How to answer "What kind of protection do you have"

Every time I do a pitch for any software idea I'm asked "What kind of protection do you have?" and it always stumps me. I've asked others and they don't have a good idea either.

As a start up before you have any clout, in Europe where there are no software patents. How can you answer this question? What kinds of protection are there?

I went through this with my current software business, in fact I got the question during a pitch on nation-wide TV. This was especially funny because the investor who asked it turned me down in a previous hardware business which had five patents.

As you can imagine, I have replayed that moment over and over in my mind trying to come up with a better answer. I haven't been able to come up with one.

I think this question says something about the investor rather than about your business. Many investors like intellectual property - typically patents (often because if they invest in your business and you screw up they can take the patents and resell them to get part of their money back). Yes, you can also have other types of protection, like trade secrets in your software, and secrets by definition are hard to impress people with ('look what we do that I can't tell you about'). Yes, you also have copyright, and that's not worth much, unless someone is stupid enough to pull the exact lines of code. So the question typically comes back to patents.

The short answer is that by their very nature, software businesses are about getting strong product-market fit (demonstrated through traction) followed by rapid execution to build your position/brand before competitors show up. This is a different business model than patent-driven hardware, cleantech or medtech businesses.

If the investor is asking this question they are almost holding up a sign that says "I don't normally invest in software businesses and I don't understand what is important in them". Give a respectful answer, such as "our business doesn't lend itself well to patents: we do have IP transfer from all employees, we keep our source code secure from hackers like this, and the most complex part of the software is this and would be hard to replicate ... the legal advice we have got is that this isn't patentable".

Next time, answer Condoms! As the question is presented, it is meaningless because it doesn't have a grammatical subject. As I see it, that leaves the following options:

• The person asking the question was referring to the previous subject you two were debating. I.e. if you two very just talking about DMCA copyright takedown notices, then the question was "Which protection do you have against DMCA issues?".
• You were asked some kind of shorthand for "which unfair competitive advantage do you have?" Competitive advantage is a classic in pitching, so maybe that's what they're asking you about.
• They intentionally wanted to stump you, to see how you react when you're thrown off guard. Some people think mindtricks like that lead to good insights about character.

The obvious response would be "Protection, from what?".

I was once asked a similar question, albeit it in a different way: "What stops us from building this (our software product offering) ourselves?", the answer came:

Your core business is X, ours is building this product, so you /shouldn't/ be attempting to build this, but additionally:

1) We're already 9 months ahead of you.
2) If you could build this, you already would have.
3) If you do pull your software team out to make this, could we please put in a bid for the contract IT provider you'll be needing to cover their day job workload.

We got the contract.

What did I just describe?

1) Speed to market (vs. competition): "First mover" carries some advantages, "second mover with a twist" even more so.

2) Expertise/Knowledge: If your product and/or team are excellent, it takes a lot to beat this.

Precursor and 3) Focus, combined with 1) and 2) makes you very powerful.

These things can be considered some form of protection in themselves - but only if you have a strategy on staying ahead, and adding in other securities where possible.

It often means What protects your company from competitors and big ones?

What is the barrier for competitors to enter in the very same market, and specially, what are the barriers for big and specialized companies to copy your idea/business model and crush you like an ant?

Usually a good answer is volume and scalability. It does not mean that you need to have any volume at this present moment of time. Instead, you need to show a good plan on how to scale your business and gain (quick as possible) volume. About the big-well-established companies, the answer is that the big ones are very concern with their own business, so at the time they are able to notice you, you will be very big already, and that's the barrier/protection. Other good answers are a pool of loyal consumers, excellent reputation and so on. For all of these barriers / protections the same strategy (above) applies. When your competitors / big companies notice you, you must already have your protection.

@Kamal Hassan has good insight.

The only other aspect of 'protection' I can think of deals with information security. Especially if the investor was questioning regarding Europe, where they have all kinds of rules and regulations around information privacy and safeguards. Google executives get arrested all the time for "violations" of some of these laws.

Since you mention a "software web business" but don't give much more information than that, I would lean towards information security, source code protection, or something along those lines.

Either way, it hints that it's probably a good question from the investor. Either your product isn't ready for that market, or the investor isn't capable of being a valuable resource for your startup.