Ideas and Intellectual Property- New Section Sneak Preview!

Posted by on Dec 7, 2012 in Blog | 0 comments

There are two ways to reward Grunts for business-enabling ideas and related Intellectual property: The first is to calculate the theoretical value of the idea and the second is to provide an ongoing royalty payment (cash or pie) to the inventor.

It’s important to remember that ideas without action are relatively valueless, no matter how good the idea is. In the start-up world, a dozen ideas will cost about a dime, less the cost of the lunch over which the ideas were generated. Generally, ideas should not be taken into account in a Grunt Fund unless they fit the following criteria:

  1. The idea must have existed before the inception of the business
  2. The idea must be original
  3. The idea must be non-obvious
  4. The idea must be “baked” as opposed to “half-baked”.

Selling Halloween costumes in October is obvious and unoriginal. Therefore, it should receive no pie.

That doesn’t mean you can’t make plenty of money with an idea that is as unoriginal and obvious as selling Halloween costumes. Sometimes better execution is all it takes. You could make millions if you have the right people.

In the case of unoriginal and obvious ideas it’s the execution that really counts. Most businesses today are founded on unoriginal and obvious ideas. This is good, these ideas could have a huge market and you won’t have to reinvent the wheel.

A book about implementing a dynamic equity split, however, is both original (there are no others like it) and not obvious. It may be obvious in hindsight, but most entrepreneurs are unaware of the concept until it is brought to their attention (otherwise everybody would be using dynamic splits). This doesn’t mean that nobody has ever used a dynamic equity split before, but the details presented in this book are not widely known (today).

A “baked” idea often comes in the form of a polished concept, a thoughtful business model or legal protection. They require insight, experience and creativity. Baked ideas usually represent the investment of considerable time and money and are often business enablers. This book, for example, is baked.

Ideas that fit the above criteria have value that should be taken into account. Ideas developed during the regular course of business, however, would not be taken into account no matter how good the idea is. It’s the nature of business to generate new, good ideas and it is part of the job of a Grunt to come up with the most awe-inspiring new idea that ever existed.

Calculating the value of ideas and intellectual property can be a challenge because inventors tend to really overestimate the value of their ideas. People tend to say things like, “Michael Dell stole my idea for building computers in my dorm room! That crook made billions! He owes me.” It’s ridiculous.

Don’t get me wrong, ideas are critical to a business’ success. But turning the idea into a reality is usually where the value is built, not in coming up with the idea in the first place. This doesn’t mean you can’t give someone who came up with a great idea some pie as a bonus. But be careful not to put too much emphasis on the idea itself. Ideas, even good ideas, are plentiful. It’s the initiative, passion, action and grit that turn ideas into good businesses.

If the idea is well documented and baked the value is set equal to the amount of time it took to bake the idea times the originator’s GHRR plus the costs of any research or legal protection.

So, if I spend 500 hours developing a business plan around my idea, 200 hours writing and researching a patent and $10,000 hiring a lawyer to file my patent then the idea would be with 700 x my GHRR plus $10,000 or $80,000.

 


GHRR

$100/hour

Business plan hours

  500 hours

Patent research hours

  200 hours

Time @ GHRR

$70,000

Legal fees

$10,000

Theoretical Value of the IP

$80,000

In addition to calculating the theoretical value of the intellectual property, it may be appropriate to provide a royalty payment to the inventor as well. Royalties reflect the fact that without the idea the business would not be possible and that the idea itself is generating buzz or recognition for the company.

END OF NEW SECTION

Please provide questions or comments, helpful readers will be acknowledged in the next version of the book!

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