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The trouble with good ideas

The problem with a good idea is that it may be so intuitive that the playing field becomes littered with opponents, or the message is overhyped and expectations grow out of control, or what once was a hot idea becomes yesterday's flash in the pan.

Only in a country where we regularly pay farmers not to grow crops would a venture capitalist argue that if you have a good business idea, you might want to think twice about moving forward.

The problem is not that "good ideas" are bad, but rather that good ideas may in fact be too good. In other words, the idea may be so intuitive that the playing field becomes littered with opponents, or the message is overhyped and expectations grow out of control, or what once was a hot idea becomes yesterday's flash in the pan.

Structurally, there has never been a more fertile environment for the creation of a new company than exists today. Venture capital levels have grown steadily for over ten years, and currently stand at record highs.

The support services that aid in company creation--lawyers, bankers, accountants, PR firms--all have special programs that target the start-up. Some of those programs even include pro-bono work until venture capital is actually raised. In addition, software companies such as Microsoft give away free development tools if you build around their platform.

Entrepreneur interest also is at an all-time high. Magazines tout the successes of the 20-year-old billionaires, spurring Harvard MBAs to pass up $170,000-a-year jobs on Wall Street to come starve in Silicon Valley. Free-agent Silicon Valley executives are more than willing to cut loose and try for another home run. The obvious problem with this environment is the likelihood that too much money and too many people are chasing too many of the same ideas.

Interestingly, the current behavioral patterns of the companies involved in the start-up ecosystem exacerbate the "good idea" problem. During the past several years, the following four-point plan has become a standard new company launch program for Silicon Valley start-ups:

(1)Start a company, define a product or service, begin production. (2)Declare that your product doesn't fit in any of the previous markets that have ever existed, but rather is the defining entry of a soon-to-be-hot and huge new market. You then further legitimize the process by assigning a prestigious but arbitrary three-letter acronym to the market. (3)Declare yourself the leader and king of this hot, new emerging market. (4)Shout from the highest mountain how great it is to be king of this wonderful new kingdom. Get quotes from others saying that you are king.

There is a method to this madness. By establishing that you are in fact in a new market, you hopefully convince the world that your value-add is not an embellishment of an old product, but rather creates an entirely new category. By establishing yourself as the leader you (a) improve the likelihood of establishing partnerships with other kings in other categories, and (b) differentiate yourself from the competition. This works especially well if your competitors are later forced to describe themselves as players in your three-letter-acronym market. Lastly, by waving the flag loudly you ensure that everyone knows who you are--a definite key to success.

Let's look now at how this four-step process can backfire within the current rich and fertile start-up environment. First, the more intuitive your idea, the higher the likelihood that someone else is working on it as well, so from step one there are multiple players. By talking up the new market you've created and persuading the press to buy in, you encourage other struggling start-ups to redefine their focus on this hot new space, thereby attracting more competition. As you declare yourself king and the greatest thing since sliced bread, you begin to annoy the really big kings in neighboring lands. These kings, jealous of the attention you're receiving, and with great assets that they can bring to bear, redirect their business development group directly on your space. Before you know it, there are 15 companies in or committed to the market, and you are just leaving beta.

The first market where the "good idea" problem reared its head was "push." During the 1996 Internet World conference, the Wall Street Journal ran a front-page article that disclosed how push technology was going to change the face of the entire world. At the time, the aggregate revenues in this space were probably no more than $10 million. Nonetheless, numerous small companies, as well as Netscape and Microsoft, announced their own initiatives and standards. Today the market we once knew as "push" is no more, and the companies that once graced this market now have greatly reduced expectations.

One interesting fallout from the "good idea" problem is a phenomenon known as "buzzword implosion." When an overhyped market begins to disappoint relative to expectations, the kings and queens that helped define the market begin to shy away from the moniker, much in the same way a vampire avoids daylight. Try mentioning the term "push" around a push-company executive and you are likely to risk physical harm. The once-famous players in this space are now leaders in "knowledge distribution," "network service distribution," and "active business information."