Five Steps to Valuing Your Ideas
By David Wethey, author of ‘THE VERY IDEA; unlocking the power of idea economics.’
Over the last few weeks I’ve been exploring Idea Economics here on Creative Intelligence.
In part one, I explored why Idea Economics have a place in the future of work. In part two I shared my theories around the system itself. Today I’m sharing five key steps that you can take to apply these learnings in your daily lives; ultimately enabling you to put a value on your own ideas.
1. Build upon the rich history of valuing ideas
Idea Economics is a new descriptor. But the essential principle — that the best ideas are worth a fortune — is far from new, and was established with the invention of the patent system in the C15th.
Patents were originally first granted in the Venetian Republic. In 1474 the Venetian Patent Statute was passed to offer a degree of protection from imitators to inventors and innovators, primarily in the glass industry. The London Patent Office opened just over 500 years ago in 1617 to encourage the publication of new and practical ideas, and to enable inventors to benefit financially for a period of time by having legal protection from being ripped-off. Intellectual Property Law originated even earlier in the late C16th. Ideas can only be protected if they have been executed — for example as a book, a working model. Trade marks were established and gave protection in most countries from the C19th. Why would anyone in past centuries or the present day wish to apply for the grant of a patent or trade mark if they didn’t think their idea was valuable?
And in marketing and advertising, Effectiveness Awards have recognised marketplace success around the world. All winning entries offer detailed econometric supporting evidence — so quantifying just how valuable the garlanded ideas have been.
2. Don’t be afraid of the maths
Not all ideas are valuable. Sadly many lack the potential to deliver at all. Others are promising, but not strong enough when executed. It is the valuable ideas that we need to achieve change and growth.
To use Idea Economics we need to apply the appropriate mathematics. In short we need numbers to quantify how much an idea is worth. We also need the formulae, criteria, weightings and and structured analysis to get to those numbers. Not all these influencing factors will be positive. Risk and jeopardy also have to be taken into consideration in the valuation process. The concept is not unfamiliar. For instance, arithmetic is regularly applied to every branch of sport and all the arts.
Implicit in the whole exercise is the principle of comparability. The value of anything is relative to the value of things to which it can be compared. Nearly all ideas, whether they are the result of innovation, imagination, making creative connections, or some combination of the three, emerge from a competitive process.
Idea generation and development are fundamentally important, but idea selection is crucial. And to select a winner there have to be other potential winners to choose from. This naturally applies whether we are selecting ideas internally, or if other people — a client, a potential partner, buyers, consumers — are making the selection. In both cases, selection may be subject to research or some kind of scientific enquiry.
There are some twenty mathematical guides and formulae in THE VERY IDEA
3. Don’t restrict yourself to financials
The currency of value will sometimes be financial — but often not. The currency will vary according to the type of idea involved. For example:
- Marketing ideas; the currency could be revenue, but also brand share, export markets reached, or brand value
- Advertising ideas; revenue, accounts won, awards, being bought out
- Retail ideas; revenue, footfall, share
- E-commerce ideas; clicks, revenue, share, being bought out
- Entertainment ideas; movie deals, broadcast deals, box sets, awards
- Engineering ideas; revenue, contracts
- Scientific ideas; revenue, patents/rights, long term income
- Software ideas; revenue, deals
- Political ideas; %ages in opinion polls, votes, seats, deals with other parties, negotiations with other nations or blocs
- Sporting ideas; revenue, points, wins, titles, TV deals etc
4. Calculate value at each of the four key stages
There are four stages where we can value ideas:
1. Targeted value.
What is our objective here? What do we need the idea to be worth for it to be worth commissioning? With Idea Economics we can calculate in advance the value we need, as well as measuring the actual and potential value of delivered ideas. Targeted value will need to take account of cost (what will it cost us to develop/implement the idea against the anticipated returns?), market (what’s out there now?) and income (how much is the idea going to make us over time?)
2. Judged value
When we are looking at contending ideas, what do we think (estimate? guess?) that this particular idea is worth? When we compare ideas, which one do we judge to be the most valuable?
3. Anticipated value.
Before we press Go (or as it is first appearing in market) how much value do we think this idea is going to end up having?
4. Achieved value.
Totting it all up, after the event (and trying to separate out all the other contributory factors in the sales) how much was the idea worth to us?
For example, in an advertising pitch:
The targeted figure (let’s say £23m) might be the master benchmark, calculated as the aggregate of incremental profitable sales and increased brand value over three years. Using strategy consultants, business plan writers, corporate strategy departments, market planners, brand strategists.
In terms of judged value, is the winning idea (now we’ve chosen it, and can properly evaluate it) as potentially valuable as we hoped for (the £23m)? Involving agencies, marketers, procurement etc
Now that it’s been executed and ready to roll, is its anticipated value worth more, less or about the same? Contributions from market research companies, analytics, professional critics
Three years into the campaign, what is the achieved value? How are the sales figures and brand value looking? Did we achieve our goal? Econometricians, brand valuation businesses, case study writers, historians.
5. Value for real by factoring in the key criteria
The formula must be flexible to embrace ideas for a variety of applications — brand ideas, communications ideas, innovation ideas, corporate ideas and so forth.
Criteria will vary according to application, but they will probably be based on key value determinants such as:
- Impact
- Excitement
- Originality
- Durability (‘legs’)
We can put a value on each idea we are looking for — on the principle of ‘the idea we are looking for will be worth around £23m’.
We then establish a five point scale of value from, say, A = the one in a hundred idea that could be worth £50m, to E = a run of the mill idea that is probably not worth pursuing.
And a 10–1 scale of being ready to roll from 10 = ‘implement tomorrow’ to 1 = ‘interesting, but half-formed’.
Which enables us to value ideas from concept to execution in terms of say a progression from A1 x £50m through to a pretty satisfactory B10 x £20m
Key principles are:
- Brief the idea precisely
- Or devise a post hoc brief for a spontaneous idea
- Calculate in advance what the idea we want needs to be worth
- Value the idea throughout its development (the four stage process)
But never forget that outside exposure is critical. Ideas are similar to jokes and gifts. Whatever we think about our idea (or joke or gift), it is of extremely little value if it fails to excite and delight whoever it has been designed to receive or buy it.
NB: This is the third article in 3-part series. Find the first here and the second here.
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About the author:
David Wethey is the author of THE VERY IDEA (about Idea Economics and the value of ideas), published by Urbane Business in October 2018. His previous books are DECIDE (2012) about making better decisions better, and MOTE(2015), which proposes a radical solution to the problem of unproductive business meetings. David spent 20 years managing ad agencies (including his own) in Britain, Southern Europe and SE Asia, and 30 years at Agency Assessments International as a consultant on the client/agency relationship, where he has advised brands including Cadbury, Camelot, Coca-Cola, Confused.com, Electrolux, Ericsson, GSK, Heinz, HP, Honda, Jaguar, John Lewis, JP Morgan, Kelloggs, Lloyds Banking Group, McDonald’s, Microsoft, Pernod Ricard, Reckitt Benckiser, Shell, Toyota, Visa, VW, and Volvo.
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