There has never been a better time to start a business. The past 10 years has seen the cost of starting a consumer-facing internet company fall massively. This, coupled with a dramatic drop in the cost of distribution is helping to fuel an unprecedented rise in start-ups.
The start-up costs for these kinds of business are extremely low – which means they are not so dependent on early-stage investment. The currency they deal in is their experience, cleverness, enthusiasm, creativity and connections. Not how much money they’ve got behind them.
At those critical early stages of a new business, investment and intellectual capital are vital to generate momentum. As one leading venture capitalist once said, investment capital is like rocket fuel – it gets you there quicker. But in fact it is the intellectual capital that is the navigation system for that rocket.
There are, of course, some important differences between investment and intellectual capital.
Investment capital is controlled and distributed by the few, and always comes with terms and conditions associated with it. Intellectual capital, on the other hand, can be widely distributed, and people can choose the terms under which it can be shared. And it can be free, or paid for.
Free exchange of information
In a fast-moving world, it is the free exchange of information that will bring more value to both the provider of the information and its recipient. Our society is quickly moving from a time when knowledge distribution was restricted and proprietary to a collaborative future.
This is exactly how Silicon Valley has operated for more than 30 years – with a lot success. And now the penny is dropping.
Unlike investment capital, intellectual capital can be redistributed over and over again. And that process means the message becomes more focused and useful based on continuous and iterative feedback.
In the same way, the recipient of mentoring can now pass it on to others, creating a network effect of expertise, bolstering the ecosystem and on-going idea generation.
Finally, and crucially, the linchpin of an innovative and entrepreneurial culture has to be failure. It is failure that must be embraced as an important consequence of innovation. A culture which rejects failure is a culture that rejects entrepreneurship and, from that, wealth creation.
And so this is where the most significant divergence between investment capital and intellectual capital lies. Because failure’s ultimate consequence is the loss of investment capital. That is of course a risk that’s accepted by venture capitalists and angel investors, because they understand that taking risks could lead to a big pay-out on a percentage of their broad bets.
Learning to fail successfully
Intrinsically, intellectual capital is different, because entrepreneurs arguably gain more from failure than from success. In theory for them it’s a win-win situation.
The knowledge and skills generated by success and failure creates a stronger ecosystem. Think of it as a pruning of ideas, the creation of a fertile ‘entrepreneurial compost heap’. And think of mentoring as the recycling of expertise and the regeneration of new and fresh ideas, helping ideas to take root, and come back stronger.
The latent potential of any ecosystem to generate and strengthen its intellectual capital is a huge resource, but one that remains largely forgotten and overlooked. This is a tragedy, because it is controlled by entrepreneurs themselves.
A considered approach to the sharing of knowledge and expertise by entrepreneurs through mentoring will create a vibrant and stimulating environment. This doesn’t need permission. Give it away free, pass it on and finish every meeting with: “What can I do to help you?”
Mass adoption of this strategy by the wider start-up communities outside Silicon Valley will create a stronger and more transparent ecosystem that supports heroes and highlights bad practices. It is a crowd-sourced, peer-to-peer support network that comes from the community.
Perhaps best of all, unlocking the latent potential of intellectual capital will reduce the reliance of the start-up community on investment capital and its owners – nudging the balance even further in the direction of what – and yes, who – you know.
Jon Bradford is the co-founder of Springboard, a mentor-led accelerator. He was speaking at StartUp Britain’s free Finance Week on Access to Finance: Corporate Venturing & Business Incubators