Along with the more concrete estimates for the cost of development, we were thinking about basic legal work we might need, the state fees for creating a company and incorporating to protect ourselves, as well as the cost of marketing—which many experts claim is the missing piece of the iPhone app dream. At this early stage, we thought “Investors. That’s it, right?”
We spoke to people in our networks and studied print and web sources for standard valuations for products or companies like we imagined ours would be. We looked for information on what investors want and what makes investors want to invest. People told us that to arrive at a valuation, you should consider your assets, how much the idea is worth, and how much money you would be willing to give it up for. At the moment, our only asset was our idea and our sweat equity spent thus far on the research and planning. We had no idea what that was worth to us—$5,000…$100, 000…more? People also told us to think about how much of our company would we be willing to “give away” or “share” with other people—10%, 25%, 49%...more? Around that time, a new t.v. show began about entrepreneurs making pitches for money to a bunch of successful businesspeople. We watched it a few times and each time took away the impression that when the investors were interested in something, they always wanted to have a controlling interest to insure they would make their money back and more. The entrepreneurs would ask for huge amounts of money (give me 1 million dollars, please) and offer a 10% stake in the company at which the investors usually laughed. Our print and web research was leading us to the same conclusions—to get a lot, you have to give a lot. That is just how it works.
Also at this time, a few other factors surfaced.
My youngest brother, an MBA student at the time, said that “showing an investor that a consumer actually wants to buy your idea is key.” He suggested that if we could collect data saying that people would buy our app, we would have a case for investing in our idea. With his help, we developed a market research survey for existing iPhone users that included such specific questions as “Would you pay for this app?”
Once we had our survey ready, we wondered whether both the potential investors and the survey-takers would respond better if they could see screenshots or a prototype of the app. Then we wondered “what if maybe we just use our own savings to fund a prototype and maybe, if we want, we will submit that prototype to the app store and make enough money from that to fund the rest of the development?”
On the developer discussion boards/forums, there was a lot of talk at this time about apps that were rejected for odd reasons and frustration that there were no clear rules for why Apple accepts or rejects apps. Developers were feeling like creating a substantial app was a big risk for an individual or a small company to take. We took this under consideration and it reinforced our plan of the moment—that we should submit a prototype just to make sure it will be accepted before we spend $50,000 of anyone’s money.
So, now we were doing exactly what we had anticipated—“a little of all 3”—maybe seeking investors, maybe spending our savings, and maybe reducing the scope of the app. It was getting to be time to find a developer who could help us get a basic application developed within our budget.
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