You probably read quite a few articles on how to answer this question. You have heard extreme things like, “your idea is not worth anything unless you implement it” and “this is how you calculate the true value of your idea”. Well, I am not going to spend anytime addressing this question from that perspective. Instead, I want to share my thoughts on what I think an idea is worth during a firm’s lifetime. I believe the value of an idea diminishes as time passes and instead, is replaced by the value of its execution.
Day 1: Firm’s value = The idea’s value
On day one, all of you have is the idea. You do not have a product, customers, revenues and of course profits. Most likely, you don’t have a team either. The firm’s value is same as the value of your idea. It could be $0, $1000, or a $1,000,000. Whatever that number is, your firm’s entire value is the number.
Fast forward to product launch: Firm’s value = Value of Everything Else
From the time you thought of the idea to the time you went live with the product, you have accomplished a lot and managed to build firm’s value. This value is a combination of the team, the product, the operations, may be some IP, your knowledge of the market, the competitive landscape, your plans on how to grow your customer base and how to make money. As you can see the idea makes up very little or none of this added value.
In fact, I think the idea’s value has diminished significantly. Your competitors know about it and are already thinking about how to do the same and other entrepreneurs are hatching plans to replicate the idea. That means the idea is out of the bag and on its own has zero value.
Don’t worry! From here on now, it is all about execution. The more you execute and the better it is, the more value you accumulate and the harder it is going to get for people to catch up with you. It is no surprise that venture capitalists will prefer a seasoned management team and an average idea over a great idea and an inexperienced management team.
So, the next time you hear from people say: “I had thought about the exact same idea two years ago or somebody mentioned this idea to me a year ago”, just listen to them politely and keep executing.
