You have a big idea! How much is it worth?
Movies, press, and media helped develop the bizarre notion that ideas themselves have a monetary value. We have been told again and again by different stories that ideas not only have value but rather all the value of a company is in the idea.
Probably all of us have said it more than once – “This was my idea!” and have the attitude as if someone has stolen that idea from us. Once we come up with an idea, for some reason we feel that we “own” it. It is not expected anybody else to have the same idea and not only that – they are not “allowed” to implement it.
Why an idea has no value
As a friend of mine used to say, “Ideas are like pebbles on the beach – available for anybody to pick one” (Thanks Alex). The value is not in the idea, but rather in picking one and going through the motions and effort to do something out of it.
Most ideas are born as a result of facing a real problem and looking for a smarter solution for that problem. If this is a common problem, it is extremely unlikely that you are the only person in the world who has noticed this problem and has thought of a solution for it. Not only that, but the same idea would probably have multiple variations, some of which are possibly even better than yours. Your idea, after all, is not unique, meaning it is rather a commodity.
An idea is a good start. But when I see flour and I say – I have a great idea to make some bread from it – you will need to show how perfect the process and then bring it to marker. Profitably.
If an idea is simple, it can be copied. It can be copied just by hearing about it, during the manufacturing process, or once the product or service hits the market. Execution and having customers cannot be copied. That is why companies acquire other companies – for execution experience and for their customers.
But all great companies build great ideas!
Yes, of course.
The problem is that most likely for a single successfully implemented idea there are hundreds if not thousand even greater ideas that failed.
We only see currently successful companies and decide that the reason for them still being around is the great idea the founder had when created the company.
The success of an idea depends on the execution. As a founder when you start with an idea, you need to be clear and honest to yourself by answering this question: Can I execute on this idea?
Different ideas require different types of execution and require different skills. For example, if you are building a SAAS company, you may have to do a lot of one-on-one sales, especially if it is a B2B service. If this is more of a B2C solution, you cannot be sold to one customer at a time. This simply means that in the first case you need to be a very good salesperson, while in the second case you need to be a very good marketer.
Knowing exactly your strengths and skill set and what do you really want to do, will determine if you can and willing to execute on a given idea.
Really? An idea is worth nothing?
Like with anything in life different investors have different approaches to ideas, startups, and founders. There are no rules and norms, only examples.
We suggest you watch our interview with Alexis Bedoret from “Make it”. He has a completely different view and approaches when it comes to picking a startup to invest in.
Alexis will hear your idea, and if it fits his investment portfolio, he will try to find a way to verify it before building anything or writing a single line of code. Usually, this is a very low-tech approach, only to understand that there are market and customers interested in and ready to pay.
If this phase confirms the reality of the problem and market fit, they would invest and your idea at that moment is valued at $1’000’000 USD. Pretty generous, I would say.
Obviously, you as a founder need to find the right investor for you and make sure you are giving your idea the best chances to survive.
Another case when your idea can be highly valued is when it has a defensible instinctual property that will be contributed as part of the company formation. In other words, if you have a patent, unique discovery, or say an algorithm or production process, then it’s treated like an asset being added to the company.
Ideas are important. A good idea gives you a starting point and maybe advantage on the market. Without execution and customers confirming the idea is worth their money, it is just a good idea.
Of course, you need to know who you are targeting if you are looking for an investor. You need to know if it is important to have a product and traction, or your investor is looking for brilliant ideas.
When an idea is developed and executed upon, it has value. This is the best position to be in – having something with unquestionable value, which an investor and you can use to determine your partnership. With only an idea, which is hard to compare and evaluate, one of the sides in this partnership will always be losing.
As much as we love great ideas, the real value of it is determined by the execution of the team and customers willing to pay.