Monetizing Business Ideas
dilbert.com
dilbert.com
Online dating sites, bars, clubs, etc are staging areas for dating. They bring together interested people and hold them in proximity until dates happen. Dates in turn are staging areas for marriage.
Stores, markets, auctions, and stock markets are staging areas for purchases. They bring together buyers and sellers and hold them together in proximity until purchases happen.
International talks, conferences and political summits are staging areas for treaties and political agreements. They bring together political decision makers and hold them together long enough for agreements to happen.
Writing and broadcasting are staging areas for learning. Both writing and broadcasting connect a speaker with a listener long enough for information to be transferred.
Democratic governments and corporations (with chains of authority) are staging areas for coordinated group action. A democratic government allows citizens to work together to accomplish big tasks like building a national highway system, putting a man on the moon, and waging a war. Corporations do the same for private profit-making activities.
Banks are staging areas for loans. Banks allow borrowers and lenders to get together.
Ports are staging areas for trade. Ports allow buyers and sellers of goods and transportation to meet each other.
The Internet is a great tool for making or improving staging areas because it makes communication easier.
But the big problem is this: ideas aren't worthless because they require execution. Ideas are worthless because, before the execution, the idea itself is just not good. It takes executing on the idea and constantly pivoting to get to a "good idea", because when you first think of a direction, you barely understand the problem, and definitely don't understand how you're going to solve that problem.
In other words, the problem isn't a lack of access to resources - it's that your initial idea sucks, and only if you keep refining it do you get to anything usable.
Graham argues if ideas would be worth a lot, there would be a market for them. If you understand how the market works, especially in the US, even more so in the Valley, you would agree, I certainly do...
Or if you don't like Graham's argument think of any established venture's story: it has never, ever been a straight line from the idea to success. Business models change along the way: it's the people that count, their attitude and execution
Would you have thought that coke is a good idea in the late 19th century? A black, sticky drink? Or mobile phones in the 70s? Or messages with 140 characters in the era of emails?
If you know a bit about economics, you would see why there are not, and cannot be markets for ideas, unless someone finds a very clever way of making them 'excludable' without hordes of lawyers and contracts and various other very high transaction costs. See my other post above/below.
There is no market for venture ideas without the founders who are credible in executing them. Not because they are non-excludable, but because in fact they don't exist for a long time: it is very rare that somebody has an initial idea that won't change during building a company. Markets, customers, technology change.
If the world of startups would work like you say they do, it would be enough for the most creative persons to get a long term contract from VCs just to tell the ideas that pop out of their minds every morning.. Have you ever seen that happen? VCs invest in people who execute and are able to adapt ideas as circumstances change.
Btw, I am an economist so I happen to understand economics (to a certain degree :)
That does not mean, though, that the ideas do not have any value, only that the vast majority if it lies in the execution rather than the idea itself.
For practical purposes, it doesn't change much, but the idea of "there's no market for it, so it's worthless" bugs me and I think it is not good economics. There are other things that we value that aren't directly bought and sold on 'natural' markets, or where markets must be artificially created via things like "intellectual property" or "cap and trade", government provisioning or other mechanisms like that, or where we simply accept that there's no viable way to make a market.
The classic example from economics (added for the benefit of other readers, you're surely familiar with it) is the lighthouse (which is also non-rivalrous): they're valuable to shipping, but generally, governments have provided them, because there was no way to make individual ships pay directly for their usage. They are not "worthless because there was no market for them".
None of us denies that there are transaction costs related to operate an "idea market", we just seem to argue about their amount/importance/relevance. I say these costs are not the primary reason behind the absence of the market but rather the fact that there are no stable ideas that can be used to found a sustainable business upon. You say there are stable ideas but it would be too costly to operate or even establish a market mechanism. (Although I am sure there would be a charity organization or even the government that would establish the market if it would be mostly a one-time fixed cost and low running expenses such as in the lighthouse example).
I should go to sleep now, have to wake up in 2 hours.. (but I really enjoyed the conversation, thx :)
(btw, a question - do you really think there is anything that is valuable to people but nobody has ever tried to monetize it if it wasn't banned by authority? Air, love, aesthetics of a building or a landscape, even values and religions... I have seen business models related to all of these)
(btw2, it may be worthwhile to define what we mean under "1 idea" :)
I didn't mention 'stable'!
What I think is that there are ideas that, at the right point in time, allow people who can execute on them well to do really well. And I think some of those ideas, at least, can be done well by a reasonable number of people. For instance, something like eBay was likely to pop up at that point in time. So for a little while, prior to its inception, it would have been a valuable idea.
However... no, I don't think a market for ideas can be stable due to the non-exclusivity of ideas! Once one is out there, its value drops quite a bit. It's similar to markets for some kinds of information, like knowing the closing price of the DJIA on the 3rd of November. If I knew that today, it'd be worth a lot of money. Next week, it'll be worth nothing.
The ability of founders to stick together is thrown out of water. I may be wrong, but just an idea(no matter how good) can't make people stick together.
However, the concept he arrives at: a web based way for people to contribute and retract resources to a project until you get a combination everyone is happy contributing to is an interesting one. It probably won't work, I have objections coming to mind immediately, but it would be interesting to find out. If it did work it might be very useful.
I wonder what a MVP or "qanta of usefulness" from this idea would look like.
http://journal.dedasys.com/2007/04/26/ideas-are-worthless
Which Scott Adams does acknowledge in this piece.
I think that non-excludability, combined with the fact that execution is more important than the idea, will keep markets for ideas from forming.
I advise 50% of people telling me about a new iPhone app idea to go and open a restaurant at the corner. You make 4-800K a year, with 10-30% margin: that's way more than what most ideas are worth - given solid execution.
However if I would have hired all these people mentioned in the article: "Management, Marketing, Sales, Legal, Accounting, Technical, Human Resources" ...instead of doing 90% of these by the 2 founders we would be already bankrupt, lol. Focus and execute, use everyday opportunities to gain momentum, be more thoughtful of resources, etc. There hasn't been one day in the past 6 months when I couldn't improve something, find a workaround, etc (by myself, without HR or a lawyer). Just in the past 1 hour I manage to spare $1500 by using someone else's network and resources almost for free.
Think of Netflix & the US Post; Google & Yahoo; Microsoft & IBM; Intel & IBM; Yahoo & Netscape; Facebook & Harvard. What is the common element in their stories? :)
Idea = zero value
Idea + Execution = much more than zero value
If there is value in partial execution:
Idea + Partial Execution = more than zero value
Then Scott Adam's suggestion that idea creators who use his hypothetical service to start to assemble the resources required to execute (i.e. partially execute) should receive a minimal return makes some sense (he suggests 1% which may be too high). This can be true even if the eventual idea is many pivots from the original because the pivots are points on the same continuum of execution.