August 21, 2005

Idea Or Execution?

Rob, over at BusinessPundit blog says execution is superior to idea. I challenge this thought. While I agree that execution is usually undervalued and that entrepreneurs are naively overprotective of their ideas. I don't believe however, that execution is more valuable than the idea.

Rob cites a post by Derek Sivers, who's an entrepreneur and probably an angel investor. Derek has an equation he uses to cite the importance of execution. He says that businesses are multiples of idea and execution and argues that if we peg an

Awful idea = -1
Weak idea = 1
So-so idea = 5
Good idea = 10
Great idea = 15
Brilliant idea = 20

No execution = $1
Weak execution = $1000
So-so execution = $10,000
Good execution = $100,000
Great execution = $1,000,000
Brilliant execution = $10,000,000


The most brilliant idea, with no execution, is worth $20.
The most brilliant idea takes great execution to be worth $20,000,000

First, there's no reason to believe that such a relationship exists between idea and execution but lets assume that for a moment. Does the above conclusion prove that execution is superior to idea? QED? Wait, the same arithmetic also shows that a business with the most brilliant execution to an awful idea will leave one with a loss of $10,000,000... far worse than the brilliant-idea-poor-execution scenario cited above!!

Rob said: "That's why ideas only get funding if the entrepreneur has a history of execution."

True, but is this the right way to pursue ventures? Does this always work? How many VCs talk about ideas they passed over but which went on to become great companies?

Ok, let's look two companies; one that is arguably internet's greatest failure and another its greatest success story - Webvan and Google, respectively.

Webvan. They raised all the money in the world through VCs and the IPO route -- $850 million in total, to be precise. Put together a great logistical infrastructure including state of art warehouses, own fleet of delivery trucks that provided service in eight US markets with plans to expand to 26 more. Had a functional website. And they went bankrupt. Why? Certainly not for the lack of execution but because their fundamental business model of selling groceries through the internet the way they did was inherently flawed.

Who founded Webvan? Louis Borders. Who is Louis? A 57 year old veteran of retailing who co-founded the Borders bookstore chain back in 1971. When he started Webvan, he had quarter of a century of relevant startup experience. Could there be anyone more qualified and experienced for that job? Unlikely. Did it help? Perhaps, but in the face of an inherently bad idea, no.

Google. Close to $80 billion in market cap after an year of going IPO and still no signs of fading away. Per employee revenue of about a million dollars. A spectacular business success if there ever was one.

Who founded Google? Sergey Brin and Larry Page, two college students in their 20s who had no experience whatsoever when they started out. No qualifications in the media or advertising business. Just a brilliant idea about a new search engine that gave relevant results. They weren’t interested in VC money at that time and most VCs weren't particularly interested in them. Ask the good people at Bessemer Ventures who passed on an investment in Google back in late 90s when it was dirt cheap.

So there you have it. A brilliantly executed but bad idea becomes a massive failure and a brilliant idea founded by people with no experience in execution becoming a spectacular success.

Sure execution is important, Google, after all is brilliantly executed as well, but you just can't go too wrong when you have the right idea whose time has come.

Rob's post at BusinessPundit: Ideas vs. Execution
Derek Sivers: Ideas are just a multiplier of execution

0 Comments so far      

Post a Comment

<< Blog Home