Sunday, 21 October 2012

The average value of an idea is (almost) zero

An idea is worth nothing.  Zip.  Nada.  If you already know this, do not read further.  There is no new wisdom contained in this post.  I frequent a popular startup-related IRC channel, and about once per day someone will join telling us they've got an "awesome idea" that is bound to change the world.  The only problem is that they are unwilling to tell anyone that idea, because they are worried someone will steal it.

Usually after about 20 minutes of someone patiently explaining why this is absurd, they see that sharing an idea with a group of people is actually a very low-risk activity, because ideas have very little intrinsic value.  This post is to avoid needing to explain this afresh every single time.

The first reason ideas are worth (almost) nothing, is that everybody has them.  All the time.  The problem is that most of them just aren't good ideas.  This also reduces the average value of an idea, in the sense that there are just so many of them available.  If you talk to a lot of entrepreneurial types, they will tell you that they have far more good ideas than they could possibly execute.  This gives us point 1:

Point 1: Most people have lives and jobs and commitments.  They probably don't have the time or inclination to steal your idea and put in the work to execute it.

If you are convinced that fortune has smiled upon you in delivering one of the ever-so-rare *good* ideas to you, then you still don't have a good reason to value your idea.  The reason is simple: if someone else can out-execute you after hearing the idea for the first time, despite the fact that all of the work lies ahead of that point, then it probably wasn't a great idea for you to attempt to turn into a business, because it offered you no proprietary advantage whatsoever.  I've prepared this helpful chart:

The value of an idea increases very slowly, even as you invest time in it.  The gains in (relatively, subjective) value early on are mostly tiny as you mull over your idea and test it against some mental model of the world.  As you move further towards actually executing your idea, you might start talking to people and receiving advice, or you might start to pay extra-close attention as you go about your day to find relevant tidbits of information that help you to validate your idea at this early stage.  This is the first segment of the chart.  However, all of this work can be replicated relatively easily, and therefore it has very little objective value.  Anyone who hears your idea is still at the very start of this process, in terms of the investment of time and effort that will be required to turn it into something worth anything at all.

Point 2: Thinking time is cheap and plentiful, and you're not giving much away by saving someone a few {minutes, hours, days} of thinking about something.

I'll hasten to clarify here that there's a difference between sharing an idea and sharing details of an idea.  If you've invented a wonderful new chemical that turns puppy poo into gold, then you can communicate this by saying only what it does.  You don't need to give away the chemical formula! 

Point 3: If you have a proprietary advantage, tell people what your idea does, not how it does it.

Then you move towards actual execution, in which you start building, talking, producing --- whatever it is that you do to create actual value in your business.  This is always going to be hard work.  Expertise and domain-knowledge will change the slope of this curve, but the area under it is going to be the same.  Your "first mover" advantage is almost immediately gone if someone else can come along and out-execute you merely by having heard your idea, and if they can out-execute you when you've already had a head-start, they can probably out-execute you with an even bigger head-start.  Your idea probably wasn't a good one, because you were not the best-suited to execute it well if merely hearing the idea permits someone else to execute it better.

Point 4: If you can be out-executed due to a lack of a proprietary advantage, it doesn't matter whether it happens now or later.

Another example:  In contrast to the puppy-poo-into-gold invention earlier, by which having invented something proprietary gives you a clear advantage over any potential competitors, let's consider a counter-example.

"Hey bro, I've got this great idea!  I'm going to make a site like Facebook, but it'll be green instead of blue!".

I wouldn't want to claim this is a terrible idea off-hand (the fact that people insist on dyeing beer green on St Patrick's day might indicate that it has merit).  However, it is demonstrably not a good idea because the "idea" part creates exactly no extra barrier to entry.  Everybody who can build a website is capable of making it green instead of blue.  Last, one must consider that if for whatever insane reason our hypothetical "green Facebook" turned out to be a success, then Facebook itself could simply switch its color scheme to green, and your commercial advantage would disappear in a stroke of CSS.

In summary:  If by hearing your idea, I can immediately go out and make it a viable business out of it before you can, and if me doing so would prevent you from making it a viable business, then it was not a good idea in the first place.   Tell people your ideas, because the feedback you get is worth a lot more than any minuscule first-mover advantage you might have on a genuinely good idea.

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