Whether it’s a startup looking to enter the marketplace, innovators within a company, or even participants in an open innovation challenge, ideas are a highly sought after currency.
With innovation being such a crucial topic, being able to accurately spot a good ideas is a very valuable skill indeed. A recent study explored just how good experienced entrepreneurs were at spotting ideas with strong future commercial viability.
How to Analyze an Idea
The study saw over 650 ideas that were funded by venture capital across a range of sectors over an 8 year period. All of the ideas were part of the Massachusetts Institute of Technology Venture Mentoring Service (VMS), which aims to provide MIT students with help and support to turn their ideas into viable businesses.
The mentors signed up to the VMS each receive an objective and standardized summary of the proposed venture. Based on this summary alone, the mentors must decide whether the venture is worth supporting with their time. The summary includes things such as the business model, technology used in the venture, target market and so on, with the summary for each project composed by a VMS staff member. Very little information is given in the summary about the entrepreneurs themselves, so hopefully it allows the ideas to thrive (or not) on their merits.
The VMS is a substantial endeavor, with roughly half of the enterprises making it to market, with a collective $800 million raised in venture funding by the cohort.
Three main findings emerged from the study:
- Mentors were a good judge, with there being a strong correlation between the interest in each venture and the subsequent success of the company
- This relationship was particularly strong in R&D intensive areas, especially where IP was involved
- Last, but not least, there appeared to be no real correlation between the specific expertise of the mentor and the eventual success of the venture. In other words, the group of mentors was collectively very wise due to the diversity contained within the group.
The findings suggest that a suitably diverse crowd can prove very effective at spotting great ideas, even if they don’t have specific expertise in that area. I’d like to see the hypothesis tested in a bit more depth, but it’s certainly an interesting concept.