I was talking to a friend who decided to become an entrepreneur and he told me he has been working on this great idea for quite some time now, investing heavily out of his pocket. When I asked him where he was getting inputs to come up with a solution that the market would adopt he paused and almost secretively told me he hasn’t told anyone about his idea because he was too afraid they would steal it from him. After that, I paused…
Venture Capital is probably one of those industries in which reputation is built over long periods of time, and destroyed with just one wrong move. Individuals and firms in the VC community work hard to build long term relationships as they understand the non-zero sum nature of the game. Success, both for VCs and entrepreneurs, comes after relatively long periods of nourishing key constituents.
If you think about the Prisoner’s Dilemma, the only way to get to the optimum solution is by collaborating, and the only way for individuals to collaborate is by playing the game multiple times.
The repeated game nature of Venture Capital is the main reason why most VCs don’t sign NDAs. If you are an entrepreneur you should be aware that VCs have a lot more to lose if they ever break the “rules of engagement”. Today, with social media tools the word-of-mouth is even more powerful to enforce these social rules.
Moreover, not discussing a business ideas with potential customers is another key mistake, as you might end up climbing a mountain, making a huge effort, only to realize that you’ve climbed the wrong mountain. I’ve recently heard Promod Haque, Managing Partner at NVP and one of the top dealmakers on the annual Forbes Midas List for the past eight years, say that innovation happens in collaboration and close proximity to early adopters. After thinking about this concept I realized it makes a lot of sense, as interactions with those early adopters and multiple iterations are key to crafting the solution the market is willing to consume.
Ideas keep on being a dime a dozen, so my recommendation for entrepreneurs is not to keep those ideas for themselves and share them with people they trust in order to forge a better business solution. Make sure your innovations are not just great technologies but also significant bridges for gaps either in the consumer or enterprise markets.
I think all entrepreneurs should learn game theory (there's a great free open course from Yale). You're right about the prisoner's dilemma, and actually would add the following. In PD, either you have a competitive or a cooperative strategy. In order for cooperative strategy to work, there has to be good communications both ways (either side shouldn't play the 'busy' card). But when the relationship is starting to feel more 'competitive' in nature, then there has to be a check on equilibrium. The formula: the value of getting screwed over today has to be equal or less than the total long term value of working with each other minus the penalty/loss/retaliation from the party getting screwed over.
ReplyDeleteI usually more ideas than I know what to do with it; so I like to ping it off people for further advice. But I only do so if we're in a 'cooperative' relationship and the formula is in equilibrium.
I'm a founder in a VC'd funded start up... but I'm in the Vietnam. It's a frontier space so business ethics here are very suspect. I trust, but I always verify. CYA principles.
I think you have a great blog. As you know, a lot of entrepreneurs may not understand the POV from the investor's side. Better understanding leads to better relationships. Thanks!
Thanks so much for this! I haven't been this moved by a blog for a long time! You’ve got it, whatever that means in blogging. Anyway, You are definitely someone that has something to say that people need to hear. Keep up the good work. Keep on inspiring the people!
ReplyDeleteregards:
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