Your ideas are worthless? A manifesto for creating intellectual property worth a damn.
Part 1: You need to watch Silicon Valley. Seriously.
I am writing this article for the benefit of everyone who is a founder or early employee at a company that might do some real good. It’s an advice column, but essentially to myself, from my older self. If dear Abby was about contracts, other than being a vastly less titillating world, it would be this column.
In this article we’re gonna talk about intellectual property, and we’re gonna use my imaginary company, which is a platform solution for bullshit as a service (BaaS). We’re taking what was traditional bullshit, and disrupting the ever living crap out of it. We don’t have any bulls, we don’t have any shit, it’s just a platform solution, if you know what I’m talking about, that matches bullshit and the steaming piles where it needs to go. It’s an amazing vision, mission driven something or other, and we might even be a public benefit corporation. That is a default option on Clerky now? Great. Now using that company and the matching algorithm that drives its platform solution, let’s evaluate the intellectual property generated and how it becomes a valuable unicorn company. Cause we are making the world…
Your Ideas are Worthless
The first thing we’re going to address is the fact that your ideas are worthless. It doesn’t mean that they’re not good. It does mean they don’t have intrinsic value. People are going to steal your ideas left and right. You’re going to give your ideas away. If you are worried about running out of ideas because everyone else will steal them, then get out of this business. It’s not for you. Growth companies are for people with endless ideas, not people with one idea. It doesn’t matter how good it is. At some point you’ll have to pivot.
Let’s gonna talk about how ideas become valuable intellectual property. This is not legal advice. It’s conceptual. Stay with me here, humans. I’m going to get mild to moderately sassy.
This is a company that provides solutions for bullshit that scale. So, I’m guessing this column is going to be bullshitty.
Why Founders Suck at This
Most founders, particular the ones I am familar with in health tech, are, at best physicians. It’s not lawyers. Maybe in legal tech it is lawyers, But in the circles I run, it’s a bunch of software people, some b school graduates, And then people who have zero idea what they’re doing which is why they’re doing some thing as pointlessly ambitious as founding a company in the first place. The number of yoga instructors and project managers who cofounded an amazing disruptive mental health company is non-zero. How do you transmute your complete lack of experience or expertise into value? Find a way to turn it into intellectual property. Or more to the point find a way to turn all of the work of your teams into intellectual property.
So here are the things I wish I had known, particularly around mistakes you can make and contracting, that I am going to tell myself, and you’ll get the benefit of, I hope.
It’s the best show ever
The first and perhaps most important and entertaining piece of advice is to watch Silicon Valley. Watch the entire Series. And then watch it maybe once a year or once every other year. Because most of the problems you’re going to encounter as a founder have to do with shit that happened on Silicon Valley, and had you paid slightly more attention, you wouldn’t have gotten burned.
The most important document that your company will ever generate or enforce is what is known as a proprietary information and inventions agreement (PIIA).
This is the part of an employment agreement, which is separate from the offer letter, or employment contract, that assigns all of the work that people you’re hired to do and the value generated by it, including your own work as a founder, to the company as the owner of that work product.
From idea to intellectual property: it takes work
This was highlighted on Season 2, Episode 9 of Silicon Valley when Hooli sues Richard for creating Pied Piper on a Hooli work laptop. This eventually gets resolved through the arbitrator interpreting a severability clause favorably for Pied Piper to void the entire contract.
Literally, the most important thing you can do to protect the work you’re doing and the value of the company you’re building with your cofounders is to make sure that the work you’re doing and the value you’re generating belongs to that company.
You created it, and it is vested in the company, and you no longer own that shit. Your cofounders don’t own that shit. Nobody owns that shit… but the company.
I get it. You’re brilliant. You BaaS matching algorithm will change the world, doubtlessly making it a better place. Your ideas are disruptive! But ownership of humans is no longer legal. And people can’t invest in you personally. They can only invest in your company. If if is yet another “prescribe x drug as a service” version of bullshit there is a whole layer of “prohibition of the corporate practice of medicine abstraction” involved in not owing your company directly. So get over yourself.
They are not your ideas when you take investment money or accept investment work (aka equity for employees) anymore. The only way to keep these ideas as yours is to not involve anybody else in the ownership of anything they generate. This is fine. This is a plausable way to live. It’s not a way to build a growth company. I hope we’re clear on that?
Now when people invest in your company, they’re getting a piece of the intellectual property generated from the work you’ve done. You’re creating value for your company, which you’re gonna own a part of, but that value actually has to be worth something to other people—not you. Which means the company has to own it, so that when you own the company, you own something. Ironically, this lets other people value your brilliance other than you, which lets your amazing bullshit be worth millions according to other people, not just your ego.
Device Policy Pointers
This means you’re personally getting a new computer. This means you’re getting your another phone. This means you’re getting a bunch of stuff that isn’t the company stuff. You’re gonna not use your personal stuff for the company, nobody is. Because this is just a bad idea if you don’t want to get wrecked later.
Stop being so greedy—it’s how you get wealthy.
You’re creating value for other people. You were also one of those other people. But if you’re building a growth company that’s gonna take on investment you’re trying to generate value for shareholders of which you are one, but only one of those shareholders as others join the party.
So your brilliant ideas, they’re not your ideas anymore. They’re not your property. They are the property of the company. Anything you do while sounding that company is owned by that company. That’s how it gets valuable. It’s not about you anymore, it’s about valuing a company more highly.
You stole my ideas!
This way, in the future, when anybody says a thing they will inevitably say, and claims somebody stole somebody’s ideas, you can go back and have a goddamn audit trail of every computer and every device that the company ever paid for so that everything people do on their phones come on the computer, after hours, can be assigned to the company. This means there’s no more stealing of ideas. Your ideas are completely worthless unless they’re owned by a company that generates value by being valuable and doing important stuff with those ideas. People are really obsessed with their ideas, but at the end of the day it’s executing on them that generates actual value.
Creating value: simple math
One brief disclaimer, I’m making intentionally over broad statements and sweeping generalizations here. This is supposed to be playful and humorous, not rigorous. You’re supposed to get the point, not drown in nuance.
The equation for a valuable tech company is as follows: work + good ideas + product-market fit + binding intellectual property assignment = valuable IP. That IP becomes dramatically more valuable when it is paired with traction, which equals sales ^ growth. In growth companies profit margins “don’t matter,” they will eventually, and if it’s a real company they matter all day long, but it’s projected profit margin that you’re shooting for and growth to get to those margins at scale.
You don’t want to burn money. That’s stupid. But it’s not stupid because it blows up your ability to raise money or to be valued a lot, it just means you’re borrowing from your future self by selling the value of the work plus the ideas that turn into intellectual property through the magic of binding intellectual property agreements. Investment money is the most expensive loan you’ll ever take. It is 10,000% interest or more. Don’t sell more of your company than you absolutely have to. But sell enough of it so that it’s valuable to other people. Because if it’s valuable to other people that makes your part valuable too. So you don’t want to burn money. You have to burn money. And you have to burn the bare minimum. Are we following? Good. This is a Sharp crew of readers, I got to tell you. I can just imagine you’re nodding along like I’ve said anything useful!
Think about what other people Will value, and build that
I spent a lot of time thinking about the minds of others. I’m a psychiatrist, so you can forgive me. But when you’re building a brilliant disruptive start up to change the world and make it a better place through whatever bullshit as a service platform you are building, whether anyone else is gonna want that thing or want to buy a part of that thing or steal that thing or whatever it is, really depends on other peoples perception of value, not how great of an idea you’re totally sure it is. Which is not to say you’re wrong. But the creation of value is essentially something that people have to agree on. And practically speaking , investors are really simple creatures, and they are really afraid. Because so many ideas are snake oil. And nobody wants to invest in another Theranos. Investing in Theranos is the thing that you can never live down if you were an investor. Creating Theranos is actually probably more forgivable than investing in Theranos — at the end of the day it was your responsibility to figure the @&@? out that you were being lied to about that company that had a product that violated the laws of physics.
But again, investors are busy, and also if they were so brilliant, they would be found in companies right now also that were super valuable. So what they’re doing, most of the time, is looking at what other people value and piling on. So at most, one or two people are doing real due diligence on anything, and if they can even understand the ideas they’re investing in, particularly in healthcare, that’s good. But it’s not necessarily going to happen. Because the level of market insight you need to understand what will actually work in healthcare is absurdly high. So for your bullshit as a service platform, the generation of value is taking the intellectual property created by mixing work, traction, growth, and good ideas, and then to that adding external market validation which is somebody else, and then many other people over time investing their time, their ideas, their money, and their energy in the idea that you thought was so good in the first place. But your “idea being so good” only becomes validated as so good if other people pile on. You’re only as good as your investors. If this wasn’t true, this wouldn’t be a growth company. You could just do a thing that made a lot of money, and you wouldn’t need to go out and raise capital for it. These are different kinds of businesses, and God bless you if you want to create one of them. You are a saint. There is a special place in heaven for people who build real businesses, but all of sinners in the valley, virtually or otherwise, this is not the kind of prayer we do. We pray for traction, and we pray for growth. And these things are useful, but not as useful as market validation that the traction and growth that other people are seeing is getting those people to pile on.
Don’t fight about it.
People get very strange when they feel like they own something that’s potentially wildly valuable, but frankly isn’t yet. The concept at play is the orientation towards an economy of scarcity or an economy of abundance. It seems really obvious, perhaps, but the only way growth companies get anywhere useful is with an economy of abundance mindset. In the future the pie gets bigger. And so everyone’s best interest is aligned if we’re growing the pie. It is not a fixed pie. You’re not fighting over pieces of it. Never fight over pieces of a growing pie because those actions themselves destroy the value of the thing. It makes more sense in a fixed pie situation to want to get a bigger piece, but when the pieces themselves can be infinitely big, anything to decrease the overall value — in fighting just almost axiomatically does this — makes everyone worse off in the future, and probably worse off right now too.
I hope this was helpful at all the founders out there. Watch Silicon Valley!
—O. Scott Muir, M.D.