Sunday, March 30, 2008

Ideas vs Judgment and Execution: Climbing the Mountain

How much is an idea worth? Many normal people assume that ideas are valuable, and that if only they could think of one, they might be able to sell it for millions of dollars, like the Pet Rock. On the other hand, many engineers, VCs, and successful entrepreneurs claim that ideas are worthless. Paul Graham provides a sort of "proof" that ideas are worthless:

Startup ideas are not million dollar ideas, and here's an experiment you can try to prove it: just try to sell one. Nothing evolves faster than markets. The fact that there's no market for startup ideas suggests there's no demand. Which means, in the narrow sense of the word, that startup ideas are worthless.

People in the "ideas are worthless" camp usually claim that it's all about execution -- they have plenty of great ideas that just need great teams to execute on them.

I have ideas all of the time, many more than I have time for, and so I tend towards the "ideas are worthless" camp. However, there's a nagging inconsistency -- something isn't quite right.

Quoting yet again from Marc Andreessen's "Guide to Startups, part 4: The only thing that matters"

I'll assert that market is the most important factor in a startup's success or failure.
...
The product doesn't need to be great; it just has to basically work. And, the market doesn't care how good the team is, as long as the team can produce that viable product.
...
Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn't matter -- you're going to fail.


In other words, you just need to build the right product. A mediocre team building the right product will succeed and a brilliant team building the wrong product will fail.

Isn't that a little bit like saying that having the right idea DOES matter? And if ideas are so plentiful, then why do we see great teams executing perfectly on bad ideas?

I've thought about this for a bit and realized that both camps ("ideas are valuable" and "ideas are worthless") are wrong, at least when stated so simply.

Imagine that products are mountains. To build a product, you will need to climb that mountain. Some mountains have a big pot of gold at the top, and some do not. In order to make money, you will need to pick the right mountain and then successfully climb to the top and gather up the gold. You can fail by choosing a mountain that has little or no gold at the top, or by dying on the way up.

Taking this metaphor a little further, there are also multiple paths up the mountain. According to Wikipedia, Mount Everest has fifteen recognized routes to the top. Some routes are easier than others.

Successfully executing a trip to the top of the mountain requires a certain level of technical ability -- how much will depend on the mountain and route. It also requires good judgment in order to choose the right route, or to change course when you realize that the current path isn't working out.

Judgment isn't talked about as much as execution, but it's obviously very important. A technically brilliant team, upon encountering a sheer cliff, may excitedly think to themselves, "this is the perfect opportunity to use Erlang!" (or some other fancy tech -- Erlang is just a funny example) A team with better judgment would notice that there's an easier route that goes around the other side.

Judgment also plays a critical role in choosing which mountain to climb. Our landscape of product-mountains has millions of different mountains, many of which have never been climbed. Other mountains have been attempted in the past, but the team froze on the way up, or there was no gold when they got to the top (apparently the gold flows intermittently in this analogy).

There are also people wandering around in the flat lands near the mountains. Many of these people have ideas about which mountains have gold at the top, and some of them have even drawn crude maps showing what they believe to be an easy route to the top. Inevitably, they try to sell their ideas and maps to the mountain climbers, but the climbers just brush them off and say that their ideas and plans are worthless.

Eventually, a team of climbers will discover a huge cache of gold on one of the mountains. Naturally, the people who were hanging around at the base trying to sell their ideas and plans will say, "I had that idea first! They stole my idea! I knew there was gold at the top of the mountain!"

And it's true that they had the idea, as did many other people. Ideas are plentiful. The problem is that most ideas are bad -- either there's no gold at the top of the mountain, or the ascent is too difficult with today's technology. What's valuable is the judgment to know which mountains have the gold, and the team that can get to it.

So are ideas worthless? Not quite. If a skilled climber who has successfully chosen the right mountains in the past thinks he knows the location of another gold-rich mountain, people will listen. The idea has value because it comes from someone who has a history of being right.

If the exact same idea were presented by a random person with no experience and no ability to execute, it would probably be ignored -- there's just not enough evidence that it's a good idea. If that person truly believes in their idea, they will have to prove it on their own. (The beauty of our system is that they often can, even if everyone else thinks it's a bad idea)

If someone with a history of being right also has a capable team of climbers who have demonstrated the technical skill and judgment to climb other mountains, then that is very valuable, and they will have no trouble getting their idea funded.

Summary:
Idea * Judgment * Ability * Determination * Luck = $$$