I doubt there is any other question that is asked as often as this one in the startup world, “What is the value of an idea”. Of course, often not exactly in these words but in a variety of forms and expectations. The most common one is associated with *drum rolls* starting a startup. One person has the idea but not the ability to execute. He looks around for technical people who can build the idea. Now he has two problems:
- After I tell Mr. Technical the idea – why would he need me? Why would he not just build the idea himself?
- What should be the equity distribution? Surely – not less than 50:50 since I had this genius idea. On the side of the technical ‘co-founder’ as well, this is an interesting dilemma – sure the other person had the idea, but I am the one doing all the work.
With the advent of new technologies, rapid prototyping tools and validation analytic, the core value of an isolated idea has decreased gradually. So much so that you might find people who say that the value of an idea is pretty much nothing. While I am an idea person myself, I do find it difficult to argue against this position. An idea on its own has absolutely no value.
Derek Sivers (Sivers.org) had explained it beautifully in the below video. An idea is not associated with a dollar value, it is simply a multiplier.
However, if you are a non-technical person who wants to build a technical product/service do not be discouraged. [Why you are building a technical product if you are non-technical is a different topic in itself.] While an idea alone does not have a tangible value, an idea person certainly does. In terms of the above video, if an idea is simply a multiplier, chances are that an idea person can contribute certain items to multiply this with.
Assuming you are the idea person and you do not have the technical capability to execute, think along these lines to determine the value of your idea:
First, let’s get the true definition of a worthless idea out of the way. My idea is to build a flying car that is safe, cheap, fast easy to maneuver and easy to manufacture. However, I know nothing about cars or aviation or automobile engineering or product design or AI. I have done no research and I keep on thinking how cool it would be if I could find someone to build this car. This is a worthless idea.
Now to the serious topic of how to determine the value of your idea. No, I cannot give you exact formula to fill in numbers and get a result, the aim is to form a line of reasoning to move towards a better idea valuation.
Write your idea down.
Do you bring domain expertise / experience? This expertise could be in any function – sales, marketing, finance or something else. Certain experiences are more valuable than others. Some experience is better than none. “Why is the experience necessary – I am a good learner and will learn on the job” Sure, but that is to be proved one way or other after you launch. At this stage, we are only valuing your idea. And, if you have had no true experience in your idea sector – what is the credibility of your idea? If you don’t bring existing domain knowledge, you can be easily substituted. At the same time – if you bring a relevant background that immediately lends credence to the belief that a) Your vision / instinct can be trusted and b) You bring something to the idea that not everyone can.
Do you bring a generic skill truly needed for any startup? Are you an online marketing genius, a person with a lot of contacts (maybe a high pedigree background), respected thought leader that can bring traction to any idea, known in startup world – you get the idea. If you bring such a skill, then even if you are not experienced in the specific domain – your ideas come with a multiplier.
Do you bring a specific skill that is valuable in general business circumstances? A lawyer, an investment banker or from a top management consulting firm maybe? These profiles may not seem to be of immediate use for some idea, but in the long term these skills are placed at a premium in the global market and will also give some multiplier to your ideas.
Have you moved your idea beyond thoughts? Even if the above three may not be in your control at the moment, this one certainly is. Have you done market research, competition analysis, gap analysis and so on? No, these are not MBA pseudo-smart terms. Only when you do these things does your idea start having credibility. I have seen people fantasizing about ideas for months that then break down at the first logical question. Does your planning look complete? Have you given some time to figure out revenue lines, cost items, operational challenges? If yes, then again your idea is worth something. If you are only at the stage of a one line idea that you are hoping to find a developer to build (and take equity) – well the idea is pretty much a random thought and not of much value.
Have you build your idea into something tangible? Wire-framing is not hard – if you are really committed you should have figured that out. At the most basic, a paper prototype shows that you have at least spend some time. More importantly, sketching (or wireframing) gives you the platform to question your own assumptions. Have you shown this prototype to other people, collected feedback?
There could be plenty more questions to be asked when valuing an idea. The core lesson here is this – if you are a non technical person with a technical idea, then before you look out for a technical co-founder spend some time in increasing your multipliers. Your idea would then be much more battle tested, much more convincing, more valuable and you would also have an easier time in finding a team member.