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Member News: C.C. Eship / NACCE Journal Spring/Summer 2010

Q&A Corner: Classroom Confidential

Thursday, April 22, 2010   (0 Comments)
Posted by: Matthew Montoya
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Q: How do instructors deal with business idea confidentiality when it comes to sharing ideas during classroom discussions? I have a number of students who don’t want to share ideas, fearing that other students will steal their concepts.

When this question was posed on NACCE’s listserv we decided to ask experts outside the NACCE community to respond. They all agreed that business ideas are rarely stolen. However, cases such as the much-publicized lawsuit against Facebook’s founders, who were accused by fellow Harvard students of pilfering their idea, might cause students to be reluctant to expose their ideas in class, despite the fact that the relationship that led to the Facebook lawsuit took place outside of class. Here is the advice four experts provided:

A:

Steve Herbert:

It is as common as it is ill informed for entrepreneurs to be reluctant to talk about their ideas. The truth is it is easy to have ideas and very difficult to make a viable business of them. Most wannabe entrepreneurs who don’t talk about their ideas don’t get far with their business.

How can you raise money if you won’t talk about your business? Anyone, for instance, who will not openly–without a nondisclosure agreement in place–discuss their ideas will not be likely to get VC money since most VCs most of the time will not sign nondisclosure agreements.

How can you sell if you won’t talk about your product? The most needed skill in startups is sales. Why make life more difficult by not talking about some supposedly secret aspect of your business. Here is a personal case: I purchased a company in 1993. The valuation was $0. They had repeatedly failed to meet their sales goals. They did not want to tell their users how the product worked. The users were scientists who refused to buy the product without knowing what was inside. After we acquired the company we published a paper disclosing exactly how the algorithms worked. The product is now a $20m line. To this day no one has copied it. And I have to admit it’s a pretty neat idea, a really terrific implementation but the secret sauce ended up being how to sell it.

Most ideas that entrepreneurs feel are novel turn out not to be new at all. I serve on the deal review committee for an angel investment group. I am stunned by how often the same idea turns up multiple times often within the same few months.

Secrecy has its place but has serious limitations. Anyway, your students do not need to disclose their secret sauce to write a fundable business plan.

Steve Herbert is a serial entrepreneur who is currently vice president of Sales & Business Development at Cytel Inc., a provider of clinical trial design services and specialized statistical software for the biopharmaceutical and medical device markets. steve.herbert@torrangroup.com

Robert Hisrich:

At one university I handled it this way: I had every student in the class sign an NDA–it could be short one–but I didn’t sign it. I learned at MIT that when you’re in an academic position and you have a lot of different people who are involved with different things, you should never sign an NDA.

Now what I say to my students is that I have never heard of an instance in which an idea was shared with another student who then took that idea to start another company. The reason is that you have to have a passion to make an idea work and if you don’t have that, it’s just not going to happen. I’ve never had any problems here at Thunderbird or my years at Case Western. If you make that statement up front as the professor I don’t think you’re going to have any problems. I also point out in that same statement that first of all your ideas aren’t worth stealing; I do this in a funny way, but I’m actually serious.

One problem you will have that faculty members need to think about how to handle in advance–one that I just ran into again last semester–is when the students form a team to do a project and then one or two people want to do the project and one doesn’t. This is the more serious issue. The other students really need to get the student who isn’t interested in the idea to sign a total release or that could come back to haunt them. There are plenty of examples like this where people didn’t get this sign-off and it came back to haunt them later as they took an idea forward.

Robert Hisrich is Garvin Professor of Global Entrepreneurship and director of the Walk Center for Global Entrepreneurship at Thunderbird School of Global Management in Arizona. He has been involved in founding a dozen companies and is author of three books on entrepreneurship, including Entrepreneurship Starting, Developing, and Managing a New Enterprise, now in its 8th edition. robert.hisrich@thunderbird.edu

Roger Zimmerman:

Nolo Press has a number of good patent, copyright and trademark books for entrepreneurs; these books have very good real world approaches to situations like this. Nolo’s Patents for Beginners is a book I used to give away to prospective clients so they would understand that all this stuff is not quite so mysterious. That would be a good source of information for both the professor and the student. (Visit http://www.nolo.com to learn more.)

There is a tendency for students not to want to give details. When I was in the classroom, I found that students who are at an early stage quite often weren’t distinguishing what would be protectable, confidential information and what ideas were such good ideas that if you looked in the U.S. Patent Office database 10 people had come up with similar things and had them patented.

If students are interested in patents and trademarks, the federal government has Web sites with basic information. Patents are being issued at a rate of about 4,000 per week and by the time this article is published we will hit the 7,700,000th utility patent, so every week it gets harder to argue that a new innovation is new and non-obvious.

Roger Zimmerman is an intellectual property attorney with Mirick, O’Connell, DeMallie & Lougee, LLP. He has done presentations to the entrepreneurship programs at Babson College and Worcester Polytechnic Institute and also taught for 15 years at Rush Medical College & Graduate School in Chicago. Rzimmerman@mirickoconnell.com

Barry Horowitz:

If you can’t tell your idea to others, you can’t receive feedback that confirms (or denies) the attractiveness of the idea. When the "market research” behind a business idea is primarily that the founder/inventor just knows it will be great and everyone will want it, that isn’t sufficient for investors- and shouldn’t be. Talking up the core of the idea opens the student/entrepreneur up to hearing the strengths and weaknesses of the idea, and should improve the quality of the plan-and maybe of the idea– in the process.

We tell our students as a general guideline that things that are discussed within the class should be considered confidential within the class. You would expect this from your classmates and you should do this as well. I will not, without permission of the student, discuss their idea in another class. If you don’t reveal this idea in this class, you might as well stop now because you will not get investors to support it. VCs will not and cannot sign DNDs until they go into the due diligence phase; if they need to sign a DND just to hear your idea, they will pass. VCs who receive a thousand business plans a year choose to skim and evaluate 100 out of the 1,000; they see a lot of ideas come year after year. It is almost universal that the student who is presenting the idea believes they thought it up themselves and that they are the first and only and that is very rarely the case.

Barry Horowitz is president of Horowitz & Company, LLC, a management consulting firm, and an adjunct professor at Boston University’s School of Management, where he teaches a certificate program for entrepreneurs. He has also been an entrepreneur and raised VC money. horowitz.barry@gmail.com



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