Are NDAs Really That Important?

To trusting entrepreneurs, a confidentiality agreement may seem unnecessary. But it’s a vital step toward protecting your business—and its future success. 

- Adam Bornstein

Q I’m a small-business owner, and we’re in a stage of growth. Do I really need employees and potential partners to sign NDAs? —CHRIS P., NEW JERSEY

There are many big-business practices that don’t necessarily apply to smaller companies. When you’re a startup, you can cut a lot of red tape without worrying about repercussions. The use of NDAs—that is, nondisclosure agreements, which serve as legal contracts of confidentiality—is not one of those cuttable corners.

Chris, here’s a cautionary tale of my own early ignorance. When I started Pen Name Consulting, I used a basic NDA—just a file I found on the internet. I wasn’t blind to the importance of NDAs, but I was cheap and stubborn, even though my father is a lawyer and advised me against this move. (He eventually became my general counsel.) My NDA was flawed; it didn’t cover enough of the information at my company or place the right restrictions on how people could share it.