Ideas vs. Execution

“To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.”

– Steve Jobs, Co-founder of Apple

All startups begin with an idea. Some small insight that the founder thinks will break the status quo.

But what’s more important to a startup's success? The idea or the execution?

In this article I explore the dynamic between these two concepts, and how you can benefit from seeing the common patterns that emerge when viewed through this lens.

Startup Value Formula

The formula below is how I think about the interplay between the idea and the execution. I’ve adapted it from Derek Sivers’ post on the topic.

Startup Value = Idea x Execution

The key takeaway is that the idea acts as a multiplier on the execution of the idea.

It’s not the idea itself that makes a business valuable, it’s the execution of the idea.

If you’re a first time founder, read that again.

Valuing an idea more than the execution is one of the most common mistakes I see early entrepreneurs make, and I see it all the time.

“The fact that there's no market for startup ideas suggests there's no demand. Which means, in the narrow sense of the word, that startup ideas are worthless.”

– Paul Graham, Co-founder of Y Combinator

Here’s the hard truth: if you value your ideas more than what it takes to bring them to life, you’re setting yourself up for failure.

Startup Ideas

Early in my entrepreneurial journey, one of the most important lessons I learned was that ideas were nothing compared to the execution of the idea.

At first I was resistant to the concept, because, hey, I’m a genius 🙃 But after experiencing firsthand (repeatedly) how little ideas matter in the end, I’ve come to accept the overwhelming importance of execution.

Now, that’s not to say that ideas are irrelevant. After all, you need to find something you actually want to build, but that’s another story.

Luckily, I was fortunate enough to learn this early on. As a result, I didn’t burn a ton of time and money falling into the trap of keeping my idea “a secret” to prevent others from stealing it.

Nobody is going to steal your idea.

They’re going to work on something they’re already interested in. Sharing your idea isn’t going to change their mind.

And if they’re not already interested in anything, and they try to run with your idea, you have something they don’t: the passion for your idea that you came up with.

Eventually, they’ll burn out because they’re not as passionate as you are. They lack the stamina to continue long-term and are just chasing a quick win.

Remember, execution is the key.

Don’t let the fear of someone taking your idea hold you back.

Here’s two practical reasons why:

1. You need to get feedback early on (when it’s easier to change course)
2. You don’t waste time and money on lawyers with non-disclosure agreements (NDAs) and other protection measures*

* This is not legal advice. If you really want to require everyone to sign an NDA, nobody’s stopping you.

I’ve seen firsthand how aspiring founders are so protective of their idea that they either never get it off the ground or spend ungodly amounts of money trying to protect it – only to realize that they ended up building the wrong thing anyway.

Don’t be like them. Share your ideas!

What’s an idea worth?

A useful way to think about the value of an idea is to assign a number to them based on an idea’s subjective quality:

These labels and numbers aren’t meant to be taken as objective truth, but are instead meant to directionally communicate the relative importance of ideas.

The trick is figuring out what differentiates a “bad” idea from a “good” one. In reality, you’ll only find this out after you’ve already been in business for a while.

This means you only need to avoid bad ideas.

You don’t even need to have brilliant ideas to make a lot of money (more on this later).

Because I already wrote a whole article on how to come up with good ideas, here I’ll keep the focus on ideas vs execution.

The most important thing is that an idea doesn’t have to be original to be good enough to make money.

An idea just needs to be good enough because execution is where you win.

Idea Execution

The true value of a startup is the realization of the idea. The execution.

Before Google dominated the search engine landscape, several other search engines were popular: W3Catalog (1993), AltaVista (1995), Yahoo! (1995), Ask Jeeves (1996), and countless others.

These early search engines paved the way for Google, which launched in 1998, and quickly revolutionized the way people search for information online.

All of these companies had a similar idea (index the internet), but only one of them executed at such an exceptional level to be a household name for over two decades. Google’s innovative PageRank algorithm and focus on user experience led to their global dominance.

Google didn’t come up with the idea (nor was it the first to go to market – another common misconception), yet it left its competitors in the dust.

Why was that?

Execution.

The value of execution

While it may seem obvious, actually implementing your idea is required to make money.

Many founders forget this (myself included) and spend months, or even years, creating the perfect plan... only to never actually execute it.

Let’s break down the rough levels of execution effectiveness:

These labels and numbers aren’t meant to be taken as objective truth, but are instead meant to directionally communicate the relative importance of execution.

What this means is that the better you execute an idea, the more value it will have (and the more money you’ll make).

What is execution?

Every business needs three things working in unison to be successful. If any one is missing, your startup will eventually fail.

Execution = Value + Revenue + Operations

1. Value

This is your ability to create an experience that is valuable to others. It’s why you are doing this.

It defines and guides the experiences you offer and deliver to every stakeholder with a touch point in your company.

Everything from your product and services, to your marketing materials, culture, and hiring policies are all built upon the experiential goal(s) you create.

This is your product or service at its core.

2. Revenue

This is your ability to monetize your product or service.

It includes marketing, sales, and everything else related to generating revenue.

3. Operations

This is your ability to deliver on the promise you made to your customers and to properly manage your company.

It includes:

• Delivering on time
• Delivering a quality product or service
• The quality of your decision making (strategy, prioritization, who you hire, etc.)
• Your brand (another way of saying reputation)
• Proper accounting and taxes
• Operating legally
• And everything else related to the “business side” of things

Now we know what execution is.

Now let’s establish a common ground for comparison between startups.

Startup Valuation

When we discussed Execution, we only provided a dollar value, which is meaningless by itself (you must execute on something).

It’s only when paired with the Idea multiple that you get a startup valuation.

While we could use valuation as a method for comparison, I prefer a more practical, measurable, yet still familiar metric of annual recurring revenue (ARR).

To keep things simple, and using the principle of Fermi estimation, I’ll use a 10x ARR multiple to determine the valuation of a given startup based on the idea and execution.

Given our existing valuation numbers, instead of multiplying, we can divide to get an estimation of ARR.

Remember, Idea x Execution = Valuation.

So using the Fermi estimate, this means that ARR = Valuation / 10.

I’ve provided a few example combinations:

As you can probably see by now, there are a few combinations of an idea and execution to get to a desirable outcome (i.e. a significant amount of money).

This is what we’ll get to next.

Common Success Patterns

Given the selected combinations from the table above, we start to see a few patterns emerge when looking at the outcome of a given startup venture.

By following a few guidelines, we can ensure the startup we’re building is worth our time and effort.

Our primary requirement is that the startup must make a meaningful amount of money to live on.

I define this as at least $100k ARR to make things easy.

So where’s that leave us?

4 startup rules to live by

There are a few rules you must follow to have success:

1. Your idea must not be bad
2. Your execution must not be bad
3. Unless your execution is great or brilliant, your idea must not be poor
4. You must have at least an okay idea with good execution

Taken together this means that you must have a good enough idea paired with good enough execution.

You don’t need a genius idea or amazing execution to succeed.

Sure, if you have one or the other it could help, but it doesn’t guarantee your startup will work.

The takeaway is that there are multiple pathways to success.

Let me explain.

15 paths to success

There are many pathways to build a successful startup.

Of the 36 total combinations of idea and execution (6 idea qualities x 6 execution outcomes), 15 of them lead to a decent money making outcome (at least $100K ARR).

This is a founder’s happy place 😍

When we narrow our focus to startups making between $100K and $1M ARR (a healthy amount to live on in any country), there are 5 possible combinations:

You don’t need a great, let alone brilliant, idea to make a decent living.

All you need to do is follow the rules and take action.