ETREPRENEURS’ DILEMMA

PITCH PRODUCTS OR

IDEAS FOR PRODUCTS?

A HARVARD BUSINESS SCHOOL INSIGHT hbswk.hbs.edu

15- Apr – 2016

How much to invest in development before showing it around?

Should they create, say, a working prototype or pitch the idea for the product and see if there is enough interest to go further?

Key Questions Entrepreneurs Face

Let’s evaluate each scenario…

Early feedback from a seasoned buyer The seller avoids wasting time and resources if the buyer is lukewarm. Seller does not risk a huge sunk cost, strengthening his bargaining position

Intellectual Property Protection : disclosing an idea at its nascent stage becomes a risk. For inventors, a patent provides strong protection

Pitching before the product is ready

PROS CONS

The Buyer’s Perspective

Evaluating an idea not only involves physical costs and the opportunity cost of time, having knowledge of an idea could expose buyers to potential legal disputes which creates a barrier for relatively inexperienced sellers.

The choice of selling a more complete idea signals to the buyer that the inventor is confident enough to make a real investment in the idea before trying to sell it. This is especially important for relatively inexperienced sellers.

PROS

CONS

Advantages of Prior SuccessSuccessful entrepreneurs have the luxury of capturing a buyer’s attention whether an idea is a nascent-stage pitch or a fully formed product. The model suggests that if a entrepreneur already has a buyer’s respect, it makes sense to spec the better ideas and pitch the secondary ones.

The intuition is that when a entrepreneur is sufficiently confident about the idea, the incentive to capture a greater slice of the pie (because a spec is better protected) outweighs the advantages of pitching (such as getting early feedback).

However, inexperienced entrepreneurs would have trouble participating in the pitch market. Their most immediate problem is how to get the access, and how to get their ideas heard?

Advice For The Novice Entrepreneur

The timing of the sale is found to be an important indication of

quality. Thus, it seems prudent for buyers to avoid options to buy

early ideas from sellers who face no difficulty in selling at any time.

Finally, stronger IP protection may actually hurt novice sellers whom these policies are often intended to protect because buyers might be more reluctant to meet them for fear of more idea-theft suits.

Smarter government intervention might loosen the buyer’s participation constraints.