February 25th, 2011, 12:47 PM
How to stop a developer from stealing your business idea
I have a website idea that I want a developer to create. I know about no compete and clauses and such, but couldn't they serruptitiously pass on the idea to a friend who develops the website, reaps the reward and underhandidly compensates the original developer for passing on the info?
Depending on how careful they are, wouldn't this type of behavior be hard to prove in a court of law?
February 25th, 2011, 02:05 PM
Plausible deniability is always a tough case in court. Your best bet would the honor system. Also, ask the developers opinion about the website in general; Whether he/she thinks it's a good idea. Their response will be anywhere from
<-not impressed----agrees it's a passible idea----ecstatic->
It's hard to fake a legitimate 'not impressed', if he's ecstatic, he's probably just kissing butt. You want him to land right in the middle, and the danger zone is any point in between those three. Knowing when he/she is in the danger zone is tricky; If they tell you how they feel about it, but you still don't know how they feel about it (whether you believe they were lying, or they drifted from the topic, etc etc), then it's time to suspect (not accuse).
If the worst happens, focus your goals on just providing better business. If your idea is great, someone is going to try to copy you regardless.
February 25th, 2011, 02:43 PM
Non-competes are notoriously difficult (read: impossible) to enforce in court. Also, anything longer than a 12-month non-disclosure / non-compete likely won't be signed, and even if it is, 1 year probably isn't long enough to be worth anything, since most enterprise development cycles last more than a year anyway.
You're much better using the carrot rather than the stick. If you're relying 100% on one or more developers to create your vision, incorporate as an S-class corporation and give them generous stock options, which evaporate if they 1) quit or 2) take your idea. Also, pay them well. If you're running like a typical startup (ie, $0) then offer commissions on sales once the site is up and running, plus stock, plus (eventual) salary, etc.
February 26th, 2011, 02:09 PM
thats food for thought. I will have to look into becoming a S-Corp. or programming it myself. How complicated is it to become an S-corp? How do I issue shares? How are value of shares determined, is just based on revenue?
Originally Posted by drgroove
February 26th, 2011, 03:09 PM
Most states have a fee and a form for filing a C-corp, S-corp, or LLC. If you're going to fly solo, go LLC; the taxes and revenue are easier to deal with.
Originally Posted by NewWEBdesigner
As Chairman / CEO of your own S-corp, as long as the company isn't being publicly traded, you can issue as many shares at whatever value you'd like. For example, you could issue 1,000,000 shares valued at $1 each, retain 51% of the shares yourself (to maintain ownership of the company and majority voting rights) and distribute portions of stock as incentive to any developers you're working with (eg, 5% each).
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March 1st, 2011, 08:29 AM
Developers, in general, tend to be smart people. You want the smartest of the bunch to work for you, because that's good business. However, note that smart people are generally smart in other areas as well. For instance:
This is sound advice, but I would go closer to 60% because it's possible for someone to sue you for shares of the company.
Imagine, if you will, that DrGroove and I are entering into business together running a strip mall. It's my idea, so I have 51% of the stock, and Groove has 35%, with the remaining 14% being distributed to a small investor who's just getting his feet wet.
Now, in order to build a strip mall, you have to dig a foundation. I contract out with "Simshaun's Excavation and Clean Fill, inc." Because it's an excavation/fill company, the deal is that he digs up the ground, and keeps the dirt for himself to sell to people who need dirt. Sounds reasonable, right? Well, come to find out, when he started digging he hit gold! Now, because of my contract saying he can keep "whatever he digs up," Simshaun walks away from my empty lot with $10million in gold.
DrGroove, naturally, is upset that I would allow such a stupid contract, and sues me for failing to perform due diligence. This means that, legally, I should have been expected to say "you can keep whatever dirt you dig up, but any treasure you find is mine." Groove's due diligence suit asks for 10% of the company as penalty for my failure. He wins.
Now, DrGroove has 35% + 10% = 45%, and I have 51% - 10% = 41%. Guess who's the new owner of "my" company?
Ok, that's the end of the parable of the bad business decisions for today. Be careful, get a decent lawyer, and realize that your idea is probably not as good as you think. I'm not saying that as a personal insult, but even things like Twitter are pretty bad ideas when you really think about it. If you really have a truly unique idea, find some very talented people to help you realize it, and protect your own interests well.
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March 1st, 2011, 02:07 PM
Thank you for that heads up. I will mull my options.
Originally Posted by ManiacDan
April 7th, 2011, 01:40 AM
There are laws about it. You have to prove them that the developer is stealing your ideas. Perhaps, you get a new developer.
I guess you should protect your ideas by putting some restrictions on your contract before doing a project with a web developer. But I suggest to co-create with a web developer because by co-creating with them, you will generate a better idea for your website