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What are the practical steps for monetizing a web service?

49 points by AgathaTheWitch ↗ HN
I've been working on a library for a while and I've come up with a way to monetize it by making a web frontend for it. With a bit of marketing I think it could make some money (not a lot, maybe ~$10,000 a year given my sense of the rather niche market) I want to know what are the practical steps you take with this sort of business.

Do I have to form a company? Should I be patenting and trademarking logos and stuff? If I just make a website and start taking payments, what are the tax and legal implications? My library is Apache v2 licensed but I imagine the frontend / service would be proprietary. I heard I should consider switching the library to MIT.

I am planning to move abroad in a few months so I don't really want to start a company in the United States. I've just never created a paid service before so I'm really naive about how to go about it. If anyone has experience here or a good link, I'd appreciate it.

27 comments

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greywood
You're worrying about all the wrong things.

Chances are that this idea will go absolutely nowhere (as most ideas do), and as you're new to this you're prone to vastly overestimating the probability of success and estimated returns.

My advice is to relax, and focus on learning what you're doing instead of focusing on "monetizing a web service".

If you want immediate practical direction, set yourself up with a Stripe merchant account (and whatever is necessary for that), and start selling. If you can't get past this, everything else is a waste of time.

AgathaTheWitch
Thanks for the advice. I think I'm going to hold off on actually making a service and consider doing something like Kickstarter. I want to see if I can get some funds to put together a better product and get a sense of the market / interest level.

Are there any protective steps I should take before doing that? I mean stuff like licenses / patents / trademarks / company formation etc.

ascendantlogic
Even before a kickstarter, you could set up a landing page detailing the features of a future product using the library and offer a beta signup. Nice way to gauge interest before even involving other people's money.
jt2190
One reason you incorporate or patent or trademark is to protect your capital (money) from taxes and lawsuits. If I understand you correctly, you currently have very little capital to protect. Once you've accumulated enough capital that it'd be painful to loose it, it's time to start thinking of protecting it with patents, trademarks, incorporation, etc. For now, just have fun.
mnarayan01
1. The OP gives no indication (AFAICT) that he is judgement proof as an individual. Incorporation to avoid liability is thus plausible, though obviously he would have to balance the likelihood of his getting sued against the hassle of incorporating. Additionally, as a non-lawyer, I'm not sure it would be a good idea to try incorporating _after_ gaining assets from the venture: it seems like a recipe for trouble if he had to go to court.

2. Holding off on a trademark would be fine, though finding a unique name _should_ (IMHO) be done at the start, and at that point I'm not seeing a big reason not to trademark.

3. The stuff on patents makes no sense (at least to me) in this context.

That said, I claim no particular expertise on this topic.

Silhouette
If I understand you correctly, you currently have very little capital to protect.

On the contrary. If the OP goes into business without any sort of company as a legal shield and anything goes wrong resulting in legal action against them, then typically everything they personally own may be at risk: house, car, savings for the kids when they go to university, the lot.

jt2190 

  > ... and anything goes wrong resulting in legal action 
  > against them...
Such as?

Without properly weighing the risk of a lawsuit, there's no way that we can conclude whether the risk is reasonable.

So, who might be out to sue you? To summarize an article from nolo.com [1]:

   * An employee
   * A landlord
   * A supplier
   * A customer
To mitigate these risks:

   * Don't hire anyone
   * Don't lease an office
   * Don't buy goods on credit. Buy high quality goods when
     you can't afford to have a problem with them.
   * Have an "as is" end-user license agreement. Be very 
     cautious about making service quality guarantees. 
     Don't sell software that can cause damage or personal
     injury.
If you have to do any of the above, it's time to incorporate. (For another take on when it's time to incorporate, read "The When to Incorporate Decision-Matrix" by Ryan Roberts, J.D. [2])

[1] http://www.nolo.com/legal-encyclopedia/liability-concerns-so... [2] http://startuplawyer.com/incorporation/the-when-to-incorpora...

(edit: And a nice quote from HN favorite patio11:

  > Incorporation?  Incorporate when you have a good 
  > reason to. (I still don’t, but I might do it after I 
  > go full-time, largely for purposes of dealing with 
  > Immigration.)  If you’re selling B2C software, your 
  > number one defense against getting sued is promptly 
  > refunding any customer who complains, and that pretty 
  > decisively moots the LLC’s (oft-exaggerated) ability to
  > limit your personal liability.  You’ll be personally 
  > liable for debts from the business, but since the 
  > business is fundable out of your personal petty cash 
  > that isn’t the worst thing in the world.  If sales 
  > collapsed tomorrow I’d be on the hook for my credit 
  > card bill, which runs about $1,200 a month — not a 
  > financial catastrophe for an employed professional, 
  > particularly when the business generates far more 
  > than that in profits well in advance of the bill 
  > being due.  Sole proprietorship — i.e. merely 
  > declaring “I have a business” — is the most common 
  > form of business organization, by far.
)
Silhouette
You've changed your position fundamentally, from saying you have nothing to lose to saying that even if you have something to lose you aren't at much risk of actually losing it.

That may well be true, but for a trade-off of risking everything I own in this world vs. an hour with an accountant/lawyer who actually knows what they're talking about, it's a pretty easy decision.

Also, there are other reasons to consider setting up a formal business entity besides a possible legal shield. You may not be able to access various financial services as a private individual. It may have tax advantages. Simply keeping your personal and business finances separate from day one may save more time and money when it comes to doing your accounts than it cost to set up.

Again, I'm not saying these would necessarily be the case for the OP here. I'm just saying that based only on what we've been told here, no-one in this forum is likely to be in a position to give reliable advice, while a qualified professional who can ask the right questions in their own field of expertise and in the relevant jurisdiction could.

jt2190 

  > You've changed your position fundamentally, from saying 
  > you have nothing to lose...
I specifically used the words "if I understand you correctly" as an invitation to the author to share more information, and to signal to the reader that I was making an assumption about his financial position, i.e. I assume he has very little capital. My exact words:

  > If I understand you correctly, you currently have very 
  > little capital to protect.
Which you've now twisted into:

  > ...you have nothing to lose...
Notice the change in meaning?
idlewords
Wait until you earn $2000, and then talk to an accountant, who will explain the tax stuff. Forget about patents and trademarks. Good luck!
pseudometa
Agreed. Be sure in the meantime to set asside 30% of any money you take in and keep it for when taxes are due. Once you register as a business, you'll get various tax advantages, but for starting out while you test an idea, keep it simple.
kaoD
Wait.

Are you telling me that, wherever you're based (I assume the US) you can just wait until you earn $2000 and then start worrying about taxes?

chiph
No, until that point you're not sure if you have a business service that people are willing to pay for.

And that dollar amount - you'd just pay ordinary income on it -- because it's not worth the hassle of setting up a business structure. So set aside some money from your sales to pay the taxman.

ygjb
This is terrible advice. What if he invests $28,000 then earns $2,000, then talks to his accountant and finds out that if he had filled in some paper work that $28,000 could be a tax deduction?

Talk to an accountant, or at least find the local equivalent of a small business service center in your area. Small businesses are the backbone of the economy and most major cities and states or provinces (depending on country) have folks you can contact to get basic guidance in this area.

bprieto
Mostly. In most countries that I know of, either there is a limit under which you don't have to pay taxes or don't have to register a business. Perhaps your country taxes that kind of income as personal income.

And in the worst case you only risk a small fine, as the amount is small.

Much more probable is that you don't sell anything or have only a small amount of sales that no one cares about, so first check that you have a business and not a dream.

AgathaTheWitch
Thanks a lot for the advice everyone, I feel a little less overwhelmed now.
PaulHoule
It is not at all hard to set up a payment system with something like Amazon Payments, Stripe, Square, PayPal, Balanced Payments and such and charge people for access to an API.

Do that and worry about the rest once you have enough money.

dmarlow
You should wait on the company/patents/trademark stuff. Heck, you can even wait on making a web frontend for it. Something I've learned is to get a good idea from the community about who is actually interested in the idea/service. Create a landing page to collect signups and register in the countless sites to get interest. Then, you'll know whether or not to build it.
oafitupa
Just use Bitcoin. If you don't know how to, then just use BitPay, which today has announced a free forever plan, so it's a no-brainer.
psykovsky
Man, people are really butthurt with bitcoin around here. You gave him the best answer of all and all you got was downvotes and a sympathy comment from me... ;)
uptown
From a practical standpoint (which is literally what he asked for), using a bitcoin as the sole method of payment is likely to artificially limit your potential customer-base. Bitcoin isn't widespread enough where most consumers can be expected to utilize them for payment. You may create a phenomenal web service, only to see it fail because people can't figure out how to pay for its use.
digitalboss
Also, you can try http://quickmvp.com to gauge interest, etc.
lukebennett
Not seen that before, looks useful, thanks for the heads up - however, no info on pricing anywhere so not something I'd consider using myself as things stand. Who signs up to services without knowing in advance what commitment is going to be required to continue using it? I really don't understand businesses that operate like that.
Silhouette
Sorry, but the advice in this thread to just get going without even learning about little things like taxes and record-keeping and incorporation is crazy.

Sure, on average a start-up will fail. However, if either it does work out or it fails because you screwed up and someone came after you, and you didn't get a few basics in place up-front, then you are up the creek without a paddle and may not be able to salvage the situation after the fact.

It will probably take no more than a quick chat with an accountant to figure out the minimum you need to do to comply with your local tax laws and whether it's worth setting up some sort of company at this stage. The total spend required to do that in my country, including both the accountant's advice and the legal fees to register a new company and get the proper documents created, is less than a day's salary. This does vary significantly by country, but again a local expert can advise you because they do this all the time.

Likewise, if you're potentially bringing in thousands of bucks per year, spending a couple of hundred to get a real lawyer to look over your terms and answer any general questions about licensing things you really need to know right now is probably money well spent.

None of this is to say that you won't decide to just set up a site and start charging anyway, assuming you can find a payment service available in your location that will let you take payments as a private individual of course. Maybe that really is the right path for you at this stage (though at least if you were in the same position in my country, IMHO that would be unlikely).

But seriously, any accountant and lawyer used to working with small businesses will understand the situation you're in and be able to give you some basic advice about what you really do and don't need to worry about right now, and it will cost you a few hours and a day or two of salary, and even if things don't work out this time you'll still have the useful background knowledge if you decide to do anything else commercial later.

You should concentrate on making what you make and marketing it so you have a business that is worth having in the first place, but part of running a business professionally is knowing how to deal with the administration and keep the overheads in proportion, and it's much easier to do that if you just get something basic but sufficient set up from the start.

chatmasta
The advice in this thread to "wait to form a company" is just flat out wrong. Form an LLC immediately. Use it to open a bank account, and use that to open a credit card. Use those accounts for every single thing you spend money on relating to this business.

Even if the project goes nowhere, you can use this account for other side projects you want to make money.

Accepting any money from anybody to your personal account is just stupid, and will make for a huge nightmare when you want to transition to being a huge business or paying taxes.