November 4, 2003 2, 2003 - The
Value of Ideas and Getting People to Pay You Hundreds of Dollars for a Handful
of Sand
by
Bill Snow
“If you wanna make a buck,
boy, you gotta be a tease.”
-Iggy Pop,
1973
The irony of finding business
inspiration from a song called, “Your Pretty Face is Going to Hell,” is not lost
on me. This line, which might be one of the most percipient business phrases in
history, is buried deep in the brilliant muck of the Stooge’s album, “Raw
Power.”
While Iggy wasn’t describing
the business of technology, patents, intellectual property, and venture capital,
the lyric does hold a lesson for those of us in those arenas: If you want to
make money, you have to have something people want. And going beyond the lyric,
you have to be willing and able to deliver the goods. It’s as simple, as base,
and as animalistic as that.
In fact, if you are good
enough, the power of ideas can get people to pay you hundreds of dollars for a
handful of sand.
The Value of Ideas
Many entrepreneurs fail to
raise money from investors because the entrepreneur fails to offer something
customers will pay for. The entrepreneur is so focused on the idea, that he
loses sight of whether the idea is good. This is the legendary SLAP (Solution
Looking for A Problem) that we’ve all heard about. Most of us, at one time or
another (myself included), have been guilty of “SLAPing” unsuspecting investors
with unfounded tales of the riches to be had by selling something no one will
actually pay for.
The SLAP is usually the
result of “satisficing,” which, according the college professor who claims to
have coined the term, means, “implementing the first solution you think of.”
How many of us run with the first idea that pops into our brains? For some
reason, we seem to believe the first (and often only) idea we think of is the
best idea. Sometimes it is, but many other times there is a better solution out
there.
Unfortunately, the kernel of
many business plans is a SLAP. Investors, who tend to be savvy people, usually
spot SLAPs from a mile away, and summarily rebuff SLAP proffering entrepreneurs
with the smartly hedged send-off, “it doesn’t match our fund’s criteria.” The
SLAP proffering entrepreneur, ego bruised because VCs “don’t get it,” enters an
interlude of purgatory because the VCs didn’t actually tell him “no, not a
chance in hell,” and spends the next 4 or 5 years wondering the high tech
networking scene in a Marley-like existence, chained business plans clanking
from every limb, muttering the same musty elevator pitch to the same people who
have already said “no,” or worse, are not even in a position to make a buy
decision.
Welcome to Chicago!
Yes, ideas are great. I love
creativity. But execution is better. People who have “great ideas” that will
“completely change ‘such and such’ industry” contact me regularly. How do I
know their ideas are so great? Because they tell me so! That’s good enough,
isn’t it? Is your computer dripping with sarcasm, too? Look at this recent
email exchange:
Bill, I
have a question, which will probably sound incredibly stupid to you -- I'm a
film producer, not a big business maven -- my husband has a great tech idea
which would have a hugely positive effect upon the automobile and auto
insurance industries, but I can’t tell you anything about it. We need to
protect the idea.
The
problem? He is neither an engineer nor a true techie, so we're stuck with this
idea and no clue what to do with it. Also being aware that R&D can take years
(although this concept is pretty simple, really), I wanted some advice – how
can I raise money, how can I start this business without taking any risk? If
you have any thoughts, that would be great.
My reply:
Funny that
you sent me this note. I have a great idea that will have a hugely positive
effect on the film industry. I can't tell you anything about it, and even
though I have no background in the film industry, I know it will be a huge
thing!
Can you help me?
By turning her question
around and repositioning it in an industry she knows, I asked our wannabe
entrepreneur if she saw the folly in her approach. As I told her, everyone has
ideas. Big deal! Value is not in the idea; value is in the execution. The sad
reality is this: Anything that you or your husband has thought of has probably
been thought of by someone else. There are very few truly novel ideas. And
just because something is a novel idea, doesn’t make it a good idea. I guess
you can say it was a “novel idea” to raise tax rates and institute protectionist
trade policies as the country was sliding into a recession in 1930. It was
novel (at the time), but it certainly wasn’t smart.
As I told our wannabe
entrepreneur: The question becomes “how can you execute on this idea?” Drilling
down deeper, I asked her if she was willing to quit her day job (and the
certainty of a steady paycheck), to plunge head first into a world of
uncertainty and ambiguity. If you are, I advised, then start talking to people
about your vision, and don’t play the shadowy game of “I have a great idea, but
I can tell you anything about it.” While teases might bring a few moments of
fun, you have to deliver the goods and have the ability to execute if you expect
to create value.
Her reply?
Your
note made me smile - touché! You're right, of course. And no, we would not be
willing to give up our careers to nurture the idea through a production stage.
And yes, it's entirely
possible that someone has already had the same idea and is much further along
in manifesting it. I appreciate your answer.
Ahhhhhh…another day of saving
someone from the hell that is my life. I sleep well at night.
Entrepreneurs emerge from
this purgatory when they realize there is no law dictating that entrepreneurial
decision-making must be made by the brainstem only. Once we get past
satisficing, and once we get past thinking ideas are the end-all be-all of
entrepreneurship, we find execution is the crux of business. Tony Bagdy,
Director of Marketing at
DigitalWork, sums it up nicely when he says, “The value of an idea is only
as good as the skill set and the operational understanding of the idea-meister.”
Lightening can strike, of
course, but lacking experience and know-how in a certain field reduces the odds
that your “great idea” is actually workable within that field.
Dave Baeckelandt, President
of
Chicago-Pacific Capital Partners, adds, “People are more important than
ideas.”
He’s right, of course, it’s
people who execute on a business plan. A great plan isn’t going to run itself
and find customers. A great plan isn’t going to stay on top of those customers
to make sure they’re happy and they’re paying. Great people do
that job. It’s been said a million times by a million different people, but it
is worth repeating: VCs would rather invest in a “B” business plan with an “A”
team, than an “A” plan with a “B” team.
It’s how you execute
So, how do we get wannabe and
early stage entrepreneurs to focus on the finding workable ideas and finding
ways to execute those ideas? I think it starts in the business schools. In
fact, I hereby beseech all colleges and universities to immediately drop the
words “commerce” and “business” when describing their educational programs.
Those words are too clean and clinical, and ultimately soft-pedal what this
system is all about. My preferred nomme de ecole might be a little
chunkier, but I’m holding out hope that one day I will hear following:
Employer: “What did you major
in?”
Job seeker: “My degree is in
‘getting people to open their wallets and give me money.’”
As I said, a bit chunkier,
but it gets to the heart of what business and entrepreneurship is all about:
getting people to give you money for something. It’s as simple, as base, and as
animalistic as that.
This is not completely
dismiss ideas because I’ve often said economics can be boiled down to three
things: 1) Raw materials, 2) manufacturing/production, and 3) the idea that
says, “I can combine this raw material to that raw material and make something
else.”
Ask yourself: If you could
own only one of these three things, what would you choose? I would pick “the
idea,” and most people I’ve talked to pick “the idea,” too. If given the option
of possessing two of the three things, most people add “raw materials” to their
list. This leaves manufacturing as a third place finisher in a three horse
race.
Why is this? In recent years
we’ve heard many dire stories about the loss of America’s manufacturing base.
Alarmists are telling us this is a sign of economic weakness. According to a
recent Chicago Tribune Article, “Manufacturing’s malaise retains tight grip in
U.S.” (November 3, 2003), approximately 12% of jobs in the US are manufacturing,
and the industry is fearful this number will be declining in the years to come.
Guess what people, it’s not
getting better! And it’s not the end of the world. Manufacturing will
continue to decline in the US, but don’t think for a moment that this is a
problem.
This is not to diminish the
angst and difficulties faced by US laborers who lose their jobs, but we have to
realize it isn’t our ability to make things that makes America
great. It’s our ability to create ideas, and execute
on those ideas that makes America great. Making things is merely a byproduct of
ideas and execution.
At the time of this nation’s
founding, approximately 90% of the US population was involved in the production
of 100% of our food needs. Today, less than 3% of the US population is needed
to produce 150% of our food needs. Short of agrarian progressives who have been
rendered to the ash heap of history (let’s see, who was that? Oh yes, Pol Pot),
does anyone really believe that we would be better off returning to the days
where 90% of our population was required to barely produce a subsistence level
of food?
Manufacturing is going the
same way as farming. It’s not going to disappear, but fewer and fewer people
will be needed to manufacturer greater amounts of goods. My comments are not
meant as a slight to anyone who farms or is involved in manufacturing. I saw
these things because it is a fact. Change is not unprecedented, nor should we
fear change, we should simply make necessary plans (i.e., find other jobs).
What about raw materials?
Raw materials are not needed
to create wealth, not does the possession of raw materials automatically lead to
wealth. Japan has the second largest economy in the world, and their stockpile
of raw materials is, well, Japan doesn’t have raw materials. Japan has ideas,
and more importantly, Japan has the ability to execute. Japan had
manufacturing, of course, but their manufacturing base is and has been going in
the same direction as US manufacturing: somewhere else.
Yes, Japan has had a decade
and a half of economic troubles, but who wouldn’t pick Japan’s “troubles” over a
good day in the worker’s paradise of, say, Cuba. Ah, Cuba…a beautiful country
with abundant natural resources, poorer than a dirt clod because of a system
that limits their ability to execute. Don’t believe the red herring about
sanctions being the root of Cuba’s problems: Cuba has to ration bananas and
other products that grow in abundance on its own land.
Barbie Doll Economics
A few years ago I read an
account of what goes into the production of a Barbie Doll. I can’t remember the
exact numbers, but they went something like this: each doll is manufactured in
China for a cost of 35 cents (raw materials and labor), and retails in the US
for 10 bucks.
Sounds like a rip off,
right? Sounds like a big US company exploiting workers for big profits, right?
Digging deeper into the cost structure, the doll wholesales for seven dollars.
That means $3 per doll is used by retailers to pay workers, pay for goods and
services associated with the operations of their stores, and earn a profit.
Those stores are staffed by American workers, and buy products and services from
companies that also employ American workers.
Of the seven dollars each
doll wholesales for, Mattel spends $6.65 worth on accounting, shipping,
insurance, legal, marketing, logistics, technology, consulting, and packaging.
And yes, they earn a profit, but the vast majority of wholesale price reflects
payments for services, with American workers handling the lion’s share of those
jobs. Manufacturing and raw materials play a very small roll in the economics of
the Barbie Doll.
What’s the point?
Don’t worry about the decline
in manufacturing. Focus on ideas. Focus on your ability to execute. Don’t get
suckered into believing the first solution or the first business plan you create
is automatically the best way to go. Above all else, focus on getting people to
open their wallets and give you money for something.
The raw materials used to
fabricate computers are virtually worthless. But the string of ideas that say,
“I can create silicon chips from sand,” and “I can build computers using silicon
chips,” and “I can sell computers to people and businesses,” are the billion
dollar ideas.
If you have the ideas, and
you have the ability to execute, you too can enter the world where people open
their wallets and give you hundreds of dollars for a handful of sand. Raw
materials and manufacturing are merely byproducts to your creativity and
execution.
Has your company been profiled by Bill Snow? Send
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bill@billsnow.com
About the author
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