3 Monumental Startup Disasters And How Entrepreneurs Can Avoid Them
Startup culture and entrepreneurship in the US is on the rise. The darlings of Silicon Valley – Facebook, Twitter, Pinterest, and Snapchat to name a few – have all started with a simple concept. Along the road of their development, huge fortunes have been gained. These are the glorious stories of success we watch in films like “The Social Network” that likely put people under the misconception that anyone can be an overnight millionaire. Less attention is paid, however, to those who missed out. Like that Beatles drummer who left the party before it started, some entrepreneurs failed to protect their ideas and got swept aside as the stakes grew.
This article delves into three intriguing case studies of the unfortunate few who are now standing on the sidelines, watching as their genius ideas turn into money-churning machines for public investors and global trends. There are crucial lessons these “ideas men” should have known and used to protect themselves. If you’re a startup early bird with a clever concept, don’t repeat their mistakes!
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Case #1: Reggie Brown vs. Snapchat
Snapchat, the popular cellphone app that allows users to share photos and videos with friends that quickly vanish from their devices, settled a co-founder dispute as recently as September 2014. The company has been valued at $10 billion raising the net worth of the 24-year-old CEO, Evan Spiegel, to a whopping $1.5 billion.
During the early stages of their cell phone app development, Spiegel and the company’s CTO, Bobby Murphy, had a disagreement with one of their business partners, Reggie Brown. This disagreement eventually led to them cutting ties with Brown. As Snapchat’s popularity began increasing and its net worth was on the rise, Brown decided he wanted his piece of the pie.
“He wanted around 30%,” explains J.J. Colao in an article with Forbes, “and listed his contributions: the initial idea, the [original] Picaboo name and the now-famous ghost logo.” Spiegel and Murphy refused, but this did not stop Brown from pursuing them in court which eventually led to a settlement of an undisclosed amount.
While Brown’s contribution to the startup has now been officially and financially acknowledged, he isn’t recognized as one of the co-founders and any future profits of the company are now out of his reach.
Whether fame or fortune are important to you, a good idea can be the most valuable asset of a startup business. Understanding the value of your ideas is the first step in securing your success in the future.
It’s important to understand in the beginning how collaborating a new business plan with multiple partners can be tricky. You are often navigating through each person’s individual and sometimes contrasting opinions. It is not uncommon for business relations to eventually suffer from this stress, severing this connection.
Proper communication with your business partners, especially co-founders, is critically important during all stages of business development. A lawsuit can easily be avoided if you create a space for a responsible conversation on the terms of ownership and shares.
Case #2: Noah Glass vs. Twitter
A ground-breaking idea occurred to a man named Noah Glass when he found this definition in the dictionary: “The light chirping sound made by certain birds. Agitation or excitement; flutter.”
Twitter. A multi-billion dollar company was born.
Since Glass was the creative force behind this social media titan, it would be easy to assume he walked away a very wealthy man. This, however, is far from the truth. As valuable as this idea was and singular in its origination, Glass “received a small amount of cash during the buyback,” said Nicolas Carlson in his interview with Glass.
How can this be possible? There is actually a very good explanation.
When Glass realized the value of his idea, along with setting a place for a responsible conversation with his investors, his next step should have been to sign non-disclosure agreements with all parties involved. There should have been a formalized understanding that the information regarding the origins of the company was sensitive and potentially valuable. Glass could have had his investors promise they would never use or disclose the protected information as they continued a business relationship with one another.
This was not the case. While Glass was eventually ousted from Twitter altogether, their initial investor, Ev Williams, rose amongst the ranks to become co-founder and CEO.
Many great ideas can be shared casually, over a beer or at brunch, but when a certain idea starts to gain traction, and people, even investors, are starting to take notice, it is in your best interest to protect your rights. There is a moment when you need to take things more seriously and consider your legal options such as signing the appropriate legal forms, like a non-disclosure agreement or confidentiality agreement. This single move could determine whether you rise to CEO or are left as a mere pawn in a losing game.
Case #3: Theodore Schroeder vs. Pinterest
A similar situation happened during the creation of Pinterest, the famous cellphone app and now website that allows users to create inspiration “boards” by pinning their favorite images found on the web.
Controversy flared over who originated some of the key concepts which became integrated onto the Pinterest platform, such as infinite scrolling and the concept of “boards”. Angel investor, Ben Cohen, was rumored to deliver them to the Pinterest CEO, Ben Silbermann, early on in the development stage. Another web app developer, Theodore Schroeder, in whom Cohen had previously invested, claimed that he was the original source of these ideas. He claimed that Cohen had stolen these key concepts from him without his consent, and used them to develop Pinterest.
“The bottom line is that it’s illegal to steal an idea for your own benefit without regard to the originator of that idea,” said James Johnson in his article with Inquisitr. “Here, Mr. Cohen joined an existing enterprise in which Mr. Schroeder had a majority interest, and then took without permission or right Mr. Schroeder’s ideas, concepts, web application, and technology.”
Cohen, however, claimed he did not know where the “board” concept came from and even said the site came out of nowhere by tapping into “people’s natural desire to curate,” wrote Lance Ulanoff in his article “Pinterest’s First Investor Explains the Secret to the Startup’s Success.”
Are these ideas singular in origination or could they have easily been found publicly from multiple avenues? This is an important aspect to understand when considering signing a non-disclosure agreement. Such legal documents would not protect your information once it has already gone public, since it becomes very difficult to trace its ownership. Although Schroeder was certain Cohen stole his ideas, the ideas themselves might already have been publicly known or available. For this reason, the case was dismissed on all charges and Schroeder walked away empty handed.
Every disruptive startup begins with a good idea. This intellectual property can be the most valuable thing you possess without you even knowing it, sometimes until your competitor – or business partner – develops it without you and possibly improves upon it. Having a non-disclosure agreement signed early on in the game can be a lifeline to you later on, avoiding lengthy court battles and building stronger business relationships with your partners.
Don’t miss out on the chance to take credit for your ideas. They may only come once in a lifetime.
1. “The Inside Story of Snapchat: The World’s Hottest App or a $3 Billion Disappearing Act,” by J.J. Colao
2. “EXCLUSIVE: An Interview With Twitter’s Forgotten Founder, Noah Glass” by Nicolas Carlson
3. “Pinterest sued over copyright infringement from failed sharing site owners,” by James Johnson
4. “Pinterest’s First Investor Explains the Secret to the Startup’s Success,” by Lance Ulanoff
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Author: Kyle Kivett
Kyle Kivett is an editor at Legal Templates (www.legaltemplates.net), often covering current social news and up-to-date legal topics.