What Value do Ideas Have as Intangible Assets? #44 #cong18

Synopsis:

Some ideas you believe in your heart, and you can’t let go of. They just make sense to you. There is a certain unassailable logic to them. No matter how or by whom they are challenged, you know you can overcome the objections. Challenges do not deter your belief in how your idea can succeed. But how valuable are they really, in the context of a business organisation? How can you really tell? And what should you do about it?

4 Key Takeaways:

  1. Intangible assets account for a significant portion of total company value in the modern economy (84% in S&P 500 in 2015).
  2. Ideas are valuable intangible assets of companies and organisations. Once they are written down, they can be protected as intellectual property
  3. How can you have great ideas? Master your subject area and if your instincts say that you have a good idea, trust it
  4. Develop a culture in your organisation to nurture ideas and put systems in place to capture and review team – these are both the CEO’s job.

About Cronan McNamara:

Cronan is Founder and CEO of Creme Global and Founder and organiser of the Predict Conference. Creme Global is a data science technology company delivering the Expert Models data science platform.

Cronan is fascinated by in creativity and innovation and is driven to deliver world class products and services, from Ireland, that make an impact globally.

In his spare time Cronan enjoys playing competitive tennis and spending time with his family

Contacting Cronan McNamara:

You can follow Cronan on Twitter, LinkedIn or check out Creme Global and the Predict Conference.

By Cronan McNamara

The mention of intangible assets in the question places this issue firmly in the context of a business or organisation.

I am interested in exploring the value of ideas in organisations, what they’re worth (if anything), how to capture them, nurture them, execute on them and ultimately exploit them.

Intangible assets continue to be the greatest asset to today’s companies. In 2015 the intangible assets of the S&P 500 companies were valued at 84% of total value.

An intangible asset is defined as an asset that is not physical in nature. Examples of intangible assets include goodwill, brand recognition, copyrights, patents, trademarks, trade names, and customer lists. You can divide intangible assets into two categories: intellectual property and goodwill.

Well, what about ideas? Are they intellectual property or goodwill? Well both, actually.

Ideas can come from the goodwill of your team, your suppliers, your customers, partners, stakeholders and others. Without goodwill, it is unlikely ideas will be forthcoming let alone acted upon.

According to Wikipedia: Intellectual property (I.P.) is defined as a category of property that includes intangible creations of the human intellect, and primarily encompasses copyrights, patents, and trademarks. It also includes other types of rights, such as trade secrets, publicity rights, moral rights, and rights against unfair competition. Artistic works like music and literature, as well as some discoveries, inventions, words, phrases, symbols, and designs, can all be protected as intellectual property.

I.P. can be protected in law, for example, patents, copyright, trademarks and confidentiality clauses in contracts.

An idea becomes more tangible once it is written down in a white paper, a discussion document, an algorithm or software code. Before it is written down, it is essentially the goodwill of your team and once It is written down, it becomes the confidential information of the company – protected by contracts, copyright and sometimes patents.

The act of writing it down is important from both legal and value-creation points of view. But the value was essentially there all along, however, before the idea is written down, the risk is that the value can walk out the door.

Writing things down also forces people to think about the idea, elaborate on it and gives others the opportunity to extend them and provide feedback.

“Ideas are cheap, execution is everything.”

Investors often spout the phrase “ideas are cheap, execution is everything”. These are the very people who will refuse to sign an NDA for a startup pitch while at the same time insisting that they love to be in the investment game because of the opportunity, learning and new ideas (those very new ideas the startup was pitching that they could happily pass on to their existing investee companies).

But of course, execution is critical. On the flip side, execution without (good) ideas is also counterproductive! Some ideas essentially have no commercial value for any number of reasons.

According to Peter Theil in his book Zero to One, it is important to realise that we live in a power law world, where 80% of your rewards are likely to come from 20% of your efforts. How do you choose which ideas to pursue and put your efforts into when the decision could be so critical and the opportunity for success of various competing ideas is so unclear?

If you are planning to invest the next 10 years of your life in an idea, or if you are an investor planning to invest 10’s of millions of Euro in an idea. How do you know which are the ones to go for?

How to have great ideas

  • Master your subject. Spend 10,000 hours studying your area of interest and your instincts for ideas should improve.
  • Stay curious.
  • Combine two distinct things that you are passionate about.
  • Copy others, but do it better or with a different slant or philosophy.
  • Be lazy – anything that you get frustrated by because it is non-value-add and you find yourself doing repeatedly could be a candidate for automation or a new company.
  • Take advice from Jeff Bezos: focus on things that won’t change in the long term (i.e. 10+ years)
  • You can protect an idea with a patent. Ideas can be patented. Do not disclose it or it will be novelty destroying.

Do the opposite of a Lean Business Startup, i.e.

  • Risk boldness rather than triviality and incremental improvements
  • Have a vision and a plan – even a bad plan is better than no plan (rather than just stay lean and flexible and incessantly respond to the market)
  • Try to make the competition obsolete rather than iterate and compete
  • Sales matter just as much as the product. Don’t just focus on the product and underestimate sales.
  • Listen to feedback, but market research can be over-rated. If you feel strongly enough about it, stay true to your idea and vision.

Get great ideas from your team:

  • Articulate a clear vision and strategy so that your whole team can understand it. This will allow them to put ideas in the context of the company’s mission.
  • Develop a culture of open dialogue and that you value ideas with the staff in your business (especially customer-facing staff). Provide coaching and mentoring in coming up with and capturing ideas.
  • Put a system in place to capture good ideas in a backlog of ideas. We use JIRA for this and capture everything in a separate backlog for review.
  • The CEO should take responsibility for reviewing and prioritising this list on a regular basis.
  • Use Service Design workshops to unlock hidden value and ideas in your organisation. Write down the outputs of all meetings.

Don’t use Google’s 20% time

  • Google used to let any staff member work 20% of their time on any idea they like. This has essentially been cut because (I think) there was not enough structure, strategy and vision behind it.

Concluding Thoughts

In our modern knowledge-economy, where intangible assets dominate companies’ balance sheets, ideas do have significant value as intangible assets. These ideas, however, need to be captured, curated and exploited in order to realise that value. This is the job of the leadership of organisations.

You will find some that you believe in your heart, and you can’t let go of. They just make sense to you. There is a certain unassailable logic to them. No matter how or by whom they are challenged, it does not deter your belief. If the leadership in your organisation do not share your belief in those ideas, then perhaps it’s time to leave and start your own thing.

Some big ideas you know in your gut will form the basis of your life’s work. They are valuable and they are the ones you pursue.

Ideas: Mind the Gap. #18 #cong18

Synopsis:

How States, businesses and Individuals manage and realize value from intellectual property is emerging as a key challenge of the Information Age. 19th and 20th century governance structures are not fit for purpose in managing the Information economy. However, mechanisms and technologies are maturing to the point where individual ideas and their associated Intellectual Property can contribute equitably to the life long benefit of the Individual, Businesses and State.

4 Key Takeaways:

  1. Existing Governance structures are not fit for purpose in the Information Economy
  2. Most Innovators get no returns from their Intellectual Property
  3. Intellectual property value will be the key component of national wealth
  4. Mechanisms exist to realize life long earnings from Intellectual Property

About Colum Joyce

Firm believer that a good idea needs 5 years of patience for the rest of the world to catch up with you. Moved back to Connemara because I got tired of being a stranger in strange lands and it provides  head space to think without the clutter and mutter of urban life and bureaucracy.

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Contacting Colum Joyce:

You can connect with Colum on LinkedIn or via email.

 

By Colum Joyce

“Actions exist and their consequences, but the person who acts does not” The Buddha

The technological resources of the information age provide an unparalleled capacity for ideas to be realised and create value. Such value is rarely recognised to the innovator.

This is because there is a value recognition gap created by the systemic failure of out dated governance structures and business models. Antiquated governance structures effectively alienate individuals and broader society from the commercial returns generated by most actioned ideas, Intellectual property or personal information.

These governance failings are related to the ownership of ideas, intellectual property, innovation, personal data and allocation of usage rewards.

A key reason for this are the contracts used in education and business. These effectively alienate innovators from the returns generated by their intellectual property.

To understand the level of control formalised in such contracts one simply has to ask “In a contract who is designated as owning the Idea, resulting Intellectual Property and the value it generates in the future.?”

In third level institutions ownership of Intellectual Property and rights of exploitation of thesis and research related ideas are most often uniquely vested in the institution to the total exclusion of the individual.

In business, employment and termination contracts usually stipulate that all Intellectual Property and value generated from it, during and after employment, is vested solely in the business. Some even require transfer of prior Intellectual Property rights to the business.

On termination of employment many businesses also impose severe time, occupation or subject related restrictions and stipulations on the future intellectual and commercial endeavours of the now ex-employee.

This has serious consequences for both the individual and society. Rapidly aging populations, rising dependency rates and an ever increasing burden on the employed threatens the financial and social stability of states whilst also undermining the future wellbeing of individuals.

As we move value creation from a muscle to a mind based economy there is the need to create, implement and govern equitable mechanisms to recognise the lifelong value from the private or corporate use of ideas, intellectual property and personally identifiable information. This capability will be critical to managing and mitigating future risks of state insolvency and personal deprivation in old age.

The question then has to be: “Do mechanisms exist to equitably attribute, account for and reward Intellectual Property contributions?”

Potential mechanisms exist but few have ever been successfully used for this purpose.

  • Go it Alone: This mechanism is currently used by innovators to attempt to establish market ready products or services to exploit their Intellectual Property and realise its value. It is a high risk, low success rate strategy at a personal and financial level. (Innovators often prove to be poor business people).
  • Litigation: This is a mechanism that is costly and risky for the individual. One notable (and successful case) was when Shuji Nakamura invented the Blue Laser and sued his former employer. However, his final, one off, $9 million settlement was consumed in legal fees.
  • Patents: Patents are a way to register intellectual property to a business or go it alone individual inventor (s). This provides the rights to control and license the use of the subject of the patent thus rewarding the registered inventor. However, patents are costly in time (months or years) and money (€5000 -15,000 per country plus lawyer fees) and generally beyond the resources of an individual and many small businesses.
  • One off Payments: A business may, exceptionally, make a one off payment for the Intellectual Property to the inventor. However, this mechanism usually vests all future value gained from the invention in the business not the inventor.
  • Company Shares:This mechanism provides a way for the inventor to indirectly benefit, to a degree, from the contribution of their intellectual Property to the success of a business. Share allocations usually conditional on continued employment and require the transfer of the ownership of the Intellectual Property and its exploitation to the business.
  • Activity Based IP Contribution (ABIPC) Activity based costing (ABC) is used to allocate a cost to every physical activity and input to a process or product in order to arrive at a true cost and then market price. Each cost is also allocated to a cost centre within the business for accounting purposes. This mechanism could be adapted to calculate and account for the value contribution and returns of an inventor’s Intellectual property to a product or service.
  • Block chain and micropayments:These technologies offer a promising mechanism for recognising and paying inventors for the value defined by ABIPC and realised from the use of Intellectual Property in a product or service. Block chain provides a verifiable contractual link to the product or service and can be used to trigger a micro payment (s) which is then apportioned equitably to the inventor, business, state or other recipients. This mechanism is equally useful in providing a return to individuals when their personal information is used by suppliers and third party processes for commercial gain.
  • State Level IP register and Ledger: Modern states invest heavily in education to increase the quality of human capital in order to remain competitive.
    However, the state receives a poor long term return on its investment in human capital. This is because the mechanisms for capturing a proportion of the future value generated are gross (taxation on personal income and spending), vulnerable to flight (emigration, Intellectual property transfers out of state) and time limited by retirement, incapacity or death.

The truly modern state will increasingly have to identify, account and benefit from the value of the Intellectual Property generated in its jurisdiction.
Key to this is knowing and codifying the Who, what, Why, When and Where in relation to Intellectual Property.
This is done for physical property and the mechanisms exist (see above) to link the recognition of and value from Intellectual property at an individual level through to its exploitation and then allocate its value contribution to the National Intellectual Property stock or ledger. Such a granular process is fully achievable using block chain and micropayments (see above).
It opens up the possibility of life long earnings for innovative individuals because as long as the Intellectual Property remains active, anywhere in the world, in a block chained product or service they (and the State) will continue to benefit. Such ongoing contributions of micro payments to the state can be transfer recognised to the individual for Taxation (or relief), pensions and social support purposes. This provides a non-invasive cradle to grave mechanism of value recognition, at any age and from any form of engagement with education or business contracts, from Intellectual Property and even the use of personal information for commercial purposes.
There are also the benefits of being able to dynamically identify areas of national competitive excellence or weakness and fund appropriately to reinforce strengths and shore up weaknesses.

In addition, the ability to geographically identify where Intellectual Property is generated / exploited provides an opportunity to encourage / incentivise rural and semi-rural centres of creative excellence and move rural spatial and investment planning from a population based to a more value contribution based footing.

What is increasingly clear is that the governance structures and rights that have evolved to manage physical economies are increasingly failing to adequately or equitably service individuals or states in the information economy. Bridging the emerging gap will be a key societal and commercial challenge in the coming decades.