Difference between inventing a physical product and a web application

[Steve Scheffler]

What are the differences in bringing your idea to life if it's a physical product vs. an online one, like a web application?

What are some different issues a man with a million dollar web application/software idea has to deal with vs. a man with a million dollar idea for a physical product?

I'd love to hear everyone's input

[JohnGalt]

One of the biggest differences is that developers of web applications need to be very conscious of piracy. Almost everything that is uploaded to the web can and will be pirated if it is worthwhile to hack. The barriers to competitor entry are also usually much lower than those in the physical product arena. Watch out for copycats, people who try to purchase then resell or distribute your product, and people who purchase your product then demand a refund (it is difficult to ensure that a user is not continuing to use a "returned" product unless this functionality is built into the program).

Best of luck

[Steve Scheffler]

One of the biggest differences is that developers of web applications need to be very conscious of piracy. Almost everything that is uploaded to the web can and will be pirated if it is worthwhile to hack. The barriers to competitor entry are also usually much lower than those in the physical product arena. Watch out for copycats, people who try to purchase then resell or distribute your product, and people who purchase your product then demand a refund (it is difficult to ensure that a user is not continuing to use a "returned" product unless this functionality is built into the program).

Best of luck

Hey, love your screen-name!

So here's a follow-up question dealing with what I am personally looking to do. I have a web application/site idea that I wish to bring to life. Upon researching the business side of it I am very confident it will be a money maker. I guess you could say it is an invention idea much like a physical product would be. What I want to know is how similar the process is for an inventor of a web app is vs. that of a physical product in bringing their invention to the market.

For example, lets say you come up with an invention of a physical product and you have no money to bring the idea to life. Your options are to have a prototype developed, approach companies who could develop it for you, establish a mutually satisfactory value and compensation basis for the invention (for example you as the inventor giving this company the right to sell your invention and you receiving royalties). Now could a similar process be replicated for someone with an idea for a web app? I am just a man with a good profitable idea, so like an inventor of a physical product in the same situation as me, could I approach web development companies, have them sign a non-disclosure agreement, reveal my idea, and once they are convinced this idea is a winner financially have them develop it for me in exchange for like equity in my company or some other form of compensation?

[veikoh]

The biggest difference is cost to produce and prospective return. With Internet everything shouldbe free so you will rely on advertising revenues which has been decreased a lot past decade. If something is difficult to patent and easy to replicate, that's where the piracy is coming in.
Intellectual properties like software, music, etc does not make money anymore in current stage of society, so better stick with physical product if you need something physical like food for your life.

[akula]

What are the differences in bringing your idea to life if it's a physical product vs. an online one, like a web application?

What are some different issues a man with a million dollar web application/software idea has to deal with vs. a man with a million dollar idea for a physical product?

I'd love to hear everyone's input

there are no differences
it's all the same
the startup process is identical

[Steve Scheffler]

there are no differences
it's all the same
the startup process is identical

Alright so then lets say I do get a web development firm to develop my web app idea, they developed it in exchange for equity because they think this is such a great idea, we launch it and the site takes off and is generating great revenue. How do I approach venture capitalists for funding (I will need office space, servers, programmers to maintain the site, etc. to keep up with the expanding demand/growth of my company) and ask for funding? From what I understand the first thing they ask is "what does your management team look like?". I have heard that no matter how great the idea and how well it might be going, they won't invest any money if they're not confident in the management team. The challenge I face is that on paper I am not anything special and I could not make a respectable case for receiving millions in funding on the grounds that I am this great experienced manager.

Does this mean that before I can think about approaching VC's I have to get my site to generate enough revenue for me to be able to recruit and pay for a good management team? And after i have done so only then I can go to the VC's?

[akula]

Alright so then lets say I do get a web development firm to develop my web app idea, they developed it in exchange for equity because they think this is such a great idea, we launch it and the site takes off and is generating great revenue. How do I approach venture capitalists for funding (I will need office space, servers, programmers to maintain the site, etc. to keep up with the expanding demand/growth of my company) and ask for funding? From what I understand the first thing they ask is "what does your management team look like?". I have heard that no matter how great the idea and how well it might be going, they won't invest any money if they're not confident in the management team. The challenge I face is that on paper I am not anything special and I could not make a respectable case for receiving millions in funding on the grounds that I am this great experienced manager.

Does this mean that before I can think about approaching VC's I have to get my site to generate enough revenue for me to be able to recruit and pay for a good management team? And after i have done so only then I can go to the VC's?

How do I approach venture capitalists for funding (I will need office space, servers, programmers to maintain the site, etc. to keep up with the expanding demand/growth of my company) and ask for funding?

Let me answer your question by describing exactly what venture finance is and what it does.
Venture is foremost a form of expansion finance (as opposed to seed capital). Venture fund managers buy shares in companies which are either about to be acquired, or those which are about to IPO. That's the bread and butter of the business. For a vc, the best possible deal that they can ever make (i.e. a home run) is to invest in a firm that gets acquired six months down the track. no one wants to invest in a startup and then wait 3 years for an exit. The longer an investor has to wait, the more their rate of returns gets diluted.

Now, startups get acquired for one of three reasons: the acquirer wants the talent, or they want the technology or they want the customers. This is why vc's invest in firms who either have exceptional talent, or those who have exceptional technolonology, or those with an existing base of customers. Things like office space etc don't matter. What matters is whether the startup has one (or more) of the three things I mentioned).

Does this mean that before I can think about approaching VC's I have to get my site to generate enough revenue for me to be able to recruit and pay for a good management team? And after i have done so only then I can go to the VC's?

In your case;

do you have some sort of a special inimitable technology? probably not.
do you have talent that an acquirer like google would want on their payroll? probably not.
therefore, in order to raise venture finance, you need to show traction or show exclusive access to a large number of customers.

and..that's all. that's what your challenge is.
you can either go and buy some sort of a special technology,
recruit some sort of a special person,
or build up your business and show traction.
If you can do one of these things, it'll be a step forward to meeting requirements for closing a series A vc round.

[Steve Scheffler]

Great advice akula!