Ideas often fail, but it’s cheap to try

Let’s brainstorm on businesses we can start. The key with a brainstorm is to not worry about having good ideas or bad ideas. Just have ideas. Many, many ideas. Don’t be afraid of bad ideas.

For instance, a dating site for smokers only. Bad idea. I set it up about a year ago, smokelove.com , only to have it more or less hijacked by spammers and I gave up.

Here’s another bad idea I had. Horrible idea. I wanted to rip off HotorNot.com (good idea!) so I made SmartOrStupid.com (bad idea!). The idea is everyone who signs up takes an IQ test, then everyone else gets to vote “Smart” or “Stupid” depending on if you think they look intelligent or not. Then, if you like what you see, you can enter in the online dating aspect of the site. Only a few hundred people signed up.

There was zero chance for the site to be successful. But I had to try. Because it’s cheap to try. Use a site such as scriptlance.com , find yourself a good developer from Siberia who will program in C++ and Java for $3 an hour from his igloo and build whatever business you want.

Then I set up Stockpickr.com . Sort of a “MySpace for finance”. People enter in portfolios, we match the portfolio with the other 90,000 on the site (including 800 hedge fund or super-investor portfolios such as Warren Buffett, George Soros, and so forth) and then recommendations are generated. There’s also the usual stuff: forums, blogs and about 20 other features.

This site, as opposed to a dating site for smokers, came out of real love and passion. My business partner and I were trading a strategy where we would piggyback the best hedge fund positions. We diversified not only across stocks and sectors but also across hedge funds: Atticus, Barington, Buffett, Lampert, Icahn, Third Point, Soros and so forth. We even had an offer to trade the strategy with a much larger fund with very significant money but there were several issues: they wanted us to hedge every position, they wanted a 6 per cent cost of capital, and they wanted me to stop all writing and other activities.

So we decided to open up the strategy to everyone and build our MySpace for finance. It’s been a blast. I can’t talk numbers (we were acquired recently by thestreet.com , a public company) but it’s been amazing to see a growing community use something I’ve built. Every new feature has been something we’ve used at some point over the past seven to eight years to generate ideas for our trading and investing.

My goal for any business is to be profitable immediately. This is often a stupid goal and has cost me dearly. For instance, in the mid-1990s I started a business making websites for Fortune 100 companies. We did sites for Time Warner, BMG, Sony, Disney, American Express, Universal, and so forth. We were immediately very profitable. Consequently, when everyone else was being valued at crazy valuations because nobody knew what their final earnings would be (nothing, it turns out in 99 per cent of the cases), we were valued on a multiple of earnings when we ultimately sold the business in 1998. But I can’t help it. Making profits is beautiful.

Ugh. I did it again. I’ve wasted all my space in this column before getting to the point. So let’s spit some out: I think there’s huge opportunity to start a natural search marketing company. There are very few public companies focused on this (Think Partnership is the only pure play) and the opportunity is immense. People are giving Google tens of billions of dollars so that links to their products and companies appear to the right of a search on google.com , where everyone ignores them anyway. But companies are loath to spend money to simply improve their natural search results (that is, where they come up on Google in the unpaid search results). Almost every website I visit can easily make use of nine or 10 techniques that I can eye just by looking at the site in order to improve their results. How much would companies pay to improve those results? A lot, because it’s better use of money.

OK, some more. Let’s auto-fingerprint all videos by the ratio of red over green over blue in each clip. Right now fingerprinting is being done at the production level (put in some extra pixels that are unnoticeable when video is cut). Let’s do it post-production and constantly search video sites for unlicensed uses of the fingerprint.

Another: how about a portal for class action lawsuits? Almost everyone in the country is entitled to money in dozens of class action lawsuits. (Do you smoke? Do you own stocks?) Connect people with the class action lawsuits that fit them. Why is this valuable? A law firm can make thousands per person who is directed towards them. How much would they pay for that name? How about 100,000 of those names?

Who knows if these ideas are any good but every now and then a gem turns up.

james@formulacapital.com