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The true cost of innovation

There seems to be this idea that good ideas aren’t worth the effort of exploring their potential. There’s also this misguided belief by VCs and private funding organizations that their money is worth more than the ideas they’re backing. Wrong. And it’s a misconception that needs destroying…

There seems to be this idea that good ideas aren’t worth the effort of exploring their potential. There’s also this misguided belief by VCs and private funding organizations that their money is worth more than the ideas they’re backing. Wrong. And it’s a misconception that needs destroying…

Their money is to water what ideas are to seeds — the seed will germinate and grow one way or another, while the money can dry out and evaporate.

Ideas are evergreen. Money is transient and ephemeral.

Another way of putting it is that good ideas will always attract money, but money cannot buy good ideas. The financiers can only hope they and their money are in close enough proximity to feel the benefit of the warm financial afterglow from those good ideas they seem forsworn to scorn.

The irony is, their method of thinking, while old and anachronistic, wasn’t always that way. Someone had to be stupid enough to start thinking that way! So, way back in time, some fool of a man dared to think differently. They had an idea, which caught on.

For some reason, this irony is entirely lost on the people with the money. They risk no more in money than I and those like me have risked in time & effort, developing an idea to the point of a complete or near-complete product. All they lack is the effort. Oh, and the belief. And then there’s the willingness to actually take time out to do their job properly.

Hold on, there might be something else. Hmm, maybe I’ll think of it later.

It’s worth pointing out that the world you, I and everyone else lives in is built atop the imaginings of people with great ideas. They dared to think differently and their tireless innovation is often set in stone, cast in iron, etched into silicon or printed into books.

Yet innovation is laughed at and practically vilified in certain quarters, because to think differently is by definition to be different. Certainly here in Britain, we’ll have none of that free-thinking nonsense! It would seem that faith in innovation died somewhere between the Industrial Revolution and Word War II.

Since then, one could almost make a case for a conspiracy against innovation and innovative thinking in general, such is the hostility towards people like me and my ideas.

The stiff upper lip has been replaced by the quivering lower lip.

Money can never be an equal of good ideas. Place any amount of money into a hole in the ground and unless it’s in the form of a precious metal, no matter how long that money remains in the ground, that money will not accrue interest, or otherwise swell in value.

Investing that money in some way, either in shares, or placing it into a simple bank account will swell the value of that money. And here’s the interesting thing — be that money placed in stocks & shares or a bank account, that money is by definition being invested in an idea, albeit the byproduct of an idea.

But none of this matters because those with the money wish to perpetuate the lie that money is more precious than any idea, when in fact the diametrical opposite is true.

Think of those famous people held in such high regard, whose few names are known to so many, such as Da Vinci, Copernicus, Newton, Hawking and Einstein, and the great inventors like Brunel, Jefferson, Bell, Marconi, Tesla — the list of inventors goes on and on and on.

Of those with the money, like Getty, Gates, Allen, Buffett and Salt, we speak not of their wealth or even their personalities, but of their philanthropic achievements and how they invested in great ideas. Their wealth is merely a means to some greater end.

A perfect summary of the totally uninformed nature of the people holding the purse strings in this country would be a conversation I had with a so-called business development expert a couple of years ago. After explaining to him what I had in mind, he sighed, sat back in his chair, taking his spectacles from his face and said:

“You see, the problem for you is, there’s just no market for this web software.”

Yes, of course! How could I have been so blind?! There’s just nothing going for “this web software” thing at all. It’s just those bloody Americans and their silly ideas again, isn’t it? Damn those Yanks!

Some years previously, I had a sit down with another business development guy who talked me through some of the stages involved in building all of the written collateral associated with tendering for funds. We began with the sales forecast:

Business development guy: “OK, so let’s have a look at your spreadsheet.”

Me: “I don’t have one!”

Business development guy: “Right, OK. That’s not a problem.”

Minutes later, we have the shell of the sales forecast document in Microsoft Excel.

Business development guy: “Let’s put in the revenue streams and the initial funds, and…”

The rest you know, or simply don’t give a shit about, like me.

Business development guy: “Ignoring months one through three, how many sales do you think you’ll make in month four?”

Me: “How should I know? I thought this thing told me that?!”

Business development guy: “[Laugh] … no, you have to put in the figures.”

Me: “But I don’t know.”

Business development guy: “Well, we’ll just add a number.”

Alarms bells begin ringing.

Me: “You mean, a made-up number?”

Business development guy: “Erm,…”

He thinks for a moment or two.

Business development guy: “Yeah, that’s one way of putting it.”

Business development guy replies as he studiously enters a semi-random number, which then, by the power of formulaic chicanery, generates hundreds more semi-random numbers.

Me: “So we’re making this up?”

Business development guy: “Well, I wouldn’t put it quite like that!”

Me: “I bloody well would!”

For a second, the ramifications of what I was a party to began to swirl around my head.

Me: “What about those market research figures?”

Business development guy: “Hmm, they’re usually out of date. Plus, you’re never going to sell to all of them. In practice, you’re only going to attract sales from between one and three percent.”

All of which sounds exceptionally vague to me. The percentage difference could be enormous. But who the hell would know? After all, this is numerical la-la land, where numbers are like flowers — they just grow and get biggerer!

Me: “How?”

I ask, hesitantly, half expecting an impatient white rabbit to flash by, acting all stressed, dressed in tartan waist coat, checking his pendulous pocket watch.

Business development guy: “From advertising.”

Me: “And where do I get the money to do that from?”

Business development guy: “Hmm. Maybe there’s some European funding for that, too?”

Apparently, this is how sales forecasting works — we make the numbers up, or we take the number of sales from our competitors and use those. Sort of.

In any event, we’re lying with neatly arranged numbers in pretty columns & rows.

Strangely, this is considered a demonstration of my financial acumen to potential financial backers.

By contrast, my project relies on much, much more than guesswork. If I guess, my project simply will not work.

See something wrong with this format? I do. It’s full of something and it’s damn well not numbers or invention, that’s for sure…

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By Wayne Smallman

Wayne is the man behind the Blah, Blah! Technology website, and the creator of the Under Cloud, a digital research assistant for journalists and academics.

6 replies on “The true cost of innovation”

Wayne,
A long time ago, before I became a Web designer, before I met you, I was a product marketer in the law publishing industry. When we came out with a new title one of my jobs, as part of planning the marketing campaign, was to predict potential sales and revenue, both to determine if the book might be profitable and to set a price point.

My budget was usually too small to do much in the way of market research. (Print runs are much smaller for state and topic specific law books than for Stephen King novels) Thus I had to base my numbers on past buying patterns for related titles. I could usually get pretty close on topics like criminal law. I had years of sales figures for books like Ohio Criminal Justice, Ohio Arrest Search and Seizure, Kentucky Criminal Laws and Rules, and so forth. A new book on another criminal sub-topic would appeal to a similar customer base. Case law could give us a clue as to how often that topic came up in the courts.

But when we branched into new territories, areas such as Health law for which I only had 1-2 existing titles things became much murkier. My market of health law attorneys (not necessarily malpractice attorneys) and health care administrators was a narrower niche than my market of criminal attorneys and law enforcement officers. The laws and rules could also be more narrow. Sure, there are tons of regulations, but they’re geared to a very specific industry. I still recall trying to predict sales for a new book in this area. The editor and I went back and forth on the features and benefits trying to guage how it would be helpful and to whom it would be sufficiently useful. Then I had to figure out how many of those folks were in Ohio, how many I could reach by direct mail, how many would really need a copy (hospitals might buy 1 copy shared by many), and how many would just leave it to their lawyers to deal with.

I tried to quantify it as much as I could, but some of it was still a shot in the dark. This was a book which we knew would reach a small audience so we knew the profit margin would be slim. While we could have spent money on focus groups or surveys to further target the market and gauge sales more carefully, such research would have eaten up too large a chunk of the profit potential to make it viable.

So sometimes we have to guess. But if we’re on the business side, we’ve got to make sure that it’s the best guess we can come up with based on the data we have, and that if we’re going to guess, we better be guessing on a good idea. If the idea, be it a book, software, pet rock, whatever has no merit, then neither will it have a market.

It’s the contradiction that I find so ironic; so much weight and purpose is placed on the financial aspects, when all they really amount to is a reasonable best guess and little more.

Yet the product that I have, despite the hundreds of hours I’ve put into it, is mostly ignored because of this insane insistence that the numbers see and tell all.

I’m an ideas guy, which this blog is testimony to, and not a financier…

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