Three Ways to Win With Your Great Ideas

I’ve been spending a fair bit of time recently talking about how ideas are cheap. I’ve been doing this for two reasons: the first is that ideas really are cheap; the second is that organisations often overinvest in idea generation when they’d be better served by getting better at executing ideas. I ran across two different things today that add some support to this idea.

The first is from an interview with the economist Robert Fogel in From Poverty to Prosperity by Arnold Kling and Nick Schulz:

We tend to heroize the person who gets there first, but usually there are a dozen people who were so close that you can feel their breath on the back of their neck, so that if one guy stumbled, it wouldn’t be that that scientific stream wouldn’t materialize. It would be that some other scientific group or individual is the one whose name is attached to it.

I really think science is a collective enterprise. What you can do depends not only on what happened before you but on what everybody else around you is doing. You’re talking to each other and hoping you’ll be a little bit luckier, or a little bit cleverer…

And then I saw a post by Fred Wilson talking about how a third of his firm’s VC portfolio is being attacked by ‘patent trolls’:

But anyone who has spent a significant time in technology based businesses will understand that two groups working completely independently from each other will often solve a problem similarly. One group is not copying or ripping off the other group. They are simply coming to similar conclusions about how to get something done.

In these cases, it makes no sense to protect one group from the other. Nobody has taken anyone’s “intellectual property.” Both groups should own their inventions outright without having to license technology from the other.

In my experience, this has been generally true (although Michael F. Martin doesn’t buy Wilson’s argument). For the moment, let’s assume that this is the case – whenever a new idea is ‘in the air’, several people or organisations will be working simultaneously to operationalise that idea so that they can make money on it. What’s the best way to do this?

I don’t like patenting or other legal IP approaches for a number of reasons. The main one being that in the end, legal protection doesn’t offer you much actual protection. And from a psychological point of view, I think that most people with a great idea want to make money off the idea itself, not from lawsuits. I’m not saying don’t patent, but rather that you should think carefully about three other ways to make money off your great ideas.

  1. Win through better execution: Edison was at best the 24th person to invent a working incandescent light bulb. Why do we think of him as its inventor then? He had much better execution than the previous 23 teams. His light bulb had a better filament, so it burned longer. More importantly, his group actually got electrical power stations built, and electrical cabling laid.
  2. Win by having a better network: Stefan Lindegaard revisits the Sony Betamax story today. My thought while reading his post is that Betamax really failed because its value network was worse than that of those backing VHS. Lindegaard frames it as a problem with insufficient openness, but ultimately, you win by having a stronger value network (and a better position within it). The Apple iPhone versus Google Android battle will not be won by the better technology, but ultimately it will be won by the better network.
  3. Win with a better business model: The Nintendo Wii is a good example of winning with a better business model. The product itself is technologically worse than Playstation or XBox – at least in terms of processor speed and graphics, which is what everyone thought they were competing on. But the innovation with the motion sensor in the controller meant that Nintendo had a different value proposition (play activity-based games), which allowed them to pursue a vastly different market segment (people other than 18-30 year old men).

These strategies obviously overlap a fair bit. For example, your value network is part of your business model, so if you innovate in one it’s likely that you’ll be innovating in the other as well. But if you are in an industry that can not take advantage of legal IP protection, then you must use one of these approaches in order to benefit from your great idea. I would argue that even if you are in an industry with a strong IP regime, you will benefit from thinking about these strategies. They will help you find a way around the problem of working on an idea that others are attacking at the same time. They will help you win with your great idea.

Note: We are seeing an increasing amount of work being done on business model innovation, which is great. I tend to use Henry Chesbrough’s approach, but you can also find some great resources on the websites of Alex Osterwalder and Anders Sundelin. With all these people working on the same idea at the same time, I guess the one that wins will be the one with the best execution. Of the best network. Or even the best business model!

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

Please note: I reserve the right to delete comments that are offensive or off-topic.

11 thoughts on “Three Ways to Win With Your Great Ideas

  1. Nice work Tim!
    I agree with you that execution, network and business model innovation is highly important, and I’m thankful for the link, though I’m not consider myself competing to win in any way with Alex and Henry :)

    However, I am also a believer in intellectual property rights as one tool to create and capture value. There are of course great differences between creating a business model for an internet start-up with a novel service that might survive 5-10 years and spending hundreds of millions on finding new biomarkers in collaboration with different actors, that might be relevant for 25+ years. Even when designing open innovation platforms smart management of innovations and IP are crucial to create the right incentives for organizations to commit key resources, trust each other, find investors etc.

    Google, considered one of the most open and transparent companies providing much of their services for free, have a business model that is highly dependent on IPRs.

    Take care,
    // Anders

    PS. I recommend the book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando De Soto, its an interesting read.

  2. Thanks for the thoughtful comment Anders. I agree that IPR is useful. However, I also think that there are many cases where formal IP protection doesn’t help much. Your Google example is interesting. They obviously rely heavily on proprietary methods – particularly their algorithms. But those aren’t patentable. It seems to me that the use secrecy & complexity more than they use formal IP methods.

    That said, part of my argument here is just rhetorical. Too many of the people that I talk to think that patents are the only way to make money from ideas, so I end up spending a lot of time trying to tell them about other ways to do it.

    Thanks for the book tip too!

  3. I understand the point you want to make, it is highly relevant, 95% of patents are useless or used for other purposes such as communicative reasons to get the interest from investors or to print on the product to motivate higher margins for being unique.

    Regarding Google, check out the video with Eric Schimdt (full version exists on my blog) http://www.youtube.com/watch?v=Zi3Q40EPUjk
    or read about one of their algorithms PageRank http://en.wikipedia.org/wiki/PageRank

    “The name “PageRank” is a trademark of Google, and the PageRank process has been patented (U.S. Patent 6,285,999). However, the patent is assigned to Stanford University and not to Google. Google has exclusive license rights on the patent from Stanford University. The university received 1.8 million shares of Google in exchange for use of the patent; the shares were sold in 2005 for $336 million.”

    Take care,
    Anders

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