The Value of an Idea

What is an idea worth? I am frequently approached by friends and acquaintances with ideas for software applications. Typically, the individual believes that the idea will generate huge revenue, and they will graciously share a portion of the profit with me for my time developing the software. In no instance does the individual suggest that they will help do the development, that’s what they need me for. Furthermore, they do not have the finances to hire a developer, so their hope is that I will invest my ‘sweat equity’ into their dream project.

There are a variety of problems with this proposal. First and foremost, I have bills to pay. As such, I can’t drop paying customers for hope a future payout. Furthermore, these projects typically involve niche markets with a limited number of customers. As such, it is necessary to examine a variety of factors to determine if such an idea really has any value.

To determine that value, you must first determine an estimate of all costs involved in producing the software application. This will include development time as well as a variety of other costs. For example, licenses involved for development, deployment servers, cloud hosting costs, costs to manage the services, etc. Then, costs to market or distribute the application must be considered as well, such as the cost to Apple or Google to distribute on their mobile platforms.

After the sum of all costs is determined, the individual must make a conservative estimate of the number of units sold as well as the anticipated price point. Once that is accomplished, the profit can be determined. Multiply the unit price times the number of units sold and subtract all costs. Once that value is determined, you can have an estimate of the value of a given idea. Sadly, in many instances, that value is well below $0. Thus, many projects are simply not worth the effort because they have no return on investment.

For the developer, it is rarely useful to develop an application based on the future hope of a payout. If you do, you will very likely end up on the losing side of the equation. For the prospective client, if you feel strongly that your idea is profitable, develop a business plan. Then, convince investors of the return on investment they can hope to achieve. Once you have investors, you can then go to a development firm with a far more profitable scenario – pay for the services you want and forget about the free app development.