Sunday, August 7, 2011

Idea and Economic Feasibility - The mathematics of entrepreneurial success

If you think all inventions, political campaigns, entrepreneurial ventures were successful because of a great idea, think again. Not all great ideas gain acceptability, and not all Barack Obama speeches are successful. Hitler was one of the few dictators in the second world war who had mass support during the initial phase. He lost it, and finally the war. The success of an idea does not lie in its greatness or its novelty. It becomes great because of a sound economic framework. An idea is like a variable, whose success depends on the mathematical equation where the success of the idea is a dependent variable, and the idea is one of the few independent variables. 
Y- Success of the idea (Dependent variable)
X1 - Idea
X2 - Support from executors of the idea
X3 - Support from the beneficiaries of the idea
X4 - Processes governing the execution of the idea
X5 - Social support for the idea
X6 - Ability to generate monetary gains to support X2-X5
Y = f(X1,X2,X3,X4,X5,X6)

Still people insist on ideas,dedicate their time and resources just on one variable - The idea. Just the idea cannot support the equation. The success of the idea means devoting time in planning other variables i.e. X2-X6. People with experience in the industry have the advantage of the learning acquired to support X2-X6. But this experience somehow makes them less competitive in getting that great idea. The younger lot has the ability to think differently from industry. Path breaking technologies have been possible due to this younger lot thinking differently. But they lack in finding an economic viability and a sustainable solution for their idea. The idea of Groupon came from a young guy, and it was made economically viable by an older guy. This leads to the second equation surrounding ideas and entrepreneurial ventures. Every successful venture requires a good team, with a diverse mix of people.


A   - Effectiveness of the team (Dependent Variable)
B1 - Idea generators 
B2 - Process creators that create a sustainable process
B3 - Network (or people with a good network that can get necessary support)
A = f(B1,B2,B3)

Going back to the first equation of Success of the idea (Y-Dependent variable), we know that an effective team equals a good idea. That means Y=A

From logic we get
B1 - Idea generators --> X1 - Idea
B2 - Process creators that create a sustainable process --> X2 - Support from executors of the idea, X3 - Support from the beneficiaries of the idea and X4 - Processes governing the execution of the idea
B3 - Network (or people with a good network that can get necessary support) --> X5 - Social support for the idea 
And finally B1 + B2 + B3 --> X6 - Ability to generate monetary gains to support X2-X5.
Before planning your new venture make sure you divert time from focusing on the idea to the economics of execution and sustainability of the idea. Who know, the next IPO could be of your firm.