Friday, January 9, 2009

On the value of ideas and sweat equity

I want to address a fairly common meme that shows up quite often when you deal with inventors and entrepreneurs, especially young ones. The meme is basically "We need to play this one very close to the vest, encrypt all our discussions, get folks to sign NDA's or contracts before we talk to them in any detail, and be very careful who we talk to at all. Because if we are not careful, someone will steal our unique and highly profitable idea."

After the first few patents you file or companies you start you realize a couple of things:

1) The idea itself is at most 10-20% of the insight and sweat equity required to get something off the ground. More commonly 1-5%.
2) Once you start implementing or building something new, usually there are follow on insights developed as a result that are far more important than the original idea.
3) If the idea is easy enough to do that almost anyone could steal and implement it, you should probably try another idea.
4) The kinds of people who are going to put the sweat equity into developing an invention or company most likely will do so on one of *their* ideas, not get all excited about one of yours.
5) Most NDA's dont work. I usually get them signed, but more as part of the process than with the real expectation they will be useful. And only after the negotiations get serious - usually i have disclosed the core of the idea already.
6) Its really not that common to have a 'truly unique' idea. Most likely someone, somewhere has thought about it or something like it, even if it hasn't shown up in the prior art yet.
7) If you are the kind of person who comes up with original ideas, you will have more than you know what to do with. In my experience, folks either come up with 0 or hundreds of good ideas. Not too many come up with between 1 and 10 good ideas.
8) Learning to judge the 'profitability index' and 'effort index' of new ideas is the key to repeated success. If my experience is any guide, you will leave at least 10 good, original, and commercially viable ideas on the shelf for every one you actually pursue. Maybe more like 50 to one.

This blurb was stimulated by a discussion on Slashdot where I posted something fairly similar. Might be worth a full length article at some point, considering how often I hear some variant of this meme.

Contact me if you have any questions about this sort of thing. I am always willing to chat about new ideas and business plans. I even have a very nice bilateral non disclosure agreement that has stood the test of time and can be easily adapted to specific needs.


emile said...

I'm curious whether this meme, the cloak-and-dagger secrecy concern, has in your experience correlated at all with good ideas. Coming from a more academic / free software culture, my bias is to expect that people with interesting ideas have them in large part because they are actively engaged with a vibrant intellectual community. That laboring in isolation will almost always produce inferior work. That the only good crypto system is a publicly disclosed and vigorously vetted one.

Basically, that to cultivate your ability to have good ideas is incompatible with "play it close to the vest" behavior. Thoughts?

Felix said...

Strangely enough there doesnt seem to be any real strong correlation between idea quality and the cloak and dagger meme. The average quality of the ideas in open communities might appear better, but this is often just because the dumb ones get shredded quickly. And the really good ideas appear just as often in the shadows as in the light.

The 'many eyes and minds' factor basically just prevents you from going very far with a dumb or unworkable idea, but certainly does not guarantee a *good* idea. Not that we should underestimate the value of this feature - anything that makes it possible for you to give up a dumb or unworkable idea quickly is a very good thing indeed.

It does seem to me that laboring in isolation is conducive to lower quality work, but these days it is quite possible to participate actively in the community but still keep your best ideas close to the vest. All the advantages and none of the disadvantages (except you lose out on the 'what are you thinking, fool' factor mentioned above). In fact, i suspect that this sort of behavior is really quite common in any areas where there is big money to be had.

Unknown said...

To have a great idea, have a lot of them.
Thomas A. Edison