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Ideas aren’t worthless

Let’s end this bullshit now. Ideas are not worthless. Ideas are important and the very foundation of every successful company.

TL;DR:

  • If you’re working on a stupid idea, no matter how smart you are and how well you execute, you’ll go nowhere
  • The idea is the core of a company and what defines it entirely
  • That’s where an investor’s evaluation will start and end
  • It might be extremely hard to spot if it’s a good or bad one
  • Idea = “market + problem + opportunity”
  • If everybody tells you that your idea is bad, doesn’t mean it is
  • If an investor turns you down, they probably think that, in order of probability:
    • your idea is bad (pain is not real, no opportunity, solution sucks)
    • your market is too small
    • you’re not the right team to execute that idea
  • Investors evaluate team after idea, if idea is good but they don’t believe team will be able to execute => that’s a no
  • This is all for “normal” entrepreneurs and situations. An extraordinary team (Sean Parker – level) will raise money for anything.
  • BUT, extraordinary teams executing extremely well on any idea doesn’t guarantee success.

The “ideas are worthless” mindset

I feel the industry is failing in messaging a very important point, and that is the fact that ideas are not the only thing in the success of a company.

Being in love with the valley’s state of mind, I too have been drawn by this to think that ideas are worthless and execution is king. I actually believed this and told this to every founder that came in pitching their business while I was working in VC as well as almost everyone who asked for advice. Well, turns out I was wrong. I’m sorry. Your idea was not worthless (even thought it was probably pretty bad).

Working on a huge idea and company made me realize how broken this mindset is. Employees are the best VC investors (maybe a post of its own on this in the future) and when I was on the market for a new gig I sure as hell wouldn’t have settled for anything less than huge. A players recruit A players and A-ideas recruit A players too.

What is an idea?

Talking about ideas, it helps to define what we’re talking about. I like to think that an idea as the sum of:

  • finding a market with a pain
  • figuring out the opportunity in the market
  • and hypothesizing a product or service solution

Do VCs value teams or ideas?

Valley VCs like to make you think that they only decide on investments based on the team, but in reality (consciously and unconsciously) what they are really valuing is a mix of factors, best represented by your idea (as defined above).

The questions a VC asks and answers in his mind are along the lines of:

  • does this make sense? Is there a real pain and opportunity? Is the solution smart? Will people use it?
  • is there a big and growing market for this? if not, can it create a new market?
  • is this the right team to execute on this idea?
You only get to the team part if the ideas makes sense and the market for it is huge. On top of that, you have to be the perfect fit for the idea you chose (right skills, unfair tech or knowledge advantage, etc.).
Only very few and very early investors can afford to invest based exclusively on the team (YCombinator most of all), and are probably skewing the message that needs to pass to entrepreneurs.

The canonical pushback on the argument that ideas are important is the following.

Ideas are cheap. What matters is execution.

Which I would rephrase as:

Bad ideas are cheap. Good ideas are extremely rare and executing them is incredibly hard.

Ideas are valuable. Good ideas are scarce. And when an investor finds one, he’ll definitely get interested into it even if he’s never heard of the team. That doesn’t matter that he’ll be funding it or that it will work.

There’s one catch tho: evaluating ideas might be one of the hardest and most counterintuitive thing ever. Paul Graham recently wrote:

“the best startup ideas seem at first like bad ideas. [...] if a good idea were obviously good, someone else would already have done it. So the most successful founders tend to work on ideas that few beside them realize are good.”

Not many investors realize good ideas actually look pretty dumb in the beginning to people who still can’t connect all the dots together. That is as true as hard to admit for an investor, so big kudos to PG on that. This is also the only reasonable counterargument to the “ideas are important” philosophy: “ideas are extremely hard to evaluate”.

Ycomb now actually lets you apply without an idea. Does this mean that ideas are worthless? No, it means that they are receiving a ton of bad ideas and want to make sure that good founders work on good ideas. So often smart investors will strip down the idea into its core parts of market, opportunity and solution and will evaluate on those before moving on to the team.

 

When is an idea good or bad?

At this point we should probably start to explore what makes an idea good and what makes it bad, cause this is where most of the confusion happens. But don’t hold your breath, I don’t really know.

I like to think that you have a good idea when you have a good number of those elements:

  • A deep understanding of something specific. An obsession.
  • Knowing something is true that almost nobody agrees with you on (cit. Peter Thiel)
  • The realization of a problem, gap in the market, future market shift
  • A creative and innovative way of exploiting that knowledge
  • A new enabling technology that dramatically lowers the barrier to creating something (better if proprietary)
  • A marketing insight to get people to notice your product
  • Some unfair competitive advantage and barrier to entry in respect to other competitors

A good idea is derived from spark, creativity, business acumen, luck, technical knowledge, madness and laziness.

Wow cool, so that means I should ask everybody to sign an NDA before telling them my idea! Not even in the slightest. Even tho ideas matter 1) execution is still what makes them successful 2) you should have had the idea because you are passionate about the market and have either an obsession or deep knowledge that other people don’t so 3) other people will probably not think that your idea is good and thus 4) nobody will even consider copying your idea when they have an already long list of theirs to execute. 5) As a bonus, I’m a firm believer that you should be the right team for the right idea (probably another post about that too), meaning that anyone who copies your idea should fail.

But what about pivots? Every successful company pivoted from an original idea to something different! You can’t pivot yourself from a stupid idea in a small marketinto a great one. Your original insight has to be a decent one first. you have to find the pain. A pivot should come from a much better understanding of the market, the customers, the technology etc., and should be the ultimate good idea. A pivot is not: oh photo sharing didn’t work so I’m going to do a subscription e-commerce for pets. And, as a bonus, a pivot is not: “oh podcasting didn’t work so let’s do status updates”, cause that should be phrased like “ok podcasting didn’t work, it was a bad idea because there was no market for it, let’s call investors and tell them they can take their money back or stick with us while we work on a new thing”. That’s not a pivot, but a new company entirely. SHOCKER: most people invested in Twitter when it was already Twitter. And everyone invested in Facebook, Square, Evernote and Dropbox, when they were already working on the companies we know today.

Further awesome reading: The only thing that matters by Marc Andreessen (spolier: it’s the market).


  • http://www.facebook.com/Avesani Pier Mattia Avesani

    Very nice article, thanks Stefano! Myself, last year: “watch a fireplace, a good idea is like a spark: it creates a cozy warmth with a steady oxygen and wood contribution. But, without these, it’s just a poky flash of light”

  • Randy Ayn

    Are you Jeff Skillings long lost kid?

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  • http://www.facebook.com/profile.php?id=710180099 facebook-710180099

    Really good article Stefano. Ideas and execution have definitely the same weight in getting a company successful. You can’t succeed without a bad-ass team able to execute the idea at its best. At the same time you need good-and-valuable ideas to solve problems, but real ones. Too often I see new startups that put everything they have in the WOW factor. That’s not enough to succeed, not anymore or at least not for long time.

  • darose

    The most sensible way I’ve heard it described is that ideas have some value, but execution has orders of magnitude more value, and it’s the product of the 2 that really matter. Good idea x bad execution = nearly worthless. Bad idea x extremely good execution = somewhat valuable. etc.

    Probably best articulated in this post:

    http://www.oreillynet.com/onlamp/blog/2005/08/ideas_are_just_a_multiplier_of.html

    • http://bernardi.me/ Stefano Bernardi

      Yes, I’ve read that and tended to agree.
      But actual experience (at least for me) seems to show that bad idea * excellent execution is still valuable. (Color, Airtme, etc.).

      • http://www.facebook.com/profile.php?id=1242090073 Matthew Pruchniewski

        Who said Airtime or Color are bad ideas and who said they are executing well? Your lens into those companies comes only from biased tech news reporting and not your actual experience.

        • http://bernardi.me/ Stefano Bernardi

          Fair points. We can’t really know on those two examples, that’s just a personal supposition.

          By the way, I never said that good idea * good execution has a 100% success outcome, as I do believe it’s still very possible to fail.

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  • 3rdlion

    Good/bad ideas is subjective.
    The fact is everyone has ideas but not everyone is willing to commit themselves with enough drive and passion to see the idea executed into a good product.
    Ideas ARE worthless to the lazy or money seeking, start-up wannabes.
    But this is all just common sense, so expect your article is just designed to troll and generate some hits rather than provide a constructive, carefully thought out argument.

  • http://petegrif.tumblr.com/ Pete Griffiths
  • http://about.me/lord_nolan Nolan Clemmons

    Music to my ears.

  • http://www.facebook.com/terrence.a.davis1 Terrence Andrew Davis

    A 64-Bit DOS operating system http://www.sparrowos.com

  • kevnull

    For the most part, ideas may sound the same coming out of people’s mouths, but how they’re interpreted (read: executed on) vary greatly. That’s why there may be good ideas (and there are plenty) that aren’t done at all (people who like to talk about ideas) or done well (people who don’t have the ability to execute in a measured, motivated, or driven manner).

    Ideas ARE cheap, both good and bad. Your description goes beyond ideas though, to how those ideas are executed on, which then becomes closer to execution. You can change the definition of “ideas” to make your statement true, but I think the original still stands.

  • p:rla

    sei rid:colo…

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  • Ermanno Cece

    I took the right time to read this piece! In my opinion, there are enormous knowledge and passion behind it. Thank you very much Stefano!

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