I’ve got this great software idea that could be a major success, and I’m pitching it to a development company next week. If everything goes to plan, I’m going to work as an employee of the company on the development team and they’re going to provide all the coders and servers we’ll need to go to market. I’ll be providing the ‘intellect’ required to guide the design and pitch it to customers.
The question I have, though, is how should I ask to be compensated. I’ve never worked in the development side of the house, but I have worked in the customer side. Essentially, my choices boil down to drawing a salary, asking for a royalty from sales, or most likely a mixture of the two. So assuming they love my idea and drool over the opportunity to get started, what should I ask for? What’s the industry standard? If you tell me it’s none, I might as well keep the idea in my back pocket until I can hire my own guys and sell it myself.
I’m pretty much in the dark here, so any commentary/advice about compensation is helpful. But if you feel like telling me that my idea can’t possibly work, I refer to you back to the “assuming” line above.
There is no standard. The ideal is to get a piece of the parent company and then have your product turn it into a megabillionbuck success. Since you are assuming, you might as well assume that.
You also forgot another assumption, that they don’t just take your idea and cut you out.
Seriously, without some better description of the software there’s no way to give you an idea what you can do with it. Do you have something patentable? Is it the software that’s the value, or is it the data it makes available, or is it the service? How long will this take to develop, what resources will this company have to invest in the development, and how much of that development effort will you be providing? If this becomes your new job then how much money do you have to make?
There’s a pretty simple rule to consider: The rewards go to those who take the risks.
I don’t know much about the IT world, but in the private equity and real estate worlds, it is common for the guy doing the work to get 20% of the profit after the money guy gets his money back plus some return (eg, 9%). It would be a good idea to talk to a lawyer.
My business partner has talked me out of presenting this idea on Tuesday. We’ve decided to wait until we have some sort of prototype. If we go that far and present the crude website we’ve built, do you think that would give us sufficient heft to 1) ask for a huge chunk of money, and 2) protect our stake in the project?
Secondly, any advice on which programming language we should use? Besides maintaining profiles, users would have to maintain something akin to a bank account and buy/sell things to each other. And as with all social media, there will be a message board-type section.
I think being an employee and drawing a salary shouldn’t even be considered. There’s nothing stopping them from sacking you after the thing is entirely built. You said you’d be pitching the thing to clients though, so you’d be paid to be a salesperson at that point. From your perspective then you’d be getting paid to be a salesperson and not for your idea. From their point of view, maybe they can get a salesperson for less money. Lose-lose.
Royaties sound fine as long as it’s not a small percentage, and all the bases are covered such as if the product is sold to another company you get a percentage of that too. As others have said I’d talk to a lawyer for sure if I went that route.
But…
Servers can be had for around $110/month. And that’s for physically dedicated servers. During development there’s probably not even a need for a whole server, so until the thing is actually rolled out we’re not talking about a lot of money for hardware. Next to nothing.
If you’re willing to tolerate a few hiccups along the way you can get the site development done for a few thousand bucks. Yes it’s true I don’t know everything that has to be on the site. But social networking sites have been done before and buying/selling stuff has been done before so I wouldn’t be surprised if the majority of the work was a copy/paste job and slapping a new wrapper on it.
So if it were me I’d just use my own money and do it. Even if I had to hire a project manager to handle the stuff. If you partner up with somebody, and they’re not bringing something to the table that you can’t get, then it’s just money down the drain.
The problem with that is I have zero idea how to program and host a website of this scale. I can throw up a cheap little html site like anyone can, but I have next to no idea what I’m doing. That’s why I either need my partner or the company to help me. I bring the “what” but someone needs to give me the “how.”
If it wasn’t a big secret I’d say throw up a bid request (protected with an NDA) on vWorker or elance just explaining what you need the site to do and wait for the bids to roll in.
I can understand you not wanting to trust random folks worldwide though, so how about this:
Hire someone (on a 1099 basis) to help you, to give you the “how”, to do everything. With the way the economy supposedly is I’m quite sure there’s a jack-of-all-things-internet out there who would be dying to work from home doing all that is necessary for $3-4k a month. If you don’t want to rely on one guy, a small actual development company might not charge much more than 10-15k. Who knows.
It’s an idea. I just don’t see why you are so eager to give up the decisionmaking power and a substantial portion of the future profits when all you need is someone to build a professional site for you. But there is the hassle factor. That I can understand.
A prototype is basically the bare minimum to get a pitch accepted – at least in the corners of the tech industry that I know. The “impressive” stuff to the suits is usually the crap tech guys don’t want to be doing like presenting demographic data, what makes your idea better and more appealing to your target demographics than potential competitors, a rough budget or calendar (assuming ideal staffing and few major mishaps) etc.
I think you misunderstand. Say a company invests 10k into the project. After you make enough money to cover costs (pay employees etc), the first 10k+9%*10k dollars go to the company, then for any money after that mark, 80% goes to the company and 20% goes to you.
From what you’ve written it seems this idea would be an ongoing business. So you need to have a contract with them that specifies, among other things, your percentage of profits. Without that you have nothing. You need a lawyer who has experience in this kind of transaction before you make any contact with them.
If you pitch them the idea and they like it, but they don’t like you, there’s nothing to stop them from taking your idea and implementing it themselves, in house with their own developers.
So I ask you, why can’t you start this business by yourself? What resources do you lack?
You’re not pitching an idea. You’re pitching yourself as the implementer of an idea.
There are two ways this can happen:
They hire you as an employee and pay you a salary. Maybe you get a bonus if the product does well. In that case you should approach this meeting like you would any job interview.
They give you money to assemble the people and resources needed to do the project. There’s a contract specifying who owns the resulting product (almost certainly them) and how you split revenue (probably something like 80% for them, and 20% for you, after you pay back the money they advanced you).
The idea by itself is largely worthless. The idea is merely something you use to convince them that YOU are someone worth hiring/investing in.
This. The stuff you’re describing, the prototype and the business plan, are things that my company has to do for free just to get a shot at winning a contract. The code has a little bit of value, but you won’t be writing that. Customers have a lot of value, but it’s not clear if you’re actually bringing any customers to the table. If you have contacts within the industry and think you can actually close sales, then I’d pitch your roll as a salesman and work on commission. If you don’t, then your best bet is to get paid early, and that means coming on as an employee.
I lack a good developer. I lack the ability to build my own website. I could hire one, but then I lack the funds to pay them. Finally, I lack the business reputation to sell it to clients.