I, along with a cofounder, have built an MVP for an app in the food/beverage space. We are involved with a few universities and will be attending three demo days in the coming months that will have both investors from major VC firms and executives from major companies. We are excited to hear input from executives, but we are also worried that any of them could walk out with our idea and have their company build it into their product.
I understand that some of you might consider this to be a rookie way of thinking... However, we know that Instagram Stories is basically just a copy of Snapchat stories. I was reminded of this when reading some tech blogs. You can check the article pointing to this here.
Obviously we don’t want to miss out on this big opportunity, but how do we make sure our idea isn’t copied and how can we better protect ourselves from folks that have different agendas?
Back when I was teaching graduate business classes in management of innovation, I did a lot of study on exactly this problem.
There are some simple things you can and should do, such as file for patents, develop relationships to the wealthy and powerful, control market channels, and work in protected niches. Also, think strongly about partnering with (or "exiting" by selling your company to) large companies.
Patents are not a panacea. The Wright Brothers had an extremely important basic patent that is critical to the control of all airplanes, but their patents were ignored by others such as Curtiss (funded by Alexander Graham Bell) who were better connected to powerful people and who had more financial resources. Even when they won patent cases, they were unable to collect, and had to file even more cases. Their cases actually lasted more than 40 years and outlasted their lives. Their situation is typical of individual inventors with limited financial resources and connections.
The patent situation is grim, but not entirely hopeless: Robert Kerns, inventor of the intermittent windshield wiper is the subject of a popular docu-drama Flash of Genius, https://en.wikipedia.org/wiki/Flash_of_Genius_(film). The film shows the high personal and family cost to his patent suit against Ford, though he eventually was awarded $10.2 Million, and later won an additional suit against Chrysler that cost $10M but received an award for $30M.
But there is another lesson here: That is that you should work hard to become well connected to wealthy and powerful benefactors. Curtiss fared far better than the Wrights because he cultivated connections with the wealthy (e.g. Bell) and powerful (e.g. the Secretary of the Army). And in general the well connected entrepreneurs do better. So consider that one of the things on your checklist of things to do to protect your idea. By going to events where you can cultivate relationships with VCs and powerful executives you are on the right track.
The other thing you can do that will really help is to 'get big fast'. If you are able to generate a large amount of sales quickly, you will have more cash and may be big enough to negotiate licenses, (or whatever), from today's market leaders, from a greater position of strength.
Getting Big Fast also means that you'll have contracts with a sales channel. Often contractual control over a sales channel can be more powerful than having a patent.
It also helps to have a realistic understanding of what big companies do and don't do. While big companies do have huge resources, most of those resources need to be spent on maintaining their dominant position of their existing products in the markets they already lead, and introducing new products that will quickly generate a NOTICEABLE increase in sales (aka "top line" of the balance sheet).
Big companies only have a limited number of top executives. Executives only have a limited amount of attention they can put on any initiative. If there is a company whose top line is currently $10B, and if that company has 10 divisional executives with P&L responsibility, each one on average is running a $1B/year business. If the company is growing at 10% each year, each executive is worrying about how he is going to generate $100M in more sales next year. If he splits his attention between 4 such initiatives (one for each quarter of the year), each one has to be certain to generate $25M/yr on average. Any business that doesn't make that much MUST be below that executives "radar screen" if they are going to manage their time well. This means that executive's "bite size" is $25M. If your business is selling less than $25M this year, you are in a protected niche for the moment. No matter how good your idea is, it doesn't meet their needs as well as some other company whose products are over that $25M bite size.
You'll notice that big companies often do a lot of acquisitions. That's the "exit opportunity" that VCs are looking for. It is a low risk strategy for an executive to acquire an existing business that is larger than his bite size, because unless all the existing customers bail, he'll make his growth numbers for the following year. That's why big company execs do support small companies growing - some day they may want to partner with you (license or resell your products) or acquire you. Stephen Key (http://www.inventright.com/) provides good advice to individual inventors and start-ups who want to license their technologies to larger companies.
What they won't do is spend their resources duplicating a business that is below their bite size. So don't use competitive actions of one BIG company vs. another BIG company as typical of how they respond to start-up companies.
What they MIGHT do is find a big competitor who has a growing business that is bigger than their bite size, and they might launch a "knock off" competitor to seize part of that existing market. Most likely they'll search for a small competitor to acquire (for quicker entry into the market) and then throw extra engineering resources into unifying it into their own product line.
This kind of niche protection only lasts so long if you are growing. You'll probably find that when you hit that bite size you'll either have to license or sell your company to one of the existing market leaders or face them in the market - UNLESS your market niche has the characteristics that Clayton Christensen described in his book the Innovator's Dilemma (https://en.wikipedia.org/wiki/The_Innovator's_Dilemma). Christensen recognized that certain new businesses grow by taking away the market leader's "worst customers" (those who generate the least margins) and then grow a larger market (by appealing to those who didn't need the full features of the existing market leader, and who were more price sensitive than the leader's "best customers"). As the younger companies products improve they can continue to steal more and more of the old market leader's customers.
You might think that a shrinking market share would evoke a response from the incumbent leader. And if the share loss included high margin and low margin customers alike, history shows it does. But when it is only the low margin customers that are leaving a funny thing happens: While the incumbent's share is shrinking, their average margins are increasing. And the stock market loves increasing margins. So if the incumbents were to compete with the new entrant on the basis of price, they would actually reduce their margins and their stock price would tumble.
Big company executives understand the implications of increasing vs. declining margins, so the incumbents don't act promptly and the start-ups can grow much larger than the normal bite size. Ultimately the old market is dwarfed by the new market and the upstarts are either acquired or become the new market leaders. This explains why mini-computer entrants (e.g. DEC and HP) became larger than IBM (dominant in the mainframe market), why SUN Microsystems out competed them in the Workstations market, and why players like Apple, and Compaq and Dell dominated IBM, DEC and HP. In the end, IBM exited the HW space, DEC and Compaq got rolled into HP, and HP split into multiple companies.
So, if your business falls into the Innovator's Dilemma category, that's important to know, since your primary competition may actually be from other new entrants, and not the existing giants.
But it is definitely the case that until you are big, growing big fast, controlling customers contractually, and cultivating relationships with the rich and powerful are always advantageous strategies.
Reading your question again, your actually asking is there a risk a VC will just take the idea (maybe just the best bits) and pass it along to another start up either in their own portfolio or their contacts. I guess being human this does happen. Can you protect yourself? at the least don't show all your cards, show enough to titillate and excite but keep the crown jewels back! only after several meetings, building trust, following your instincts can you then show more. Try to get to VC's through a personal introduction at least someone you know who knows them rather than just show to anyone and everyone. Good luck.
Agree with what has been said. I heard this line years ago:
Ideas are cheap, execution is not.
As a startup, you have many advantages over the bigger companies.
1) You can move faster. No red tape. No politics. You make a choice and go with it. -Bigger companies need approvals which take time. More then one person makes a choice. lots of talks happen, which again take time.
2) To copy is to be a step behind. You have to accept that copy cats will pop up. Some may even be successful. But this also proves a demand for your product or service. Only you know the advantages or disadvantages of your product.
The dialog should be focused on WHAT you do, not HOW you do it. Keep initial discussions at the level of the value proposition to the customer, price point, and how you as the management team can deliver. If there is real interest, you can probably insist on an NDA at that point.
That said, if the HOW is obvious once they see the WHAT, then you're just going to have to live with the risk. There's no way to sell it without opening yourself to the risk of being copied.
Simply, you can't. Just be faster and more relevan.
I always like to use little thought experiments to help me gain clarity when faced with problems like this. Ask yourself this question. What happens after you launch and your product is public? How do you prevent other companies from seeing what you are doing and copying you then? Obviously, you cannot.
Therefore, the next question must be that given the inevitability of copycats, how can you succeed? If you are unable to imagine a scenario where you can grow and thrive whilst not being the sole company in this space then you are unlikely to succeed altogether.
The reality is if you have a good idea, it is unlikely that anyone bothers to steal it. If you have a great idea, you may even be able to beg and cajole someone to steal it. The biggest enemy of new ideas is apathy and not competition.
No one will invest time and energy stealing your ideas until you have proven them viable. Instagram did not copy Snapchat until Stories took off. If you are successful enough to have this problem then you are already doing very, very well and you will be able to wipe away your tears with the money being thrown at you by investors and customers.
My advice is to always only focus on the problems you currently have and not those that may arise in the future. Your problem (I guess, based on your text) is getting customers to validate your MVP. This should be job #1, 2 & 3.
You can't. Smaller companies rely on bigger companies either not caring or not being able to do what smaller companies do.
If you have very little market share, it's not worth it for a big company to copy you, so they don't care.
If you're gaining traction, the bigger company has red tape to go through & resources to redirect in order to copy your product. If partnerships are involved, that ads time & money to their project. This begins to make it unfeasible for them to do what you do.
IF they do want your market share, and IF they're willing to dedicate resources, use it to your advantage. It validates your product, gives you customers who might be interested (the bigger companies), & gives you an intriguing story journalists might like. And while the bigger company is getting catching up to you in that regard, you're busy getting ahead in other ways.
You can't. But you can document your progress, register copyrights and trademarks, etc. And you can be very public in what you do, since secrecy basically doesn't exist--and then if anyone tries to horn in, you can easily show that you were there first. That said, fighting this sort of thing is expensive and difficult. It might make sense to look at choosing a suitor who will buy you out and then it becomes their headache.
That is not a rookie question and do not settle for a "rookie" answer... That being said, I would do your own homework. Google it, and own it!!!