You’re an eager entrepreneur with the next “million dollar app idea” that you insist will change lives. You may have done your due diligence and followed good practices in app ideation. You have even started writing your business plan.
You confide in friends and family about the idea, one of whom is an eager entrepreneur. She tells you that it’s too good of an idea not to secure. She asks whether you’ve considered putting a non-disclosure agreement (NDA) in place before approaching a developer as no idea is too sacred to be stolen, not even by developers themselves. What if they use your idea towards their clients, themselves, and release it to competitors?
In a panic, you heed her advice and perhaps download a generic NDA from the internet thinking that it’s a catch-all that will cover all the bases in protecting your idea. You bring this draft with you to your initial meeting with a developer, and you present your NDA before fully describing your idea.
When you bring it up, you can’t help but notice his displeasure. The developer tells you that he’s interested in your project but refuses to sign your NDA without having had an opportunity to review it ahead of time, and your meeting quickly comes to a close.
What went wrong? Why didn’t the developer sign the non-disclosure agreement?
In the last post, NDA ettiquette was briefly covered. An NDA will legally protect your valuable information from being released to potential competitors. But when asserted pre-maturely and inappropriately, NDAs can end client-developer and/or client-investor relationships before they begin.
Non-disclosure agreements can trigger unnecessary conflict and litigation in the biz-tech world when they’re misused. This is one of the reasons why some developers and investors won’t sign your NDA. But it’s not the only one. Read on to avoid and better understand this faux pas.
Presumption of Distrust
You just met the developer. You want to establish an open and communicative rapport. Within the first meeting, you’ve already assumed that he will steal your app idea for his own gain (which he more than likely will have no time to do).
Asserting an NDA from the early onset of your partnership is a sign that you’re unwilling to invest time into building a relationship before placing legal protection around an idea that hasn’t been discussed on basic terms. Your developer would first prefer a detailed discussion to ensure that realizing your app idea is something they’d be interested in doing prior to signing an NDA.
An Idea is Only as Good as It’s Execution
There’s no shortage of good ideas. Thousands of ideas are scribbled in many entrepreneur’s notebooks from their eureka moments. A tell-tale sign of inexperience is overvaluing an idea rather than its execution.
The idea’s execution is 99% of the battle. Most time and resources go into its successful launch rather than stating its concept.
Developers will likely decline to sign an NDA since its legal implications don’t justify protecting your idea that hasn’t proven itself to be a tangible asset.
Rather than trying to protect your idea, you should share it and benefit from valuable feedback that helps your concept evolve. Sharing it with members of your target industry is essential. The research you do in the early stages will only improve your project once the costly development begins.
Double Whammy: Innovation Stifled and Liabilities
There is almost no such thing as an entirely novel app idea. Innovation in tech is ever evolving on top of previous concepts.
Pitches to developers and investors usually follow the format of [existing app] for [specific industry niche]. E.g. “It’s like Air B&B, but for pet owners.”
One iteration of an app concept will inevitably beget another, more improved one, or someone will beat you to developing the exact app idea you had in mind without ever having interacted with them.
A developer will likely decline to sign your non-disclosure agreement protecting your app idea because it will stifle their ability to develop something that is remotely similar (depending on how broad an NDA’s clauses are), even though it’s likely been built already or in the process of being developed elsewhere.
A completely original idea is rare because of the overlapping nature of tech innovation. It’s what makes using an NDA to protect an idea difficult.
From the developer’s side, an NDA only holds the signee(s) liable for litigation, and not the inevitable competitors.
As John of Programmer for Hire notes, “In an ecosystem where ideas are borrowed and remixed constantly, an NDA is a poor man’s patent that can be levied only against the signer. Nevermind the […] competitors.” The contents of a bad NDA can prevent a developer from his/her work due to the liabilities tied to unfair work terms, inflexible and unreasonable penalties, and vague clauses.
The worst NDAs are ones that were DIY drafted. They often have non-compete clauses that are very inappropriate. These DIY NDAs presented before discussing the project is essentially asking the developer to agree in not competing with the project, before the developer even knows what the project entails.
When should you use an NDA?
Use a non-disclosure agreement when you have established a rapport with your developer/investor, and when you have a tangible asset that already exists. NDAs should not function to protect your pie-in-the-sky idea that hasn’t yet materialized.
Use it in the right business scenarios that serve to protect an asset that has been executed and proven concretely valuable such as the following:
- Trade Secrets
- Comprehensive Business Plans
- Industry/Client Databases
- Proprietary Source Code and Technology
- Sensitive/Confidential Financial Information
Good NDAs are mindful of the quick and ever overlapping innovations in tech by having a term limit, defining the specific asset that is confidential, outlining the penalties in breaching the agreement, and offering mutual protection to both parties.
What do you think? Have you ever had a developer decline to sign an NDA?
We’re more than happy to sit down and listen to your idea. But understand that we at Gravit-e value innovation and the execution of your idea.