What follows is a rant that is not directed at anyone in particular, just something I want to say to at least 50 people a year who pitch me on their “big idea” because they think I can help them.
– EDIT: skip this part if you don’t want to hear me brag, I added it to hopefully provide some credibility as to why you should learn from my experience –
I have been fortunate enough to be involved with a couple of startups that went on to achieve unlikely outcomes. I don’t ever have to work again.
I’m the guy you know: your friend of a friend, your cousin, your previous coworker. The guy that got rich from his “app”. I have been fortunate enough to participate in the process as a low level employee, a CEO, an investor and a founder. I have been a part of 2 acquisitions in excess of $200M by public companies, in ventures that I started or joined when they were napkin sketches. In both consumer and b2b, all have been in software (or “apps”). Companies you have heard of (the acquirers at least).
I have authored 7 patents that have been issued by the USPTO, and I can tell you these have almost nothing to do with the financial outcomes I have been fortunate enough to be a part of.
Of the 30+ “ideas” that I have poured untold hours and (investors) money in to, only maybe 5 have created any kind of return. Edit: this is a shocking understatement, as I think about it I have been a part of launching at least 70 apps on the app stores. A couple got traction. The rest, in hindsight, bombed. Millions of dollars burned and tens of thousands of hours – no regrets, the wisdom I have gained is as much from the failures as the successes. I derived a ton of value from what I learned in the process of trying to execute them as well as I could.
While I have been successful by most standards (I am 43 and worth $20M+), I have been a part of raising and burning at least $500M of investor money. Maybe $50M of that got it back (and then some), around $20M of it got a 10-30x return. The rest was lost to the brutal landscape of the marketplace.
I’m sharing this because every month I take the time to hear 3-5 “big ideas” from people who think that if I hear about their magical “precious” I will be astonished and be dying to help them build it and get rich.
“If you want to help me with this I’ll cut you in on it” they say.
Get the fuck outta here! You think I don’t have 10 precious ideas of my own that I lack the conviction or time to execute – but at least have done the nominal vetting to have a belief in? Come on man!
In most cases the “inventor” ends up disappointed with my feedback, and while I realize I could be better at how I give it, there are some consistent themes that reflect a broad misunderstanding of how ideas translate into generational wealth.
I hope this is helpful and please do not take it personally.
Hear me now and believe me later.
– END OF BRAG SECTION –
— Here Is What Your Idea Is Worth —
Zero.
Less than zero, actually, because the minimal time needed to be spent in order to some basic research to validate it, which you haven’t even begun, costs money.
I know your idea is precious. I know this because I have my own precious ideas. I know this because I know the feeling I got from buying my first powerball ticket. In spite of being very fluent with the math I spent all afternoon thinking about what would happen if I won. After 3 hours of fantasizing it seemed plausible. And this is so much more than a powerball ticket – it’s your genius idea! And you’ve been “working” on this idea for years! If only you had the time, you’ve got your day job, your car payment, a new kid, etc. Life gets in the way.
Your brilliant idea… someday is your ticket to the life you imagine. I’m truly sorry. It really isn’t. You carry it around like some kind of magic security blanket that is just a few simple steps away from making you rich.
The “feedback” you’ve gotten is bullshit. Your friends and family love you: of course they are going to tell you it’s great: they would definitely use it, pay for it, invest in it, etc.
Important: there are also ten billion dollar plus industries who profit from encouraging you to pursue your idea. Lawyers. Software dev agencies. Invention websites. Even the USPTO is funded mainly from guys like you trademarking and patenting your ideas before there is any indication that a business could be built based on them. In the course of over a billion dollars of fundraising and M&A that I have been party to, trademarks and patents have meant next to nothing.
Your mileage may vary, but be advised that service providers and “advisors” work for cash and thus are incentivized to encourage you to pursue your idea with little scrutiny. Ask them to work for equity and see what happens. If they are credible, and they will work for equity, you might be on to something. Or they are inexperienced.
The ads from “inventor websites” you see on TV are predatory; this is not how ideas translate to money, they thrive on taking your savings in exchange for telling you your idea is great and they will help protect it.
Please know: when you are secretive about your idea, when you ask me to sign an NDA, when you insist that your idea is worth anything at all; it tells me you are an amateur. I will not steal your stupid idea.
The main, most basic flaws I come across fit into a few categories:
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Competitive research: most often I hear “there is nothing out there like this”. Do you even google bro? Upon doing 10 minutes of google or App Store research I can usually prove this is not the case. There are at least 10M software applications – you really think nobody has had your idea? It’s not a bad thing: thriving competition is actually a positive indicator to me that there is a market. How is your approach different? In most cases I can find 10 attempts at your idea that failed and a couple that show signs of life. Please be familiar with these – talk to the founders of them, and have a point of view on why your approach will achieve a different outcome than what I can easily find. When you believe your idea is unique and I can find 19 examples of it that have been tried already, I no longer take you seriously. Please have talked to multiple people who have tried your idea before you tell me they are a slam dunk. It’s not hard: use LinkedIn. I can’t stress this enough: I know it is uncomfortable to do the research and find 17 attempts at exactly what you’re thinking of and none of them are working, but just because you haven’t heard of the companies doing it doesn’t mean it hasn’t been tried. It would be insane to launch a new venture without understanding what’s out there. Most skip this step because it can be discouraging – this is where the fun starts.
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Unit economics: sure everyone would want a better widget, but you need to understand the broad dynamics of what it will take to pay for the supply and demand for your product. If you build it they will not come – I promise you. You need to expect to have rely cost/effort to make people aware of your product. You need to have a sense for how your product will be created and how much that will cost.
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Distribution: assume that if your product existed tomorrow, nobody would give a shit. Build and launch an app? You can count on 10 downloads in the first week and half of them are bots. As important as your idea is how you’ll generate awareness for it: half of the successful businesses today are simply taking a proven product or service and finding a new way to distribute it. These ideas are far more compelling than net new ideas because at least we know there is demand. A great example is the ghost kitchens that popped up from UberEats and Grubhub: a new mode of distribution suddenly creates huge opportunity for the most obvious thing: a fucking restaurant. But one with cheap real estate, and no place to sit. If your idea was to create ghost kitchens in cheap warehouses, now you’re thinking on the right level. But you weren’t were you.
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Expertise: please do not tell me about your restaurant tech biz when you have neither worked in tech nor operated a restaurant. It is insulting to both tech people who eat, and restaranteurs who have a fucking smart phone. Assume that your idea had been thought of by both and if it doesn’t exist, please know it’s been thought of by many of both, and probably attempted. You need to have some unique insight or right to pursue this concept. If you aren’t sure, you don’t. Go back and become an expert in some aspect (domain or tech) of your idea. You’ll likely quickly learn why it’s much harder than you think. Every day billions of dollars are wasted by industry experts trying to do tech, or tech experts trying to do an industry they don’t know. Neither is easy to learn. You’re on to something when you have one of the two, and a credible cofounder or partner that has the other. Do not make the mistake of underestimating the creativity and expertise that is resident in the domain you wish to enter.
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Market: on what basis do companies like yours trade? For example e-commerce businesses trade on ebitda, saas companies trade on ARR. Growth rate always matters highly. There are cases where a highly unprofitable business can be worth billions because of high growth and high margins (see: every public saas company). There are cases where highly profitable businesses are worth less than zero, because they are shrinking and have shitty margins. Understand this dynamic and have some semblance of an end in mind.
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Look, I get it. Life is hard – having a pet idea makes it more bearable. Just like having a lottery ticket. Just don’t delude yourself. The market is incredibly vast and competitive – if the idea you have is such a slam dunk, it would have already been done:
You want to protect your pet idea so you can have some vague hope? That’s cool, I’m guilty too. Just don’t bring it to me and not expect me to apply the lens above to it. If you don’t have good answers to the above questions then you aren’t serious and you are wasting your time and mine.
Be honest with yourself: is your idea a precious token that allows you to imagine being rich and important? Would it be really cool to be the person that came up with it? I get it. Just don’t confuse that with an actual premise for a business.
Not sure? Go become a deep expert in something and figure out a way to solve a problem in that domain. You’ll know you’re a deep expert when people seek out your opinion on it. Until then it is fine if you want to keep deluding yourself with your pet rock, just stop wasting everyone’s time talking about it and for the love of god do not waste your hard earned time and money on it.
Edit: forgot to add one more critical common mistake: stated vs revealed preference. You will of course get amazing feedback from your friends who “all of them said they would pay for this”. It’s useless. So are many forms of customer research and surveys (but not all). Do not mistake the difference between getting encouragement and getting money. Most people (even in anonymous surveys) will say they would pay for something that they wouldn’t. Or, they would, but your costs to get in front of them at the right time with the right message, in the wild, make your model untenable (e.g. organic discovery and distribution is a big hack).