I am now entering into my third small business venture, and what is likely to be my most ambitious... and sometimes I wonder if I am what is referred to as a "Job Creator". Most days I sure don't feel like one, in fact I would be dancing a jig right now if I could pay one employee (let alone quit my day job and do this small business thing full time). I guess I might be better described as an American who still has faith in the Dream.
Last week I covered the problem with patents for startups and how our Intellectual Property lawyer turned me away from jumping into that insane asylum. But the question still stands, how is a startup (a potential "Job Creator") supposed to protect the idea that we are going to use to be able to make money and actually create those elusive jobs. Our lawyer has suggested that we protect ourselves with the rules around Trade Secrets... but that presents another set of problems that actually makes it more difficult to find future funding.
Trade secrets are exactly what they sound like. They are the secret way in which a business makes their money. A great example of this is the formula for Coca Cola, which will become important in a moment. The ingredients for making Coke are actually published in multiple places on the internet (just do a Google search)... but the one thing that you will not find is the actual process that is used to mix all of those ingredients together to make the beverage. That is because it is the most closely guarded Trade Secret in the world. The lengths that Coke goes to in protecting this formula sound like something that might be cooked up by some bad pulp fiction writer, but they serve an important purpose... they make the secrecy of the formula a known quantity. As such everybody knows that when somebody says that they have the formula for Coke they are either a crank or they are peddling stolen goods.
For our adventure I have a server that supports a number of mobile application games. It uses some clever (and non-invasive) methods of data collection to learn about the players in order to serve advertisements to the player that match their interests, are for stores in their area, and are things that the player actually might want or need. It is a means by which we can give people free stuff (the games are all free to play) and personalize advertising to those people to bring them to stores in their neighborhood that they may not have already known about.
Here in lies the problem. I cannot actually tell you what it is that we are collecting, I can’t tell you how we are collecting it, I cannot even tell you how we are using it to personalize advertising. Those are all Trade Secrets. I could get a patent on the entire process, but if you check my previous diary you will see what a huge mess that presents. The only thing that I can do is promise that we are not being creepy and stalker-like and we are not selling information to people who are creepy and stalker-like. To reveal anything else would harm our ability to keep our “Trade Secret”, a trade secret is only protected by the law for as long as we actively try to keep it secret. If I do not take steps to protect the secret, then I cannot legally prevent people from stealing my idea and using it.
And that frankly pisses me off. I want to tell everybody what it is that we are doing, because it is actually kind of awesome the way we came up with this. I want to assure players of our games that we are not in fact an evil corporation that is seeking to insinuate ourselves into every aspect of their lives, we just want a couple faceless data points. But to reveal enough to assuage the fears of a person as information conscious as myself would destroy our ability to protect our Trade Secret. We have found ourselves in a Catch-22 of needing to keep a secret but wanting to be transparent.
The difficulty presented with seeking a patent (because of our obsolete patent system) means that we cannot be the transparent, customer focused company that we want to be. Doing that would mean that anybody could take our ideas and use them on their own, making it more difficult for us to actually create jobs. But the fact that we are not transparent actually gives us some pretty significant protections in the state of Georgia (where we are based), thanks in part to the influence of the Coca-Cola Corporation. Unlike a patent which is a federal protection for an idea, trade secrets are protected by state laws. As with all state laws the application in each state is a little different from the other… they all tend to be generally similar, but Georgia’s laws regarding trade secrets are stronger than most. For instance as long as the trade secret is generally understood to be a secret, and a conversation is understood to be in confidence, Georgia law gives the holder of a trade secret the power to seek civil judgments against the other party if they reveal the secret to others (a kind of Southern Gentleman understanding codified into law); it is still better to get everybody who has any visibility on what you are doing to sign a Non-Disclosure Agreement, but there is at least that small fig leaf of protection that exists in few other states.
Another more serious problem that I am running into is the fact that my pitch to investors sounds something like this, “People play the game on their smart phone, something magic happens, and then they spend money at a merchant that is advertising through us. TA-DA!” Actually there is a lot more to it, but I am not going to bore you with that, suffice it to say that the question I always get is “how does it work?” To which I cannot tell them, I can show them data that proves it works, I can show testimonials from players and merchants who loved the test of our prototype, but I cannot actually tell them how it worked unless they sign this piece of paper that keeps them from talking about it. When I mention the NDA it is like I just asked them to pee in a cup, or show me their birth certificate. I am the one begging them for money; they have all of the leverage, so placing a barrier before them . While most of them know the laws regarding Trade Secrets they don't want the requirement of signing a piece of paper when there is another guy who left them a voice mail who is not asking for their signature on a legally binding sheet of paper.
In summary by depending on Trade Secrets we are able to better protect ourselves, than we are with a patent at our size; but we are presented with an extra challenge of actually convincing investors to play by the Trade Secret rules so that we can maintain our protection.
Next week I will go into the challenges of finding investors when the economy sucks.
My previous diary entries can be found here