I enjoy watching the BBC programme ‘Dragons Den’ business owners’ and entrepreneurs pitch to business investors (Dragons) for investment. 90% of the invest-able pitches value the idea or business too high and so are forced to renegotiate or fail to get investment. There is an important lesson that Thomas Edison quotes “The value of an idea lies in the using of it”.
The business owner knows they need the help of the Dragon (otherwise they would not be pitching). The Dragons experience, advice and knowledge has a value but the business owner only wants to give up a minor equity percentage in their business. The Dragon states ‘it is not worth my while giving your business my contacts, my strategy, my vision and my energy for a minor equity percentage’. The business idea is worth little or nothing now and at best the business idea might be worth £100K if it secures a contract’. The Dragon proposes that the business owner could either have 100% equity of a potential £100K or 50% of £400K, which is the potential gain the Dragons’ investment, could help the business achieve.
The important lesson is that ideas in themselves are worthless unless they are realised and the way an idea is realised can render it worthless, worth little or worth a lot. The difference in the value of the idea is the strategy, the implementation and the team, not the idea.
You can have an average idea, product or service such as VHS; a strong brand, a great strategic plan and a great team to execute; this will always do better than a great idea with a poor strategy and execution such as Betamax which was the smaller and better quality product.
When Valuing a Business or Idea
Our passion for the idea or business becomes a way of valuing our own self worth; we look for the ROI on the time we have personally invested in the project. We become entrenched and lose perspective: like a child is not owned by the parent, the parent is not owed anything for their nurture; the child has to find their way in life and earn their worth.
You see the business owner goes into the pitch thinking the idea is of value not realising it is the Dragon who is of value! An idea alone is not invest-able, it is a punt, more often it is the team, the owner’s personality or inventor ability to invent that is more invest-able. The idea is a liability (cost), it has no realised worth, it is not an asset until it is realised and proven in the market.
Unfortunately, ideas are a dime a dozen. Ideas that are implemented and become new products and services are of valuable to the buyer. Lots of business have ideas, the most difficult thing is to execute the idea for maximise value in the market this requires a vision and a strategy, skills and a lot of persistence.
If you like this blog you may also like https://theproblem-solver.com/assets/know-value/
Janice B Gordon: The Problem Solver Business Growth Consultant, Mentor, Speaker and Author. Business Evolution – Creating Growth in a Rapidly Changing World will give you the guidance you need to evolve you and your business and exceed your customers wants and needs.