Valuing Start-up Ideas: Protecting the Seed
Ideas: Inherently Valuable?
Derek Sivers says he finds it “funny when I hear people being so protective of ideas. (People who want me to sign an NDA to tell me the simplest idea.)” He believes, “ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.”(Sivers, 2012) He has this whole explanation that involves some arbitrary numbers and a simple formula.
Respectfully, I disagree with Mr. Sivers, yet I concede, without execution, ideas are only potentially valuable. Being “potentially valuable” and being “worth nothing unless executed” are not the same, because one can acquire legal protection of an idea without executing a business plan based on the idea. Valuing start-up ideas is not easy. Here is what Mr. Sivers suggests a start-up idea is worth, with corresponding degrees of execution:
The subtle distinction between “potentially valuable” and “worth nothing unless executed” mentioned above is important. One should not dismiss an idea simply because they are incapable of immediately acting upon it. I believe an idea is an inherently [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][potentially] valuable thing existing inside a seed, just waiting to grow. As such, that seed needs a shell–a bit of protection, if you will. Once you have your idea-seed, forming this shell of protection should be your first step each inventor takes in the process of valuing start-up ideas.
Sarah Pierce, writing for Entrepreneur Magazine suggests writing your idea in an “inventor’s journal,” and having it signed by a witness. (Pierce, 2005) Ms. Pierce further suggests:
“This journal will become your bible throughout the patent process. An inventor’s journal can by [sic] any bound notebook whose pages are numbered consecutively and can’t be removed or reinserted. You can find specially designed inventor’s journals at bookstores . . . or you can save money and purchase a generic notebook anywhere they’re sold, such as the grocery store, office supply store, stationary store, etc.” (Pierce, 2005)
This is excellent advice for anyone with a patentable idea. “Fees vary depending on the type of patent application you submit. Fees may also vary according to the way you “claim” your invention . . .You are strongly advised to check the current fee schedule before submitting your application” (United States Patent and Trademark Office, 2014) If your idea is for a literary, dramatic, musical, or artistic work, you should seek the protections of a copyright, not a patent. As of the time of this writing, a single, basic copyright application registration costs $35.00; a standard copyright application registration costs $55.00. You might be able to handle the copyright application yourself, but if you feel uncertain about how to proceed, a business attorney can help you with this for a reasonably small fee.
Once you have taken the first steps to protecting your idea, you need to decide whether or not your idea is so valuable to you, right now, the costs of making a prototype and making efforts to monetize your idea will not outweigh the benefits of doing so. At this stage of development, careful cost-benefit analysis is important, and you should consider consulting with a business professional such as an Inventor Consultant or Invention Marketing Consultant, or both. You should also consult with a licensed business attorney to discuss what business organization structure is going to give you the best foundation for creating a business that will support your idea and help your business to grow stably and quickly. You should be aware the services offered by professionals such as those mentioned involve a short-term cost with long-term benefits; you should consider the payment of these short-term costs a sound investment in your business’s future.
Taking the Next Step In Protecting Your Idea: NDAs
Taking an invention from idea to market is tough, and can be very expensive. (Bennett, 2010) Valuing start-up ideas is only part of a complex process. You may want to consider having your business attorney draft a Non-Disclosure Agreement (an “NDA”). Be careful, however, in deciding who should sign it. Not everyone with whom you discuss your idea needs to sign an NDA.
A good rule of thumb is: if the person has both the capability, the proper incentives, and the opportunity to monetize your idea, you should consider having them sign an NDA. Two out of the previous three requirements is not enough! Often, a person who declines to sign an NDA will have the capability and, upon disclosure to them of your idea, the opportunity to monetize your idea, but they likely will not have the proper incentives to do so. For example, your lawyer will not need to sign an NDA, because of attorney-client privilege and the inherent fiduciary duty that exists by virtue of the attorney-client relationship between you and him or her. If, however, you are working with a developer, your contract with the developer should include an NDA with solid terms protecting your ownership of your idea and any assets or intellectual property you have developed before hiring the developer as well as any developed as the result of hiring the developer.
Whenever you ask someone to sign an NDA, you are signaling to them your mistrust of them. “The best professional freelance developers often take this to heart, and many will not work with entrepreneurs who require an NDA up front because it’s a signaling mechanism to them that the entrepreneur isn’t sophisticated and not worth his/her time.” (Garber, 2014) So, make sure you’re being practical; don’t scare off potentially valuable collaborators by being paranoid!
Finally, ask yourself, “After signing an NDA, what can I do about this person’s ‘theft’ of my idea?” Of course, you can file a lawsuit, but doing so will require you to hire an attorney and pursue litigation. Litigation should not be your goal; bringing your idea to market should be your goal. At the very least, pursuing litigation is an opportunity cost to your idea-to-market venture. Ultimately, you should discuss with your business attorney whether or not the benefits of having a third party sign an NDA is worth the risk–yet another reason having a business attorney is so crucial to the process of valuing start-up ideas.
- Sivers, D. (2012, January 1). Ideas are just a multiplier of execution. Retrieved January 17, 2015, from http://archive.oreilly.com/pub/post/ideas_are_just_a_multiplier_of.html
- Pierce, S. (2005, May 30). 5 Steps for Turning Your Invention Ideas Into a Product. Retrieved January 17, 2015, from http://www.entrepreneur.com/article/77962
- Patents. (2014, November 7). Retrieved January 17, 2015, from http://www.uspto.gov/inventors/patents.jsp#heading-6
- Bennett, J. (2010, September 20). From Idea to Market. Retrieved January 17, 2015, from http://www.entrepreneur.com/article/217332
- Garber, S. (2014, February 6). Should Developers Sign An NDA Before Hearing Your Idea? Retrieved January 17, 2015, from http://www.forbes.com/sites/stellafayman/2014/02/06/should-developers-sign-an-nda-before-hearing-your-idea/
This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction. View general information about this license; or view detailed legal information about this license.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]