Screenwriting & Startups: Similarities

My work with Marvel led me to realize how similar the world of screenwriting is to startups, despite everybody in the field thinks it's entirely different.

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“… Screenplays are not works of art. They are invitations to others to collaborate on a work of art.” — Paul Schrader

I fell into screenwriting during COVID thanks to my case study about Marvel. While working on that, I was fortunate to gain the trust, or at least the ear, of key executives that built Marvel from a comic book business to the media powerhouse we now know.

My case became and remains a bestseller. It won the prestigious 2020 Case Centre award in the Strategy & General Management category, the Oscar’s of case writing. It’s taught at business schools and businesses worldwide, including all top business schools, as an example of how blue ocean strategy can be used to turnaround a company.

A while ago, an INSEAD student suggested turning it into a script. I’ve never written or even read a script but the idea was intriguing. Like many aspiring screenwriters, I hacked out a few dozen pages then forgot about it.

During the early COVID lockdown, I was talking to my mom who was bored. She asked if I’d written anything new lately. About the only thing she hadn’t read was that script so I sent it to her. She liked it and sent it to a family friend, a movie star, who wrote me that the formatting is entirely wrong but the characters were interesting and the dialog pretty good. He suggested I get to rewriting and finish it.

I looped back to my contacts at Marvel, who’d left the company long ago, and they also supported the idea. On one hand, they were wary about a biographical film, a biopic in film industry speak, where they’d be characters. On the other hand, it is a genuinely interesting story that hasn’t been told well.

I followed up with more research. There countless articles about Marvel that are wrong and countless devout supports of those incorrect narratives. I’ve had multiple people argue they understood the business better than the executives who actually ran it.

False narratives range from wildly exaggerated to entirely fabricated, no more grounded in real-life than Stark Industries. Most get hung up on the creative talent — the producers, directors, and actors — while forgetting the story is about a business. This would be like writing about the history of Apple and focusing on the top-selling singers in the early iTunes library while ignoring Steve Jobs. Few if any seem to have spent time with the “suits” who rescued the business then created the movie studio.

That’s a shame because the heroes and villains in the real story are every bit as interesting as anything that graced the pages of a Marvel comic book.

Two of the real-life villains include two of the four characters used as a composite for fictional business supervillain Gordon Gekko. One of them gave the real-life version of the infamous “greed is good” speech during a prior hostile acquisition. He eventually bankrupted the business. The other hacked apart an airline, just like in the movie.

The heroes are quirky too. There’s a gun-toting privacy fanatic who came to the US a penniless immigrant and ended up purchasing Marvel despite never reading a comic book. A billionaire, he’s so stingy with money he works in a tiny office and cuts up discarded paper to make his own notebooks. Another is a wealthy lifelong Page Six lifelong bachelor who dated Paris Hilton, hangs with DiCaprio, but lives with his mom. And Stan Lee? His real legacy is deliciously complex.

The founder of Marvel Studios convinced bankers to fund the project with a $525 million loan by comparing it to subprime housing before subprime housing destroyed the world economy. They offered as collateral movie rights on the same terms they gave studios. That is, if they couldn’t repay the loan the bankers would get the rights to make movies from a stable of Marvel characters for a production fee of five percent of the gross box office proceeds, which is what Marvel charged anyway. The bankers agreed.

A pre-Apprentice Donald Trump crashed the first meeting, held at Mar-a-Lago, where the new studio was pitched. Key people thought Iron Man was a stupid character to lead off with. Getting the green light to cast Robert Downey Jr. required an emergency flight from LA to New York. Few people thought the movies would make any money but they’d reap at least a couple hundred million before the loan money ran out.

Seriously - you can’t make this stuff up.

Knowing zero about screenwriting, I set about writing my script and trying to learn about the art and the industry. My entire financial investment included a license for the industry-standard screenwriting software Final Draft which doesn’t make the screenplay interesting but does make formatting it a whole lot easier.

Like my case studies, my script went through countless revisions as key people reviewed it and gave feedback which ranged from “it’s ok” to “pretty good” to “better than the case” (that was from one of the people who’d bankrupted the business). Former Marvel co-CEO and founder and Chairman of Marvel Studios David Maisel was incredibly generous with his time and notes.

People in show business have a reputation for big egos though I frankly didn’t see that. All were reluctant to advance the script out of worries they’d appear too self-centered making a movie where they’re the heroes. I’d worry they didn’t believe in the project but they’re not the type to hold back criticism. These people range from extremely wealthy to ridiculous rich media executives. They’re not the type to avoid saying “it sucks,” which some did about early drafts though they’d also tell me why.

That left me to figure out how the business of being a screenwriter, of selling a script, actually works. What I found, surprisingly, is that except for an unusually large abundance of scam artists, screenwriting works like any other startup. But for some reason, nobody in the business thinks that way. Of course, I’m arguably one of the very few who has spent considerable amounts of time trying to start companies than getting script produced. Or maybe those from the startup world did so well they’d just self-fund their projects (usually, a bad idea even if you can afford it).

Writing a script, whether it be a pilot for a TV show or a feature-length motion picture — and I’ve now written both — isn’t especially different than creating an investor pitch deck except scripts are hopefully more fun to read. Like finding investors, the hard part is trying to get through to the right person who can appreciate what you’re trying to do and will finance turning an idea, which may or may not be entirely fleshed-out, into reality.

The things that matter are identical: the track-record of the screenwriter, the strength of the proposal, matching to the right producer/investor, sometimes using intermediaries to help find the right people, lots of lawyers, and more than a little bit of luck.

Thanks to draconian copyright laws, studios and producers will not accept unsolicited manuscripts without an agreement that they may be working on something similar. This is less of a concern for early-stage investors since business ideas can’t be copyrighted. In both the startup world and the screenwriting world, there’s always a fine chance that your idea/project will be stolen so dealing with people who have a good reputation is important. Dealing with the wrong people is a frustrating waste of time in either field.

Screenwriting has far more scammers than the startup world, the most common being countless screenwriting contests people pay to enter. Some are high-quality; most aren’t. Contest entry fees are typically about $50-$80 plus another $50 or so for feedback on the script, typically from a high-volume script reader paid half that amount. Winners may receive a cash prize but what they’re really looking for is an introduction to interested producers. Experienced screenwriters often say they’ve never personally met anybody who successfully entered the business this way. There are more than a few stories of contest winners whose work was never picked up.

Besides the iffy contests, there’s also a horde of screenwriting coaches, plenty who’ve never had anything produced. Finally, are outright scam managers and agents, who aren’t at all what they claim to be, prey on the hopes and dreams of aspiring writers.

So how does a person break into the screenwriting field if not for the contests? I haven’t so I can’t say definitively. Then again, I haven’t tried too hard despite I think my work would do really well. Figuring out how it might work is where my day-job as a research fellow at INSEAD comes in helpful.

A few things that do work … there’s the old-fashioned way of having the right parents: Malia Obama was just hired for a project at Amazon and plenty of screenwriters, actors, and directors are the spawn of Hollywood royalty. There are lots of credible stories about people moving to Los Angeles, taking a job (any job) in a studio, then building a network that eventually lands them a paid writing gig. And there are a few people who write a good script, luck out getting it into the right hands, and either get it produced (unlikely, but does happen) or gets them a job writing something else (far more likely).

If you do find work, writers for TV shows are treated far better than writers for feature films. TV show writers typically work in teams, called a writers room, while the lead writers, called showrunners, call the shots. Showrunners hire directors, actors, and all the rest who typically vary from episode to episode. In television, directors are the hired help.

In movies, it’s the opposite. Directors control everything to the point they’re often known to take primary credit for scripts they didn’t write. Ever wonder how all the top directors seem to also be great screenwriters, with their names attached to the scripts of the movies they direct? The short answer is they’re often not; they force the genuine writer to take a sub-credit, if they’re credited at all, often sending them packing with a check just large enough to scrape by until they sell another script.

One thing that strikes me as especially odd is the impression both aspiring and experienced screenwriters have that the field is unique, that there’s nothing else quite like it. As far as I can see it’s virtually identical to the process aspiring entrepreneurs go through to find early-stage capital. These days, entrepreneurs tend to be treated better than screenwriters but the process of getting green-lighted isn’t all that different.

Both screenwriters and entrepreneurs develop their business plan/script, find the right people, pitch until they’re blue in the face, adjust their proposal, have countless odd things happen until the vision either dies or flies, then do the whole thing again while hopefully living in a nicer house from the money they made. The Hollywood crowd has managers and agents whereas the entrepreneurs have investment bankers but they’re both doing essentially the same function.

Aspiring and established screenwriters tend to write about screenwriting as if it’s the only type of writing job that exists. I’m a professional writer. It’s how I made my living for years now along with the occasional consulting gig that comes my way. My work is published in the top outlets for its category and many of my pieces are bestsellers. But I’m not a professional screenwriter. I’m not even sure I’d consider myself an aspirational screenwriter though I do like both my feature and my pilot script, especially the pilot (seriously! if you’re vaguely in the field, check out my series Origin Stories). It’s necessary to note aspiring screenwriters range from people with Master of Fine Art (MFA) degrees from UCLA, University of Southern California, and NYU to high school dropouts.

There are a few more superficial differences. Aspiring and professional screenwriters are in general more supportive towards one another. A few see the field, wrongly, as a zero-sum game but most get there’s little real competition. A producer who is going to pick up Origin Stories, a series of TV biopics about inventors isn’t going to pass on a horror film to make it. They’ll make one or the other (as with early-stage investors, beware the generalists). The Hollywood people tend to be more physically attractive and, if equally successful, they’ll have an easier time getting good tables at restaurants. Then again, the entrepreneur may be the person who owns the restaurant.

I’m not sure where the notion that breaking into screenwriting is substantively different than breaking into any other field came from. And if screenwriters looked at their scripts as business plans they’re selling — which isn’t far-fetched given the cost to produce a movie or TV show — they may learn a lot from entrepreneurs.

One thing that stands out given my day-job as an executive fellow at the INSEAD Blue Ocean Strategy Institute: the Hollywood business model is hopelessly broken and in dire need of innovation. That was true before COVID and it’s far worse now. There’s enormous opportunity in entertainment but a business living in a past that went away once high-quality low-cost TVs and sound systems came into living rooms throughout the world.

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Financial Bubbles Blow

I've lived through two and we're all in the middle of a third.

My first website was promising and, in hindsight, if I hadn’t sold it I’d be an extraordinarily wealthy person today. However, at the time I had a mortgage, baby, wife, student loans, and was tucked away in St. Paul, Minnesota, where venture funding for the new idea of an internet company was pretty much unheard of.

The day I arrived for a job interview with a genuine Silicon Valley startup was with a small company that aimed to create an FAQ website. When I arrived, the San Jose Mercury News had a story about my website featuring a photo of my son sitting on my shoulders. I saw it on a newsstand walking into my interview and was offered a job on the spot. I didn’t realize, at the time, that was probably a ticket to pretty much a job at any business in the valley in 1997, especially combined with my self-created degree in “Communicative Information Systems,” a guess that computers and communications would soon fuse.

Today, businesses in San Francisco or even Oakland are described as Silicon Valley but, back then, being in the valley meant it literally. For those who’ve never been there, Silicon Valley is an actual valley that stopped well south of San Francisco. Outside the valley was rural farmland: it was inadvisable to drive up into the hills without a four-wheel drive.

The Valley has always gone through boom and busts and, at the time, was coming out of a bust. There were plenty of houses to rent or buy and not much in the way of traffic. You could walk in the middle of most streets. We opted to rent a three-bedroom house in Milpitas that cost something like $1,000 a month. Buying houses in the nicer parts of the valley cost, on average, $100K per bedroom. Two-bedrooms cost about $200,000, a three-bedroom about $300,000, etc… Houses cost more in places like Palo Alto and Mountain View but there were plenty to rent or buy.

The founder of the company I originally came took the name faqs.com but dropped it, telling me she realized the name “sounded like something else.” I nodded, having no idea what she was talking about. It wasn’t until I’d been hired and listened to a never-ending barrage of homophobia that I realized what she meant.

That company, in classic Silicon Valley style, was clueless. The world was still on Java v 1.0 but the VP of technology, an ego-maniac in a three-person company, insisted we build the site with both client and server-side Java. He’d never actually built a website before but had sold a CD-ROM-based consumer software business. I didn’t know it at the time but charlatans with CD-based software businesses would be the bane of my existence for years to come. The next hire after me was an H1B Java “expert” who didn’t know what a CLASSPATH was or why it mattered.

I didn’t last long and neither did the company which is a shame: an early FAQ site, with that URL, would’ve likely done really well.

I bounced around doing some consulting work and we quickly tired of the Valley, moving North first to Sausalito then settling into Mill Valley. I took a job at a local consulting company for a while but, for the most part, found plenty of interesting work with the countless startups that popped up. We bought a hot tub and I’d enjoy talking to clients while sitting in it; the clients thought that was funny. I’d offer to drive down to the Valley but a surprising number of people thought it’d be more fun to drive over the Golden Gate Bridge to spend the day with me in my Mill Valley bungalow. More than a few top-tier VCs spent time with senior management in my living room.

Over time, the Valley exploded with businesses and people. There were countless internet “experts” who no experience whatsoever. I’m not sure I’d ever met an MBA before then but suddenly they were everywhere claiming to know more than people who’d been doing this forever.

Consulting projects became increasingly weird. One business wanted to hire me either as a consultant or an employee. They’d been stumped on how to build and display a pricing grid, doing one query for every cell. I sat down and quickly rewrote it so one query returned the results to populate their grid, increasing by the speed by almost two orders of magnitude. Then politely turned down their job offer but accepted a free lunch.

My now ex-wife had a job at a company with stock options. She exercised them when the company she worked for, eToys, went public but couldn’t sell due to lockouts when the dot-com bust started. eToys was especially hurt when they failed to deliver the toys on time for Christmas. We were visiting my parents for the holidays and, one day, the value of her options lost $85,000. The founder of eToys, Toby Lenk, went from billionaire to bust. As if that weren’t enough, we eventually had to pay tax on that and a lot of other losses. Good thing for the consulting work.

Things became dire. A friend who worked at a popular pregnancy and parenting website lost her job. They sent a courier with severance paperwork while she was in the hospital with a newborn; her health insurance was cut off immediately. Another friend had a 1000000:1 reverse stock split; every million shares he owned were converted to one in a new business. Traffic was vastly reduced when Porcshe’s were repossessed by disguised tow trucks. You could drive around and headlights would shine through empty floors of shiny new office buildings.

I sold one of my projects, print from the web technology, to a Fortune 500 who gave me a job. I didn’t get very much for it because a charlatan with a CD-ROM-based business sold them similar technology for far more money pawning off their single-threaded Windows 95 program that illegally used Adobe’s Acrobat on a server as web-ready. They quietly swapped in my tech when the thing had to go into production. My contract included the ability to telecommute, a far less common perk back then, but by then the whole Bay area was so depressing we moved to Southern California.

Fast forward … eventually, an even bigger company cross-licensed some tech I’d developed and I joined them moving to Boca Raton, Florida, about 2005. My mom found us a nice house we bought sight unseen because housing was red hot. I remember our mortgage broker telling us we didn’t need to put down any money at all but I think we brought 20 percent to the table with the idea that sounded like something you should do when buying a house.

Prices went up and up and up until they went down and down and down. Soon, countless houses had foreclosure signs on them. Without exception, everybody who wasn’t in foreclosure knew somebody who was.

Two bubbles. Two messes. It’d be impossible to exaggerate the financial and emotional carnage of that time. I became well-known, by accident, thanks to another startup I built focused on housing data that I started just before the crash.

The foreclosures were only the symptom: the core cause was reckless financial bubbles. At least with the dot-com bubble, the burnt investors voluntarily traded in dot-com stocks. In the housing bubble, people either purchased a house or overpriced condo or rented thinking they’d be “priced out” and never able to afford their own place.

Today, there is a stock market and housing bubble, the former purposefully inflated by the Federal Reserve as COVID relief and the latter inadvertently created with low-interest rates and foreclosure moratoria. Neither bubble is sustainable; both are likely to cause widespread misery when they pop. People are already sensing that they may be paying too much for houses (yup) and no matter how much I want a Tesla the company is not worth a multiple of the aggregate value of VW, Toyota, and GM.

Bubbles give the illusion of prosperity in the short-term promise of pain over the long run. They’re built on a laissez-faire attitude that’s more akin to enabling fraud than fostering a free market. Nobody honestly believes these valuations while, at the same time, countless experts pump up a buying frenzy not all that different than the promoter of a boiler room pump-and-dump scheme.

Blue ocean strategy is about building genuinely sustainable businesses. Granted, some businesses have a naturally longer lifespan than others. For example, the Nintendo Wii was a category killer for eternity in videogame console years but just a few years in people years. Still, blue ocean businesses are built to last, cribbing the name of another popular book. Bubbles, on the other hand, are built to pop and these recent ones are long overdue for a painful correction.

When the inevitable happens, the experts will say nobody could’ve known. That’s what they always say as they line up for bailouts while defending their participation in Wall Street when it functions more like a casino than a rational market. They’ll say Wall Street is supposed to be a long-term investment in index funds (yes) while ignoring that they’re active traders and prognosticators. They’ll claim Wall Street isn’t a casino and people shouldn’t actively trade while simultaneously doing exactly that for a living. They’ll publish articles about how to trade, knowledge not needed when putting money in long-term index funds.

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Blue Ocean Example: Pastrami for Elvis

Odd combinations combine to make great food and also interesting business models.

People oftentimes fail to stretch far enough thinking about noncustomers, rarely going past what we refer to as Tier 1 noncustomers, current customers who dislike an offering. However, the group of Tier 2 noncustomers (those who should be attracted to an offering but aren’t) and Tier 3 (those distant) typically offer a much larger and more lucrative pool of people. Here is an illustration of how that might work.

I like food and I like businesses so restaurants hold enormous appeal.

But opening a restaurant is a terrible idea, right? After all, according to an American Express commercial 90% of restaurants fail after their first year. The industry is brutal to break into. You’re far better off, say, opening a business services company, a law firm, or a construction business, right?

That’s actually nonsense according to the US Bureau of Labor Statistics which tracks business failure. There are lots of articles here, here, and here, proving that restaurants aren’t actually a bad business to start at all. Plus, the raw data supports the same conclusion. The hours may stink but there are far worse businesses to go into.

About 15-17% of restaurants close in their first year of business, a lower figure than business services (19%), real-estate offices and brokerages (21%), construction (53%), and way lower than agriculture (65%). Professional and scientific services — the field your mother-in-law and Amex agree are for grown-ups — have a higher failure rate than restaurants at 19.4%.

It is true that most restaurants fail within five years but most businesses fail within five years. That applies to any business, not just restaurants.

Is there anything you can do, timing-wise, to increase your restaurant's chance of success?

Going by the numbers, yes.

Red Ocean Advantages

I typically focus on blue ocean strategy and, below, we walk through the thought process I’d use to create a blue ocean restaurant. But blue ocean strategy does not require ignoring red ocean advantages and, in this case, there are some strong competitive levers for startup restaurants.

Specifically, I’d plan on opening my restaurant in 2021 or 2022. Restaurants that opened in the years immediately after the last recession enjoyed a significantly higher long-term success rate than those established before or after. Why? Because the recession eliminated lots of competition, made vendors hungrier for new customers, and reduced the price of rent which is typically a restaurant’s highest fixed cost.

That’s even more true with the COVID recession. Landlords are desperate for commercial tenants. Now is the time to get a good deal on a great location and insist on a long lease: this is a renter’s market for commercial space. The countless food delivery apps, upcoming new business models like dark kitchens, and a dearth of restaurants that couldn’t pay their pre-COVID rent and folded put upstarts in the driver’s seat. Don’t hesitate to take advantage.

Blue Ocean Restauranteering

As explained in the blue ocean basic series of posts, blue ocean strategy is about differentiation and low cost. The basics of that involve defining a market, using the buyer utility map to find painpoints, running through the six paths to find opportunities, extracting key values of competition, then eliminating, reducing, raising, and creating those to define a new offering.

Whew. That was both a run-on sentence and a massive simplification. I really encourage you to read the posts, read the book, and don’t hesitate to link up with or contact me.

With that caveat, let me guide you through the thought process of an experienced blue ocean strategist if I was going to open my dream restaurant. I’m focused on opening a Jewish deli. Why? Because I like Jewish deli food and passion is a key ingredient in the success of any business.

I know that delis often have massive menus of similar food. Not mine. We’re going to vastly reduce the choices and offer a small but top-quality menu.

Those massive menus are made possible by buying lots of products from foodservice companies. We’re going to either make our food from scratch or buy it from vendors who make it from scratch; no mass-produced anything for us.

Our dining room will have a homey feel and our serving staff needn’t wear tuxedos. We’re serving matzoh ball soup with pastrami and fries, not foie gras. We’re reducing the accouterments many restaurants offer.

Great delis have top-tier smoked fish. We’ll smoke some ourselves but smoked fish is an art and there are only so many vendors in the US who’ve mastered it. Therefore, we’ll do something virtually nobody does; look to Eastern Europe where artisanal smoked fish is plentiful and cheap. While reducing mass-produced premade food we’ll raise sourced small-batch artisanal quality food.

Our fish will be flown in every day so we’re best off close to an airport to keep costs low. Lucky for us, there are lots of airports with high volume flights and some of them are in cities that don’t have much in the way of delis.

Memphis has the FedEx hub, low real-estate prices, and the locals happen to be barbecue fanatics. Further, yelp lists only five entries for the “top ten” Jewish delis in Memphis. One of those is the snack bar at the Jewish Community Center and another the cafeteria at a retirement home. A lack of dead-on competition is a good blue ocean marker.

Memphis doesn’t have a lot of Jews to visit our Jewish deli but that’s just fine because we’re aiming for noncustomers. Who might be interested in my high-quality deli foods, the sandwiches stacked to the sky? Memphis locals, that’s who. It doesn’t really make sense that they haven’t discovered Jewish delis, making them a perfect Tier 2 noncustomer group.

And who might find the Jewish part of a Jewish deli intriguing? The many, many evangelicals who live in and around Memphis. In fact, their churches might be a great way to spark an early interest in my new restaurant.

There’s actually nothing all that Jewish about Jewish deli food and a fine chance the southerners will think the homemade bread, soups, and smoked meats are every bit as awesome as my grandparents thought.

Finally, there’s the need to smoke my own briskets, pastrami, and corned beef. Lucky for me, there’s no shortage of experienced BBQ chefs in and around the area. They may be more used to smoking pork but I’m sure they can easily adapt.

Summary

A traditional red ocean marketer would say opening a Jewish deli in Memphis is dumb. There aren’t many Jews, they’d argue. Open your deli in Boca Raton, Florida.

Except that Boca is filled up with Jewish delis and they all compete with one another. Real-estate prices are sky-high, employee costs are steep, and nobody knows how to smoke meat. A sizable part of the population are “snowbirds” who disappear half the year leaving me with fixed costs but few customers.

In Boca, I’d have to get my fish from Miami International, a three-hour round-trip drive every day. Once established, I’d be competing with New Yorkers who grew up on the most authentic Jewish delis and who are picky. The things I’d have to do to please them would add to my cost structure and could turn off noncustomers.

My Jewish deli in Memphis makes sense. In Boca, the same offering becomes a red ocean mess.

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Ideas Alone Aren't Innovations

There's no such thing as a million-dollar idea until you put the energy in to make it real.

I’m working on a long-form piece about my work in the early days of the foreclosure fraud movement. Until then, here’s a shorter piece — tied to that one in spirit — about the need to actually do something rather than merely talk about it. Innovation without implementation is nothing.

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Years before central power stations the telegraph’s popularity was booming. It wasn’t lost on anybody that whoever could transmit voice over a wire would have an enormously useful and valuable invention. During the Civil War, there were wagon trains filled with Voltaic Pile batteries powering quickly assembled telegraph lines that stretched from the front-line to the White House.

Given the popularity of long-distance communication, it wasn’t lost on inventors a system that transmitted voice rather than Morse Code would be a smash hit. The need and value were apparent leaving only a technological challenge, the inverse of too many questionable inventions.

This led to several people who may have invented the telephone. Ever heard of Antonio Meucci? Don’t worry, most people haven’t but there’s a proclamation from the United States House of Representatives that “the life and achievements of Antonio Meucci should be recognized, and his work in the invention of the telephone should be acknowledged.”

There are a few people who claimed to have invented the telephone but only two of them are well-known, Scottish-American Alexander Graham Bell and Elisha Gray. In 1874, both Bell and Gray went to the patent office with competing diagrams for a working phone. The US Government had abolished the requirement to produce a working invention to secure a patent in 1870 but the patent office hadn’t implemented the change yet. Shortening a long story, Bell got his phone to work, rushed it to the patent office, and became fabulously wealthy.

The ability to make a working machine, as opposed to the idea of one, is the reason we had the Bell Telephone Company (transferred to its subsidiary, American Telephone & Telegraph, AT&T, in 1899) rather than the Gray Telephone Company.

Bell, Gray and more than a few others realized transmitting voice over a telegraph-like wire would be useful, that it could create buyer value. However, the idea itself was not useful until it was executed into a working machine.

The founders of the US laid out their reason for a patent office in Article 1, Section 8 of the US Constitution: “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries…”

Reiterating, the purpose of patents isn’t to help inventors; it’s to help society.

Realizing inventors needed a financial incentive to invest the time and money needed to invent, the founders gave them exclusivity for a limited time.

Getting back to Bell, Gray, and the others, history would be different if one of the many people who thought “it sure would be useful to talk over a wire rather than send Morse Code” was able to patent it. If the government granted a patent on the telephone on the idea alone, it would have created a massive disincentive for the actual inventors. There would’ve been no reason for Bell to go to the hassle of his many iterations if he had to pay some shmuck who, rather than write science-fiction, instead wrote their dreams into patents of potentially useful machines.

Patents are supposed to be for useful non-obvious inventions, not ideas, because ideas alone are not useful. Ideas without execution do not promote the progress of science and the useful arts, they do not help society advance. Patented ideas without implementation simply drain money from those who do. Furthermore, useless patents clog up the system.

Critical readers would argue the US Patent & Trademark Office (USPTO) has certainly been granting idea-based patents, especially the “business method patent.” This is relatively new: for most of US history, the patent office rightfully took the position that business ideas, mathematic formulas, algorithms, were all ineligible for patent protection.

However, with the invention of the world-wide-web, they decided everything is different and made all sorts of both ideas and obvious inventions patentable. Specifically, the patent office started issuing patents for taking any idea or concept in the real-world and doing the same on the internet. Furthermore, there was a cultural shift in favor of issuing rather than rejecting patents.

Starting in the 1990s, the USPTO went on a bender, rubber-stamping every half-baked idea submitted. IBM patented the out-of-office email reminder in 2017. Apple patented round rectangles in 2012 and glass staircases in 2013. Somebody patented swinging sideways.

In 2014, realizing the patent system was entirely out of control and arguably doing more harm than good, the US Supreme Court reverted the law in a unanimous decision. In Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014) they made ideas and obvious inventions impossible to patent and also opened the prior abusive patents to invalidation.

The Court wrote: “Laws of nature, natural phenomena, and abstract ideas are ‘the basic tools of scientific and technological work.’ … ‘[M]onopolization of those tools through the grant of a patent might tend to impede innovation more than it would tend to promote it,’ thereby thwarting the primary object of the patent laws. … We have ‘repeatedly emphasized this . . . concern that patent law not inhibit further discovery by improperly tying up the future use of’ these building blocks of human ingenuity.”

All of which brings us back to the core point: ideas alone are worthless except to science-fiction writers. That’s true in patent law and it’s also true in reality.

If you bring an idea to an investor and do not have a strong background launching impactful startups they should shrug you off. If you have a great idea, they may help you find somebody to implement it but, most likely, they’ve already heard it or a close derivative before. Ideas alone are worthless which is one of the core reasons accredited angel investors and venture capital firms refuse to sign nondisclosure agreements: countless would-be entrepreneurs approach them with the same idea.

Everybody tends to think they’ve stumbled on a blue ocean when the vast majority are proposing, at best, an incremental improvement.

Everybody’s seen The Social Network, the 2010 biopic about how Mark Zuckerberg stole the idea for Facebook from the wealthy and better-connected Winklevoss twins. I’ve had countless disagreements with people enraged at Zuck after watching the movie. But if the Winklevoss’s actually believed so strongly in their idea — which is what their social network was — they could and should have simply hired independent software developers to hammer out the program. They certainly could afford to pay people on their own and, even if they didn’t want to use their own funds entirely, they had a top-tier network to co-invest.

The twins refused to do the much harder work of actually implementing their idea and lost it to Zuck, who did. That isn’t to justify the rest of Zuckerberg’s behavior at that time or after. Screwing over his friend and sole financial investor Eduardo Saverin was greedy, unnecessary, and unethical. Yes, Saverin wasn’t putting in the same type of work as the California team but he was putting in work and did put in hard capital, the latter which is what investors do. Investing is a form of execution (early investor Peter Thiel didn’t do much if anything more but had better lawyers and connections than Saverin).

I’ve had countless people take my ideas and make a fortune from them. Former business partners who split up, ran on their own, and built large businesses. I consider these my failures and lessons. One of the reasons I consult and work at a Univerity is I’ve found others are often better at actually implementing ideas. There is some amount of resentment but, ultimately, I realize ideas alone are largely worthless; implementation is ultimately what matters.

That doesn’t mean it’s always OK to steal ideas. Partnering with the right people is a vital part of implementation, of turning your otherwise useless idea into an innovation that has value. Furthermore, ideas are largely worthless but inventions are not. A long time ago, I had a person tell me “sell me your website or I’ll make a knockoff and bury you.” I was young and sold but, in hindsight, should’ve told them to jump in a lake. While working for another company, a competitor made a pixel-by-pixel knockoff of something we did, changing only the colors and branding. They ended up paying. Building on abstract ideas is very different than stealing somebody else’s work.

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Jeff Immelt Whines

Releasing a new book the former G.E. CEO, who ran the business into the ground, blames everybody besides himself.

I’ve been reading reviews of Jeff Immelt’s new book and realized the guy has no shame. Among other things, I write bestselling business school cases. Students tend to prefer cases where an entrepreneur overcomes enormous odds and builds a giant business. Jobs comes back to Apple and rebuilds it. Bezos takes over the world. Marvel emerges from bankruptcy with high-interest debt and rebuilds the business. They’re inspirational fun-to-read educational narratives. But there’s another type of case, failures. These are cases where, for some reason or another, everything went wrong, the 50-car pileups. Immelt’s tenure at G.E. has the potential to be recognized as one of the worst ever for a firm that wasn’t entirely destroyed.

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In October and November 2008, about seven years into Jeff Immelt’s tenure as CEO of G.E., the behemoth business received twelve secret government bailouts. Specifically, G.E. begged for and received 12 short-term IOUs from the Federal Reserve. The specific type of financial instrument is usually used by large businesses to pay employees. It’s fair to say that G.E., which had strayed from making generators into making green from exotic financial instruments, needed emergency cash to make payroll.

Once it became public, thanks to Congress, criticism about G.E.’s bailout often focused on the conflict of interest since Immelt was on the Federal Reserve’s Board of Directors at the time. That overlooks a deeper problem: the maker of lightbulbs, locomotives, fridges, and electrical generation equipment played with money so recklessly they apparently ran out of it for their most pressing single responsibility, paying the employees.

Immelt took over as G.E. CEO from Jack Welch on September 10, 2011, the day before 9/11. At the time, G.E. was arguably the most admired company in the world with a market capitalization that reflected that status. Cutting to the end, he was unceremoniously fired in 2017 after years of poor performance, stock price declines, and behavior more suited towards royalty than the head of a public company. A year later, GE was dumped as one of the thirty companies in the Dow Jones Industrial Average Index, a slot they’d held since 1896 when the index was formed except for a brief period about 120 years ago.

Pundits often cite Jack Welch, Immelt’s predecessor, as the greatest CEO ever despite that less than a decade after his retirement Welch’s company was groveling for an emergency government handout. It’s almost impolite to point out that Welch’s magic ability to beat Wall Street estimates for 100 consecutive quarters seemed like “a very low probability of that ever occurring in nature” as forensic accountant Jay Huck put it.

Welch, Forbes’ “Manager of the Century,” repeatedly wrote bailouts were fine for banks and big businesses but a no-no for everybody else. People struggling with G.E.’s 30-percent interest rate credit-cards his firm freely gave out deserved nothing at all, personal responsibility being for everybody else. “Neutron Jack” — his nickname because he’d leave the buildings empty by firing the people or outsourcing them — was arguably largely responsible for Immelt’s eventual meltdown.

Given that, it’s odd that Immelt blamed everything and everybody besides Welch for his failure. The mess Welch left behind with creative accounting, using the corporate treasury of an industrial and media business as a bank, and an environment that reduced people to fungible numbers is what ailed GE. Immelt inherited a patient with Stage 4 cancer thanks to a three-pack-a-day habit for twenty-five years and refused to even suggest out loud that might be the problem.

When asked what went wrong Immelt answered G.E. Capital (correct), tough energy markets (not really - others made plenty of money), and poor execution by a GE executive named Steve Bolze, the former head of the power division. I have a French bulldog who has an inexplicable hatred towards hedgehogs; Immelt seems to feel the same about Bolze. Granted, Bolze apparently believed Immelt should be fired but anybody with common sense felt the same way. Besides, Immelt was Bolze’s boss. If Bolze underperformed, and Immelt did nothing, the fault is all Immelt’s.

Immelt also blames COVID, which came along about three years after he was fired. “You add those three things up, and you had Covid on top of that, you get a $10 stock price or whatever it is today. Not that I’m blameless, but I’d hang on those three things,” Immelt said.

At least he doesn’t consider himself entirely blameless. However, he never discusses some obvious problems. For example, some might argue that flying with not one but two private jets — his primary jet and an empty one that followed in case the primary one broke down — may have contributed to GE’s problems.

Besides being expensive, environmentally wasteful, and outrageous optics, the two-jet rule made sure Immelt never rubbed elbows with ordinary folk who might be flying commercial (albeit first-class) and might have the gall to speak to him. That refusal to listen — a knee-jerk aversion towards hearing something he might disagree with — speaks volumes about what ailed GE.

The ridiculous excuses G.E. came up with, arguing Immelt needed a second jet to return quickly from a trip to China and South Korea — cause, like, there’s no jets in those countries — compound his inability to simply admit he was wrong. Arguing he never authorized the second jet is insults our intelligence like he injured stockholders: flight plans showed them flying together so he’d see the second jet outside the window. A vaguely inquisitive or marginally paranoid executive might have asked “why is that other plane always following us?”

While Immelt was flying around with two jets, many of his GE customers were flying high with the stress of high-interest G.E. debt. G.E. Capital Retail Bank, a wholly-owned division of G.E. Capital, was forced to pay a record $225 million by the Consumer Financial Protection Bureau in 2014 for deceptive marketing and discrimination.

Apparently, while the firm was paying workers with government bailout money they were lying to their own credit-card customers, implying the working stiffs were eligible for similar terms offered by Uncle Sam. The Bureau found that G.E.:

  • Used telemarkets to sell credit-cards as free of charge when, in fact, the free money offers were under very specific conditions that and virtually never came about.

  • Sold debt cancellation products consumers were ineligible for because they were retired or disabled.

  • Sold new financial products to existing customers under the guise of “upgrading” an existing account free of charge.

  • Marketed financial products as a limited-time offer when they weren’t. OK - I’ll admit that scam remains so ubiquitous I didn’t realize it’s illegal though apparently, it is.

They also offered to settle bad debt to English speakers but refused the same to Spanish speakers. Not nice.

None of this is especially surprising. Sometime around the fiftieth or sixtieth quarter, that Welch announced he beat the street by a penny or two it was reasonably clear something smelled off. Madoff did essentially the same thing, announcing small gains month-after-month, quarter-after-quarter, and he was widely praised and respected right up until the paddywagon came. Maybe if the government had bailed him out he’d still be running his Ponzi scheme to this day.

Reading Immelt’s interview in this context is disquieting and honestly infuriating: “I worked 24 hours a day, seven days a week,” he told the New York Times. “And I was going to do that whether you paid me $5 million or $10 million.” He would’ve kept on slaving away, like an ordinary working stiff, for a measly $5 million per year. Righteous!

Quotes like this make me wonder if Jeff realizes there are people who work a lot of hours and, thanks go gig-work, aren’t even paid minimum wage but need to feed and shelter their families. Somehow, I’m pretty sure the man who made sure never to rub elbows in first-class doesn’t much care.

An industrial psychologist once taught me that trust requires competence, honestly, reliability, and caring. Immelt flunks on all four and GE’s failure was, in hindsight, entirely predictable.

If you’re feeling masochistic, here’s a link to Immelt’s book “Hot Seat: Hard-win Lessons in Challenging Times.”

If you want a better idea of what happened, here’s a link to the far better “Lights Out: Pride, Delusion, and the Fall of General Electric” by Thomas Gryta and Ted Mann.

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