Conventional wisdom in startup circles dictates that ideas are worthless. Startup folks and venture capitalists who hear endless iterations of the same idea pitched by budding newcomers have long since accepted this as a fact of life. An entrepreneur pitching for funding, requesting an investor to sign a non-disclosure agreement (NDA) before sharing their idea, is considered a rookie. And this is how it should be; by the very nature of their roles, a venture capitalist or a software developer cannot undertake to sign a contract restricting their ability to play in a certain industry just to hear an idea. Ideas are generally vague and open to interpretation, and this is seen as another danger of signing NDAs. Ownership of broad insights or ideas cannot be legally claimed, unlike inventions that can be protected via patents if the inventor can demonstrate a specific, practical, non-obvious application of the idea.
On the flip side however, particularly to outsiders, it seems that the quality of the idea is the very first indicator used to judge a budding entrepreneur. Peter Thiel in his celebrated book ‘Zero to One’ talks about how great companies are defined by a unique insight or idea. He defines this as a ‘secret’ shared within a core group of founders or employees, which sets the company apart from its competitors. He holds up some of the best-known companies in Silicon Valley as examples. Before Airbnb came along, the idea of renting out unoccupied space in your home to a stranger from across globe seemed ludicrous. Sharing travel costs or generating some secondary income as a part-time taxi driver was similarly unimaginable. Where others saw cut-throat competition among taxi companies, Lyft and Uber saw a new way to overhaul the personal transportation market. These were, in fact, multi-billion dollar opportunities hidden in plain sight.
[pullquote]It is also worth noting that an unconventional idea alone has little value. It is the relentless pursuit of an idea that transforms it from wishful thinking to something more tangible[/pullquote]
If insights that seem so elementary in retrospect can yield such valuable companies, then there must be more to an idea than conventional wisdom dictates. But does this mean that all startup ideas are valuable? Not quite. Digging deeper into the core thesis of ‘Zero to One’ offers some food for thought. According to Thiel, incremental innovation that adds to something familiar takes the world from one to nil. But opening up a new frontier by doing something completely new takes the world from zero to one. Tomorrow’s champions will not win by competing ruthlessly in today’s marketplace. They will escape competition altogether because their businesses will be unique.
The conclusion seems to be that unconventional ideas are valuable. For example, Facebook – whose first outside investor was incidentally Peter Thiel – was not the first social network. Many competitors such as MySpace and Friendster with millions of users were well established before Facebook made its entry. But while incumbents focused on anonymity and the creation of an online persona with a virtual friend circle to match, Facebook focused on recreating users’ real life social network online. In retrospect, it is obvious that a network where people share their real data and connect with their real friends will be the easy winner in the long run by positive network effects alone, but this was a bold contrarian decision at the time.
It is also worth noting that an unconventional idea alone has little value. It is the relentless pursuit of an idea that transforms it from wishful thinking to something more tangible. The idea of a worldwide currency, not controlled by a government or any central party, has been around for decades. But only Satoshi Nakamoto managed to give it tangible form by brilliantly marrying the disparate fields of economics, cryptography and public key encryption to create Bitcoin. This was a result of work that would have happened over a number of years and required many eureka moments, rather than one singular moment of brilliance. For those who maintain that execution is what matters rather than ideas, these incremental eureka moments are evidence that it’s doers rather than thinkers who push the world forward.
The single eureka moment that leads to fame and fortune is a mythologized product of science fiction and pop culture. But this does not mean that ideas have no place in the startup world. Far from it, contrarian thinking carries a premium, just as contrarian investors tend to do well in financial markets. What ideas cannot do is save an entrepreneur from hard work or the trial and error process that is a rite of passage for any innovator.
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Entrepreneur and investor Peter Thiel started PayPal in 1998 and took it public in 2002, defining an era of fast and secure ecommerce. In 2004, he made the first outside investment in Facebook and served as a director and launched software company Palantir Technologies. He also funded LinkedIn, Yelp and other technology startups run by former colleagues now dubbed the “PayPal Mafia”. He is a partner at Silicon Valley venture capital firm Founders Fund that funded SpaceX and Airbnb. He started the Thiel Fellowship to encourage young people to put learning before schooling and the Thiel Foundation to advance technological progress.
Source: Zerotoonebook.com, 2016