A question from David, a 702 listener “If one has a good idea however is not ready to become an entrepreneur or one’s circumstances prohibit it. How would one go about licencing their idea to a business who can use the idea and turn it into a profitable business?”
Listen to what Pavlo Phitidis said in response on The Money Show on 702 & CapeTalk:
Pavlo’s belief is that ideas are currency but execution is wealth. There is a big gap between the brilliant idea and the ability to deliver it, and the gap is where the value of the idea lies.
What is a business idea worth?
- In the eye of the beholder – everyone who has ever come up with a great idea believes it is unique and brilliant. But you have to get the idea out of your head, to see if it provides value to someone other than you.
- In the eye of the consumer – who is the consumer of your product and service and what do they value? Usually it is something that solves a well-defined product at a cost that is lower than the cost of the problem itself. For example if you have a dripping tap, does the cost of the leaking water, and the damage it might be doing, cost more or less than the price of the plumber to fix the dripping tap?
- In the eye of the implementer – business ideas are inert until they are implemented. Often the idea begins and ends in the imagination of the person who came up with it and there’s not a lot of thought on how to implement it. Is it extremely expensive to bring to market? Is it genuinely unique in the market? Why would the implementer invest in your idea?
How do you build value into an idea?
Create its value stack: Value builds in layers and you need to understand the value of each of these. For example. Where can this idea be applied? Is it in a sector or industry? And then do your research to see whether it is unique, if it is, that uniqueness adds a layer of value.
Then ask, why has no-one else done this? Entrepreneurs spend their lives looking for problems in their sector, and the solution to it. So why would it not be solved yet? It might be funding, or access to a specific resource or skills. And if you understand this, you start giving shape to the idea.
Next, you have to understand how you build the business to take it to market. This where you turn it from words or imagination into a product or service. Build out the process from manufacture or development, to access to market, and bringing on a customer. At each point you’re adding to your value stack as you show how you earn the first Dollar of sales.
How do you avoid the business that you pitch to, taking your idea and building it out themselves?
The way that you monetise the idea depends on the depth of the value stack. And if all you have is the idea – you don’t have a lot of value. Non-disclosure agreements have very little worth in protecting you as ideas are easy to come by and hard to prove to be original.
Pavlo also advised that if you have a deep enough value stack, identify 3 or 4 targets who would see it as valuable, and present it in a competitive environment, to grow the value you can bring to simply providing the idea, without giving it away to the first company you approach.