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Friday, December 11, 2009

What Is The Value Of An Idea?

Many entrepreneurs are excited about their ideas and the potential for those ideas to turn into great businesses. This excitement translates into a perceived valuation of the idea. An entrepreneur may assume that the idea is extremely valuable and an investment in a business based on the idea is obvious. In many cases the entrepreneur's valuation is not consistent with the publicly perceived value of the idea.

There are cases when a pure idea does have immediate monetary value. If the idea represents a break through mathematical formula, insight into a physical law, or a new chemical process the idea may have immediate monetary value.

However, in most cases an entrepreneur has to show an investor more than an idea to entice them into investing.

This does not mean that the idea has no value. In fact, the idea stage of a company is very important and "valuable".
  1. Starting Point - Everything starts somewhere and the creation of the idea that will one day power a company is usually the symbolic starting point for a business.
  2. Brainstorming - The idea phase of a company is a blue sky anything possible stage. It is exhilarating and stimulates thinking around the technology, company structure, staffing, marketing and product development that will be forthcoming.
  3. Intellectual Property - Although the idea itself may have no monetary value a patent does have value. If the idea is truly unique a patent process should be initiated. If a patent is granted the idea will add value to the future business.
  4. Rallying - Presenting an idea to another individual or group is a great way to start a dialogue about an idea's potential. The idea discussion will help bring like minded people into a discussion about the idea and its potential merit. The idea itself may form a common bond amongst like minded individuals that will eventually take interest in the tangible manifestation of the idea.
  5. Validating - Getting the idea out into a public forum will help determine the validity of the idea as it relates to its commercial potential. Be careful about confidentiality when soliciting public feedback. Isolate your public contacts to individuals you trust to keep your information confidential. Having them sign an NDA is a good idea.
  6. Investor Introduction - At the idea stage it is very unlikely that an investor is going to invest. However, sharing the idea with investors is a good way to prime the pump for a future investment and to determine if a business built around the idea is of interest to the investor. The investor may know other people that would be interested in the business. The one caveat is confidentiality. Be careful about sharing your idea with investors that may take the idea elsewhere.
The inclination to focus on an idea as having monetary value prior to having an actual business associated with the idea is not the correct way approach to idea valuation. Vet and develop the idea from a theoretical notion into something tangible such as a product, service, etc. before you considering the idea as having monetary value. Use the idea to motivate a team around you to create the product and service that will eventually represent the real value of the idea.


1 comment:

Kevin Callahan said...


I agree that without a proper approach, it is diffficult to value an idea on its own. The steps that you outline provide a new entrepreneur with a way of studying an idea to see what its ture value may be.

I would add that while going through your process, the enterperneur may want to explore why they are excited about the idea and in particular, who will benefit from the outcome of the idea?

All business starts with an idea, but as you point out, it is only the start!

Kevin Callahan