Just Managing: Sign Nondisclosure Agreement Before Reading

The other day I signed a nondisclosure agreement that made me feel dirty. I had called one of my best friends from college who was working on an Internet venture, and before I could even ask how his kid sister is doing in college, he faxed me a legal document about "nonuse and nondisclosure."

My friend's business acumen didn't impress me. On the contrary, this document that turned our friendship into a "violable" business transaction dropped my buddy's business smarts in my eye. Granted, he's not alone. NDAs have become about as commonplace as PDAs. But most company builders who think they're displaying their expertise by using such documents are, I believe, showing just the opposite. NDAs often reflect a flawed, get-rich mentality by inexperienced wannabes. Such dreamers often cling desperately to their ideas, not realizing that it's far more important to build a robust engine for growth.

Many of these paranoiacs remind me of basement inventors. There's a species of endearingly odd guys (virtually all I've met are men) who spend far too many hours in dank cellars tinkering with novel toys or unique shaving devices, convinced that they will make millions from their inventions. Fearing that big corporations will steal their idea, they tend to guard their jewels obsessively. Few - if any - realize healthy enterprises that actually commercialize their ideas.

I cite these zealots only to stress the importance of building an engine that can harvest your idea. Sure, a good idea is valuable, and a great idea is even more so. But it's more important to develop a robust enterprise.

"In today's economy, few ideas are truly proprietary," says professor Bill Sahlman of the Harvard Business School. "Moreover, there has never been a time in recorded history when the supply of capital did not outrace the supply of opportunity. The true half-life of opportunity is decreasing with the passage of time."

I concede that in this era of intellectual property, there are situations in which an NDA makes sense. Companies that are doing deals, are establishing a broad trade-secret protection plan, or that have developed valuable proprietary technological know-how should certainly protect what's theirs.

But there's certainly a huge world in which useless NDAs violate the very essence of digital business. One cardinal precept of the Internet economy is to see increasing returns: Take your good idea and run with it while finding a way to take a first-mover position that lets your success build upon itself. Is Amazon.com a better idea than the other thousand Web booksellers, or has it catalyzed its success through great execution of simple goals?

Moreover, fatuous NDAs put the brakes on vehicles that should be fueled by openness rather than secrecy. "The Valley works on rapid dissemination of information," says professor Robert Merges, who as head of the intellectual property department at the University of California at Berkeley's Boalt School of Law is at the epicenter of digital-property issues.

Merges says the NDA mind-set can unintentionally betray a more important trust than those short-term issues that the documents formalize. "What worked in a small, Midwestern town in the 1940s works here. If you have people's trust and a good reputation, that's gold."

Bottom line, trust matters. The best startups are fueled and managed by trust. Their managers know how to engender trust among far-flung or remote employees, and they can negotiate the complexities of agreements among competitors turned partners. Trust means more than simply placing your faith in another person - it means having the ability to engender trust from a partner, employee or customer.

Consultant Robert Shaw has written an insightful book titled, "Trust in the Balance," in which he lays out some useful ways managers can build trust. (In a nutshell: Act with integrity, demonstrate concern, and achieve business results.) One of his points sticks out in my mind: Trust, paradoxically, exists least where it is discussed most. And so in this time when trust is so critical for success, when it should be the sea in which your company swims, no formal document will ever substitute for the living quality of trust you engender.

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Just Managing – articles that Tom wrote for The Industry Standard and some Business Articles written for Inc., Fortune Small Business, Harvard Management Update, and other places.


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