either you or your idea. One or both must suck. If you sit around and mope long enough, and its you, not your idea, someone else will probably come up with it, execute it, and do OK. Then you will get really intolerable because you will tell everyone that you had this great idea, but you just never got it off the ground. And then someone "stole it."***

Despite what you think, asking this question about preventing idea thievery, or telling your "last time I didn't get around to launching" story does not make investors say "Wow, that guy must really have something special... I better go talk to him." You might as well wear a "toxic waste" sign on your shirt. You may get their business card, but they won't call you back.

Oh, and if you ask me this question, I am going to ask you a question. So, DanD, what idea have you heard at this event that you plan to rip off? See, now you feel like everyone else. Even if you see another interesting idea, you won't rip it off. You'll figure the other guys are already well down the road. You really just want to go ask them for a job, because you don't truly have an idea you believe in. Have I made my point yet?

Does it ever happen, idea theivery? I am sure that it does.**** But it is not a widespread danger. It is not a reason not to talk to people. 200 start ups a minute. A few rumors of rip offs each year. There is unlikely to be a shark under your wave.

Part 3 You aren't still worried, are you?
If so, keep your day job. Stop going to angel forums, entrepreneurial conferences, etc. In fact, just stay inside and watch reruns of The Apprentice. Above all, stop asking this asinine question. Our youth are watching and listening. Don't be part of perpetuating an urban myth that teaches them to be afraid of ghosts. That teaches them to conform to a system that is unsustainable and in need of reinvention. We don't need another generation of the "business as usual" crap.

If I am wrong (and that has happened before as my wife, children, friends, students, co-founders and co-investors will attest), I will admit it. But you need to give me real examples. And if others agree, based on their personal experience, that "Idea Thieves" are about as common as kidney thieves in Atlantic City, let me know that as well. And, I must say, I feel much better now.

*Another scary myth is that 9 out of 10 start-ups fail in the first year. Not true. See Headd, Redefining Business Success (2003).
** Admittedly, the data is sketchy. Extrapolating on data from Global Entrepreneurship Center, Moya Mason has estimated 100 million start-ups per year. This is an astounding 270,00 per day; 11,000 per hour; and 190 per minute. I find this to be an interesting, profound and wonderfully affirming statistic.
*** The perspective of hindsight is interesting- as very few businesses evolve as they were laid out in the business plan. To me, this would imply that it would be hard to work backward from a success to the stolen idea. For a variant of this hindsight approach, take a look at the "Is the Tipping Point Toast?"
****I think that the rare idea thief is more likely to be a disgruntled employee that goes to a competitor (or starts one). Like Facebook? But not angels or VCs.


Lee Devlin said...

I also just recently finished 'Made to Stick'. You can imagine my surprise when reading the Denver Post this past weekend to find out that kidney thieves actually do exist, they just happen to be in India.

Don Lancaster has had a lot of great articles about patents over the years and how they apply to entrepreneurs. I'd recommend reading those articles before spending any money on patents.

In addition to common misunderstandings of the patent system, there are perpetual myths like the 100 mph carburetor and the 'gasoline pill' where people think that patents can be 'bought up' and suppressed which is exactly counter to the way that patents work.

Bopreneur said...

Thanks, Lee.
To reinforce my point, even though I now know that there really are kidney thieves, the chances are so tiny that I will encounter one that I still plan to go about my life's business. I'm not afraid!

Bopreneur said...

Via email:

I have never had an idea stolen or heard of someone who has had an idea stolen. I also have never heard a lawsuit take place over what we call "reps and warranties" even though they take up 95% of legal haggling. I suspect I am just naive or lucky.
Rodne Schwartz

Catalyst Fund Management & Research Ltd. London

Anonymous said...

Simple principles to live by (Hunt Lambert, founder of 25 companies in 12 countries and hundreds of other ideas, none of which has ever been stolen)

Ideas have no value whatsoever, none, zero. And the same idea tends to happen by the thousands because lots of people are aware of the same problems at the same time.
Doing something with your idea has lots of value
Share your idea broadly before you do it (= spend money) and see how people react – listen and learn, do lots of research
If you decide to do it, stop talking to anyone who you are not trying to hire, sell to or raise money from
Don’t bother with non disclosures, they are also worthless and get in the way of getting it done
If the idea can get intellectual property protection, get it, if not, move faster
If employees will sign non-competes, they might be the wrong people
No one who invests money ever steals ideas, they are investors not doers
Big companies sometimes steal patents but it is usually just a mistake that can be fixed in court
Do it, do it hard, kill it fast if it is not working and go onto the next idea. Remember ideas are cheap and abundant

rex o'neal said...

I'm not sure what I can add to the great comments already provided. I am a lawyer who represents both entrepreneurs and professional investors. I have represented over 500 technology ventures in Colorado and California, 25 of which completed public offerings. I also have been a founder and CEO of a venture backed software company. I never have seen a startup concept stolen.

The key concept in the prior posts is that even a revolutionary idea is totally worthless without the driven entrepeneurs who make the idea real. The truth of the matter is that no matter how in love you are with your first business concept, it ALWAYS is wrong. ALWAYS, ALWAYS. The difference between a novice and a serial entrepreneur is that the serial entrepreneur knows this--and also knows that it will be necessary to remake the company over and over until the magic formula is discovered. If you want to read a great book on exactly this topic I recommend "A Good Hard Kick in the Ass," by Rob Adams from Austin Ventures. I make my startup clients read this book. If they are offended, then I don't want to work with them because they will fail.

I advise my clients to be prudent about disclosure of confidential technology, if for no other reason than disclosure blows your ability to patent an idea. However, confidentiality concerns should not prevent you from having conversations with important financing or commercial partners.

I have seen mature technology companies steal ideas from less mature technology companies. This can occur through long-term development collaborations where technical personnel from a large company and a small company work closely toward some common objective. Sometimes the large company learns enough about the technology, market and customers that it no longer needs the smaller company. In these cases, the theft (if that is what it is) occurs through the exchange or transfer of unpatentable confidential information.

I also have seen theft of ideas by employees. I think this is the most common form of misappropriation. It occurs when an employee (who probably is bound to an assignment of inventions agreement) conceives of a valuable innovation to their employer's product or service. The employee resigns and incubates the concept outside the former employer and eventually forms a separate company around the concept.

I think these are tough cases. Competing policies of entrepreneurship and protection of IP collide in these situations.

Anonymous said...


What a refreshing rant - as someone who trades in ideas I am always surprised at how possessive people are about their own ideas - as everyone has already said in these posts - ideas are easy; execution is the sharp end of any idea and that is what truly protects your ideas - most people won't have either the skills or experience to make an idea turn into a viable business or opportunity.

I have found that spreading ideas is a great way to get engagement, find partners and investors but I do have one cautionary thought.

The fact that good ideas are so abundant and are therefore almost worthless to investors and others, not sharing your good ideas can sometimes be less a function of secrecy and not wanting to be ripped off and more a way to protect your own credibility - I have recently been looking at switching my business model for my small consultancy, we looked at a bunch of 'ideas', throwing them out among friends, investors and partners looking to see what would stick.

My overwhelming sense was that while people were happy to listen to these ideas, sharing them too early, too often and in too many differing business domains could actually prove to be counter productive as people may begin to question your ability to focus on just the one thing...

So I guess the rule would be, if you have a lot of good ideas, feel free to explore them with a trusted group of listeners who know you and understand the nature of the exploration but be wary of hitting your key networks with too much early stage stuff.

For the record, I have had ideas or bits of ideas appropriated by others but never felt it was too much of a problem; ideas as we all agree are pretty easy and I trust my ability to come up with new ones...


Jessica Shortall said...

I agree with you Paul - except in very special cases where there a special kind of IP, there are no new ideas in the world. This focus on protecting ideas contributes to a problem in entrepreneurship - many entrepreneurs forget that it is 99% execution. My mantra for entrepreneurs I work with is "exciting idea, boring execution". It's just work, work, work. If someone "steals" an idea, I'll put money down that what they've really done is work harder and smarter.
Jessica Shortall.

Anonymous said...

Paul you are right on w/ your comments about stealing ideas - In 30 years of advising, teaching and doing entrepreneurship, I've never seen anyone steal an idea. I have seen lots of better execution of an idea that can't be protected. I have also seen dozens of paranoid entrepreneurs hold on so tight to their idea that they never got anywhere. The idea is worth 1%, the plan maybe 3 % and skillful execution is the rest. DNA

Anonymous said...

I totally agree. I have been involved with many, many start-ups and cannot think of a single case of idea thievery. I am sure there are special cases, but most of the time the key thing is just to build a great team and execute.

Gary Amato said...

As both a lawyer and an entrepreneur, I have to agree as well. I have never seen an idea stolen. As a practical matter, one of the reasons that companies such as IBM don't sign confidentiality agreements is that no one person can possibly know what everyone else at the company is doing, yet they are being asked to sign on behalf of the company as a whole. In house lawyers will see this as an invitation to a law suit and business unit directors will see it as a risk to their competitiveness.