Monetizing Business Ideas
Monetizing Business Ideas
November 1, 2010
Ideas are worthless. Execution is everything.
That’s what I tell people when they ask me how they can sell their ideas. There’s a general misconception that ideas have some sort of market value, if only one can find a buyer. Sadly, that is not the case. Everyone reading this blog is full of great ideas. But usually we don’t have the time, talent, resources, or risk tolerance to pursue them. So we keep our wonderful ideas squirreled away in our heads, where they remain until dementia eats them.
There are exceptions. Some patents have value. But 99.9% of all ideas are not the sort you can patent. McDonalds came up with a great idea for an efficient way to sell dead cows and potatoes, but it wasn’t patentable. I came up with an idea of using reader suggestions about the workplace to make comic strips. That worked out well, but the idea isn’t patentable. McDonalds succeeded because one person devoted his full energy to making it happen, and he had access to of the resources he needed. Dilbert worked as a comic because I devoted my full energies to making it happen. And thanks to my syndicator, I had the business resources I needed. What happens to all of the great ideas that never match up with the resources that could set them free? Is there a way to unlock the potential of these otherwise wasted ideas?
I think there is a way. And I think it could change the fabric of civilization. With your indulgence, allow me to develop this idea.
The economy works best when we have the right resources in the right combinations at the right times. A few hundred years ago, that was easy. If you wanted to open a business, you just hung a sign on the door and word got around town. You didn’t need a lawyer, accountant, IT guy, or a salesman.
Today, starting a business is a thousand times more complicated. But our tools for combining resources in the right combinations are still primitive. In my view, that’s why we have a 9.6% unemployment rate in the United States. The rich have money to invest, we have plenty of great ideas, and talent is everywhere. But there’s no system for efficiently bring those resources together.
If you have a potential billion-dollar idea, you might get the attention of venture capitalists or angel investors. But how many people have ideas that good? How do you get funding for an idea that might only make a million dollars? And how many people know how to effectively pitch a project to investors?
On the opposite extreme are the ideas that require very little funding to get off the ground. The story of Facebook is one example. Microsoft is another. And in both cases the miracle of their successes involved extraordinary luck that the resources they needed were readily available. If you didn’t attend Harvard, you might not have a friend who is a programming genius, another friend who has a lawyer dad, and a third friend who can loan you $15,000.
The vast majority of stranded ideas are the ones that are not big enough to interest venture capitalists, yet they do require a both capital and expertise. For the sake of this discussion, let’s say that almost any new business in modern times needs ten resources to start.
To free up the value in all of the ideas that would otherwise die of neglect, imagine a web-based service for bringing together all ten resources to support any sort of business idea, but in a special way.
By way of example, suppose you have an idea for creating a chain of ping pong themed restaurants. The business would have lots of tables for rent, along with music, food, and a bar. It’s fun for the whole family. I pick this idea because it’s already being done, in a fashion, by actress Susan Sarandon. Her ping pong parlor in New York City is called SPiN. More are planned. I picked this idea specifically because it can’t be patented. And besides, maybe you want to do yours a different way, or in a different city, than SPiN.
In my imagined future, you start by making a home video of yourself pitching your idea, just as you would to an investor. You upload your video, along with a detailed description of your idea, to a web site where other entrepreneurs around the world are doing the same thing. But instead of simply soliciting funding, you solicit an entire team, based on whatever skills your business requires. The key to making this work is that no one quits his existing job, or provides funding, until all of the resources for the idea are lined up. The main function of the system is making sure everyone’s conditions for participation have been met before any risks are taken.
Now imagine that the legal contracts for your new business partners are based on standardized agreements that have been created by the online business to be fair to both sides. There’s no wrangling about the legal details. All you need to agree on are the “fill in the blank” stuff, such as who does what, and for what equity or salary. Likewise, the funding agreements are standardized.
As the entrepreneur, you might have a hundred people vying for the job of marketing for your new company. Each person would submit a resume, perhaps some text on how they would approach this specific job, and a minimum compensation requirement. The entrepreneur might choose a marketing expert with weaker experience to keep payroll low, which might in turn cause another potential team member to back out if he thinks the marketing person is too weak for the job. This process of adding and subtracting potential team members would repeat until everyone was happy with the contribution and compensation of everyone else. And during the process, all potential team members could communicate with each other to negotiate deals and refine the idea.
In my ping pong example, you would also need a retail location, an interior designer, and a builder to do the improvements. Those would be three more conditions that the entrepreneur sets up at the start of the process. The business wouldn’t launch until all of those elements were in place to the satisfaction of everyone else.
Now suppose you have a great idea for a business and you don’t want to be the CEO/entrepreneur/leader. But you still want to make some money from releasing your idea to the world. This imagined web site would allow you to post your video describing the idea, and hire just one person – the project manager – then back out. Your stake in the company, should it ever get off the ground, might be 1%, for example. It wouldn’t be so high that the people doing the work would try to cut you out, but still big enough that people with great ideas would have a reason to post them on the site.
By now your mind is racing with all of the imagined problems with a system of this type. I’ll anticipate the obvious objections and address them.
First, no one wants his ideas to be stolen. You would hate to make a video of your terrific idea, put it online, and have someone simply copy it. That would happen. But if you were proposing a ping pong business in a particular town, a potential competitor would think twice before opening one next door. Contrast this to the current system where three yogurt shops opened in my town at about the same time, presumably without knowing that the others had the same plan. If the system I am imagining existed for them, perhaps the first one would have opened and been a success, and the other two entrepreneurs would have made other plans. My point is that you shouldn’t assume it would be bad for the economy if some types of startup plans were to be public. It might fix more problems than it caused.
Next, you might wonder if ten people could ever agree on the same set of conditions to launch a company. While it would be almost impossible to get a specific group of ten people to agree on anything, you could almost certainly get ten people out of the 6 billion on Earth to agree on any reasonable set of conditions. And keep in mind that it’s healthy for the economy if the worst 95% of the ideas never happen. For example, if no lawyer in the world wants to be part of your startup, there might be a good reason for that.
Perhaps you are concerned that making it easier to launch companies would create a lot of weak businesses that would fail. That might be true. But most businesses fail now, and while they are in the process of failing, they generate salaries for employees and revenue for suppliers. A modern economy is comprised mostly of companies that are in some stage of failure, whether they know it or not. Also, the conditional nature of these future startups might guarantee that only the strongest launch in the first place. It would be hard to get ten people to agree on a weak idea in an environment in which stronger ideas can easily be found.
There’s an obvious risk that the system would become crowded with so many atrocious ideas that it would be nearly impossible to find the good ones. That’s an issue, but probably one that can be managed. And I would expect some superstars to emerge, who can pump out three great idea videos per week. The good ideas would float to the top.
It helps to have a name for new economic ideas such as this one. What would you call a system that conditionally combines economic resources? I’m stumped.