Future Business Methods and Outdated Competition Practices

Posted on Tuesday 14 November 2006

I caught an entry this morning on 3pointD (Link) announcing a business plan competition taking place within Second Life. You can read the contest guideline page for yourself – Edelman/Electric Sheep Company Business Venture Competition Official Rules (Link).

Where to start?

While on the surface the business plan competition may sound good, I’d be hesitant to enter for the same reasons I tell Industrial Designers to steer clear of design competitions (and you should recall my objections to those kinds of competitions – reLink). I didn’t do more than briefly review the contest page, but this is apparently the relevant section:

Each entrant retains full rights and intellectual property to the original ideas, methodologies, images, text, and other content contained in an entry. However, by entering each entrant grants Sponsor the right to use the Business Plan and entrant’s Second Life avatar name and likeness in all forms of media now known or hereinafter developed in connection with promotions surrounding the contest and future similar contests, and to publicize a high-level description (one paragraph or less) of each submitted Business Plan, in the event that this business plan is selected as a winner or runner-up in the contest. Sponsor agrees not to prematurely share Business Plan concepts in such a way that could threaten the success of the proposed business, at discretion of Sponsor. Sponsor is not responsible for late, lost, incomplete, illegible, stolen, damaged or misdirected entries (all of which such entries are void).

Well, like most many competitions about which I read, they let people keep their IP. What I don’t see is how someone’s intellectual property is actually going to be protected. This is, as usual, a big sticking point for me.

In real life people protect themselves by getting patents – just like Amazon’s reviled “1-click” – and only communicating an idea to potential partners using Non-disclosure Agreements (NDA’s). And just like design competitions, if someone enters this competition, they had better do their due diligence to ensure their Intellectual Property is at least somewhat protected, because neither Edelman nor ESC is likely to protect someone’s potentially-patentable business idea. People will have to get the patent on their own… and pay for it by themselves. That’s no trivial expenditure.

Whether we like the patent system or not (and I’m no fan), the fact is that it’s all we’ve got and it’s currently the best way to protect an idea from being ripped off by anyone and everyone. However, another option is to create a “perfect storm” business (think Apple iTunes) that makes it difficult for a competitor to overcome the initial lead using the same business method. This is protection based mostly on timing and good execution and seems to be a part of the reward in this competition: you get a virtual island to quickly incubate that idea and prep it for release. Unfortunately, entrants don’t have control over this aspect: “at discretion of Sponsor“. While it’s possible that Edelman and ESC would be sensitive to this issue, the person with the idea doesn’t have veto power; they’ve given up that right by entering. Unfortunately, in my opinion, this puts things somewhat back into the realm of getting a patent if you’re serious about the idea.

Consequently, based on the likely lack of having patent protection (the deadline effectively limits this to people who are already pursuing patents – an extremely unlikely situation) and on the lack of control over disclosure, this doesn’t quite work for me. That’s a shame, since the reason this competition is of particular interest to me is I’ve been sitting on a business idea that could be entered into it. It’s a business plan that could only work with virtual worlds and I suspect it or some variant of it will be used in the future. I’ve considered patenting it, but I’m not really into patents. I could start the business, but I’m an R&D guy, not a salesman. That doesn’t leave me many options.

Of course I’ve also considered releasing the idea into the wild as I’ve done with other ideas (the pre-blogject RadTag, a self-supporting instruction system in SL, aso). It’s not like I have trouble coming up with ideas. And this option is super-easy: just post a blog entry and some comments on discussion threads where someone might pick up the idea and run with it. There’s no monetary reward of course, but if people like the idea, this approach gets some decent Reputation capital. That won’t buy anything, but it may eventually lead to something that will garner some financial reward (ala the “idea virus” concept).

One other option I’ve considered is approaching some metaversal companies and having them make me an offer. If they wanted to patent my idea, we could go that route. Or if they wanted to work towards an insurmountable advantage by keeping it quiet until a business is announced, that works too. But this, for me, is different than regular product stuff. I’m not sufficiently familiar with the legalities involved with patenting/protecting business methods so I’d have to do my research. After all, a losing bidder could go off and start working on a similar business intended to skirt the legal barriers put in place at the start of discussions. Even so, this approach is potentially better for me than the two options currently on the table with this competition and somewhat better than unleashing an idea virus.

In any event, in the end I have to ask what would get me to submit a good idea to a competition like this one? Remember that pathetic Neuros bounty? Well, this seems a little like that to me and I think the answer is more or less the same (you can read details of my proposal in a comment of mine on another blog – Link). Again, instead of offering a lump sum, a winning entry would instead receive a monetary award plus the sponsors would provide additional remuneration if they used the idea. This ties them to the intellectual property in a way that gives some control back to the participant. This sounds much more fair to me since both parties then have a vested interest in the idea; everyone’s motivations start to align.

The only reason I can see for setting up competitions in the way done here and in so many other competitions like it (lump sum award and no protection) is that it disproportionately benefits the sponsors imo. It’s a shame this is such a standard competition model; I consider it outdated. I’ll be interested in hearing (as I suspect I will) from ESC as to why they’re using it instead of helping to promote what I consider a more equitable standard.

  1.  
    11/18/2006 | 11:52 pm
     

    Hello Csven,
    Why a business plan contest: well, I would like to organize an ongoing venture capital fund that would do more significant investments in SL, but we wanted to try this concept out first. A business plan competition is something that people already are familiar with and can be a healthy experiment.

    As some know, I have a background in both startups and tech finance. One of the first things I discussed with folks when I joined SL in late 2004 was the potential to do a venture fund, but there were too many problems — to pick two: anonymity and no in-world contracts meant no investor protections, and no exit strategies (M&A or IPO) meant you were reliant solely on cash flow for returns. Unless it was money you could just write off, creating a fund didn’t make sense.

    Given that, an important “economic oil” has been missing from the SL economy. This business plan is just a first tiny step to help solve that. One of the very cool things involved here is that people will have a chance to get their ideas and plans reviewed not only by a team knowledgable about SL, but real-world venture capitalists from Charles River Ventures and Catamount.

    We have certain language in the rules to protect the sponsors, but we’ve also tried to make it clear that we have no interest in publicizing someones business in a way that hurts their chances for success. Some of the rules are in there so that someone doesn’t just take the money and run, or take control of the island and do something completely different with it.

    Regarding IP: First off, we have no interest in stealing someone’s idea. If you’re really worried about it, don’t enter.

    However, I believe, and most of the experienced entrepreneurs I know agree, that in creative fields like software (or Second Life), if you spend too much time worrying about secrecy and IP, you’ll just do yourself a disservice. IP *is* important, yes, but in this business, there are bigger things to worry about. First market advantage can also be important — and we certainly do not want to compromise that potential for any contestant — but I would note two things: unique ideas are often not quite as unique as the thinker thinks they are (I can’t tell you HOW many times I’ve seen this), and actual execution is actually more important that being first.

    You win in these fields by creating something great, marketing it well, and innovating faster than any of the copy cats. Rinse repeat. Most of the successful Second Life entrepreneurs I know have also come to this realization — they can’t stop the copycats, but they continue to dominate because they’ve built a reputation for excellence and they’re always raising the bar, making great things so they are leaders, not followers.

  2.  
    11/19/2006 | 10:31 am
     

    I’m not questioning the choice of subject matter; I’m questioning the use of more-0r-less standardized guidelines. There are things that could be done to make this a better competition imo. For example:

    Sponsor agrees not to prematurely share Business Plan concepts in such a way that could threaten the success of the proposed business, at discretion of Sponsor.

    That’s just unnecessary. Give them six months. Period. There’s no need for you to potentially threaten their business by prematurely revealing the plan. For those people who – as you say – aren’t overly focused on protecting their IP but are going after what I called the “perfect storm” business execution, you needlessly throw a monkey wrench into the works. Why on earth are you doing this?

    With regard to the possibility that someone may take the money and run… so what? Did they not provide a potentially valuable business plan? In fact, why not just declare at the outset that this competition is an open source competition? Take IP out of the equation from the start. Every business plan will be published after six months. As it is now, the sponsors get a lot of raw material on which to build new ideas. That, from my experience, can be very useful. Considering that virtual economies are effectively in the same boat as the music labels (and didn’t CopyBot educate a whole lot of SL residents to that reality), good ideas for how to deal with unprotected assets are potentially very valuable. The way this is set up, the sponsors get to see it all; every person’s idea. And you said it:

    You win in these fields by creating something great, marketing it well, and innovating faster than any of the copy cats.

    I’d say the sponsors get a pretty significant leg up when it comes to innovating when they have raw material with which to get their own R&D jumpstarted.

    There’s a better way to do this. And it would include at least one additional element: everyone who submits a plan gets a personal, private critique. They too get something out of this, so that when the submitted plan goes open source, they have six months and some valuable feedback to give them a bit of a leg up as well.

    I’ve read the SLH take on this. I don’t care about anyone’s track record. I already know that everyone is out for themselves and I don’t have a problem with that. I just think that ESC is squandering an opportunity to help set a new standard. That, imo, is worth as much as the ideas you’ll collect… to both you and the community.

  3.  
    11/19/2006 | 6:27 pm
     

    “For those people who – as you say – aren’t overly focused on protecting their IP but are going after what I called the “perfect storm” business execution, you needlessly throw a monkey wrench into the works. Why on earth are you doing this?”

    What on earth are you talking about csven? We haven’t *done* anything. We’ve said that we want to be able to say that there is a winner, and describe that business to the public in whatever way does not threaten its success. What that means will depend on the business that wins!

    “With regard to the possibility that someone may take the money and run… so what? Did they not provide a potentially valuable business plan?”

    This is not about *us* building a business, this about an entrepreneur building a business. If someone wants to take seed money for a business concept, they should at least try to make that business happen. That doesn’t mean they have to follow the plan to the letter (no plan survives the market), but it does mean they should try to follow through on what they were proposing.

    This is not an open source business competition. Participants do not get to see each other’s plans.

    I grant that there are other models we can try follow next time around, but I think it made sense to keep it simple and standard for the first go.

  4.  
    11/19/2006 | 8:57 pm
     

    What on earth are you talking about csven? We haven’t *done* anything. We’ve said that we want to be able to say that there is a winner, and describe that business to the public in whatever way does not threaten its success. What that means will depend on the business that wins!

    Here’s the guideline, Giff:

    Sponsor agrees not to prematurely share Business Plan concepts in such a way that could threaten the success of the proposed business, at discretion of Sponsor.

    The way I read it, that doesn’t qualify any conditions under which business plans are to be disclosed other than saying that the sponsors can do what they want when they want without any consultation with and approval of the winners. What you’ve *done* is taken full control over the disclosure process. Why not just remove “at discretion of Sponsor” and fix it so that all involved parties – including the winners – will be involved in deciding what is and is not appropriate for disclosure in advance of the business launch?

    And by the way, while I’ve got you here, this part just prior to that keeps raising questions in my mind:

    However, by entering each entrant grants Sponsor the right to use the Business Plan and entrant’s Second Life avatar name and likeness in all forms of media now known or hereinafter developed in connection with promotions surrounding the contest and future similar contests…

    I can read that two different ways, one of which is that “each entrant grants Sponsor the right to use the Business Plan” is separate from “entrant’s Second Life avatar name and likeness” so that ESC is actually given the right to pursue the business, which makes sense if, say, the winner doesn’t pursue the idea. Could you clarify this, please?

    This is not about *us* building a business, this about an entrepreneur building a business.

    Maybe you’re indulging yourself, but I seriously doubt Edelman is involving themselves out of the goodness of their hearts.

    What the sponsors are potentially getting, besides publicity, are any number of entries; many of them admittedly unworkable or overly obvious, but some of them potentially worthwhile. Out of those entries only three, according to what I’ve read, will be supported with an award and publically revealed, while the remainder are… what? Forgotten? C’mon.

    This is not an open source business competition. Participants do not get to see each other’s plans.

    I figured that out. And that’s a problem afaic, because the *only* one’s who get to see all the entries are the sponsors. Given the potential for a diamond in the rough, I’d say $3500 is a bargain to get maybe 30 or 40 business plans to review. Let’s go further. It’s even more of a bargain if a) the winners aren’t, in fact, the best plans, b) the entries have no intellectual property protection, and c) the only one’s who get to see all the plans are… the sponsors.

    Now, I’m not saying that you have anything but honorable intentions, but the competition you’ve outlined leaves plenty of room for people to question your intentions. I would rather that you had set up a competition with guidelines that aren’t basically the same as the one’s I’ve been reading for the last 20 years.

  5.  
    11/21/2006 | 2:02 am
     

    The only competitive advantage of the dynamic future is an organisation’s ability to learn – create ideas and move them into the marketplace profitably and expeditiously. In fact, it is the one capacity which is difficult – even impossible – to imitate or emulate.

  6.  
    11/21/2006 | 8:37 am
     

    I mostly agree and that’s why I have no problem with relinquishing control over IP. But if there is not going to be any protection for the originator of the idea, then it stands to reason that issues of control take on added significance.

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