Seriously, Startups Shouldn’t Give it Away for Free

startups freeSummary: It makes little sense for startups to give away their products for free. If a product has value, people should for pay for it.

I was talking with a client recently about whether they should introduce a free version of their product to drive more users into the sales funnel. After throwing around some ideas, we decided it wasn’t a good or viable option, mostly because we didn’t think enough free users would migrate to the premium service.

It was an intriguing conversation given free is used so often by startups looking to attract users. Many of these startups don’t even have paid services, which makes them more projects (and please, please won’t someone, anyone acquire us!) than businesses.

To be honest, I’m not a big fan of startups using free.

Fundamentally, I believe that if you a product is any good and offers some value, consumers should pay for it – whether it’s a one-time shot or a monthly subscription. When a startup embraces free, it suggests they’re afraid their product doesn’t have enough value or their product isn’t good enough compared with the competition.

And freemium isn’t much better. Aside from companies such as Freshbooks and Dropbox, freemium is like dipping your toe in the water as opposed to jumping in with both feet.

Earlier this week, Josh Cohen had an excellent post looking at the “foibles of freemium”, and how it can be an expensive marketing proposition. Here’s how his thesis kicks off:

“[Freemium] can work wonderfully of course, but usually it crushes and destroys companies, not only because it costs more than anticipated but because the founders didn’t realize the business model itself caused them to make incorrect decisions.”

In many respects, freemium (and free) give startups false hope.

By offering people a free option, startups believe a wave of consumers will magically materialize, and that many of these freeloaders (5%, 10%, 15%??) will eventually be compelled to upgrade to the paid version. Of course, this is a dream given the low conversion rates – usually 1% to 2%.

Instead, startups should sell their products. If they want to offer a 14 or 30-day free trial, that’s great but, at some point, consumers need to pay or stop using the service.

tempo iphone startupAnother reason I’ve been thinking about free recently has to do with Tempo, a smart calendar app for the iPhone. Simply put, I love using Tempo. It’s an intuitive, useful calendar that comes with features that make sense.

But here’s the thing: Tempo is free but I’d happily pay for it. Whether it was $5 for a download or $2/month, Tempo has more than enough value for me to cough up some of my hard-earned dollars.

I’m not sure about Tempo’s business plan or revenue model but it’s a perfect example of a startup that shouldn’t be afraid to charge. Yes, I know free is prevalent within the iOS world but not everyone has to give it away for nothing.

Given my approach toward free, it shouldn’t be surprising that I have started to buy more online products.

It’s not because I’m feeling particularly generous or feel that supporting startups financially is the right thing to do. It has more to do with the belief that good products are worth something and, as a result, paying for them should feel right because it’s a win-win proposition.

It could be that free and freemium are permanent parts of the digital landscape because consumer behaviour has been hard-coded. But it should not stop startups from embracing a pay-to-play approach.

If you charge for your product, what’s the worse that can happen? Not enough people may not buy it, which suggests your product isn’t valuable or good enough. If that’s the case, you can give it away for free or decide that maybe you’d be better off doing something else.

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Five Must-Haves for Startup Salespeople

salesIn a recent blog post, I talked about how marketing and sales are pretty much the same thing for a startup given the resources and responsibilities. It got me thinking about the best characteristics for a startup salesperson. Here is what I think they need to bring to the table:

1. The willingness to work for a small, non-established company. It sounds straightforward but salespeople like selling, but working for a startup can mean trying to push a small rock up a big hill – without the compensation and perks. A salesperson needs to be excited about a startup’s ability to resonate with customers may have not know the product exists.

2. The ability to multi-task. In a startup, salespeople need to do a lot more than just sell. They have to do business development, marketing, customer service and administrative duties.  In a sense, all of the above involves selling but in a different and indirect way. While salespeople like to be out there selling, working for a startup has to be a lot more.

3. Good listening skills. The products sold by startups are created to solve a problem but it doesn’t mean customers know they need or want them. It means salespeople have to listen as much as they speak, which can be a challenge. It means taking a soft sell approach in which a salesperson learns what a customer needs rather than what a salespeople wants to sell them.

4. Embrace the idea of being product developers. The one thing salespeople do is talk with potential and existing customers on a regular basis. As a result, they can get a good understanding of the problems or needs faced by potential customers, the products or features they would like to see, their budgets and the competition.

5. Be team players rather than lone wolves. While salespeople need to be out talking to potential customers, they also have to understand the different parts of the company, and be willing to get involved in other parts of the business. They need to have a willingness to accept recommendations and ideas from other people and, at the same time, be willing to bring their ideas and feedback to the table.

Links: Ben Horowitz on how to hire great salespeople, and Amrita Chandra on the six must-have traits for a startup marketer.

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This Week in Canadian Startups (April 13, 2013)

This WeekIn the latest edition of “This Week in Canadian Startups”, things kick off with iNovia Capital’s Chris Arsenault on how the Canadian VC landscape has new energy.

The newsletter also highlights 50 free services for startups, Kik surpassing 50 million users, six ways for startups to establish trust, and Espresso Capital raising $35-million.

Here’s where you can subscribe to the newsletter, which is published every Saturday morning.

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Six Ways Startups Can Build Trust

trustIn thinking about how my startup marketing business has grown over the past four years, one of the most important elements has been trust. It has been the best way that I’ve been able to get people say “Yes, I want to work with you”.

For startups, trust needs to rank as high as the value of their product. There are plenty of startups offering similar products so it is crucial to differentiate from the pack in some way – trust being one of them.

So how do startups make customers trust them so attract and retain business? What does it take to convince people to trust you’re committed to meeting their needs in a win-win way?

In many respects, it comes down to being transparent, honest and accessible. Consumers want to feel a connection with a business. It doesn’t have to be fawning loyalty but consumers have to feel something for your brand that they don’t for others.

Here are a few ways for startups to establish trust:

1. Be clear about what you do and how your product serves their needs. Startups that make it easy for consumers to quickly and easily grasp what they do and the key benefits can begin to establish a relationship on the right foot. By not being clear about what in it for the consumer your product, it’s difficult to get things headed in the right direction.

2. Be open about who is behind the curtain. Startups are created and operated by people, who sell products to people. A pet peeve is reading a startup’s “About” page that doesn’t tell me the people involved with the business. It makes me think “What are they trying to hide? How come there’s no information about the founders or management?”. If a customer is going to trust you, it helps if you’re not trying to be the Wizard of Oz. Instead, provide some information about you and your story.

3. Tell me where you live? Tell me where your business is located or, at the very least, a telephone number. A Website that only has a contact form is do much for building trust. There isn’t a lot to be said for being mysterious or stealth-like, especially if you’re asking people to pay for a product.

4. Make your pricing easy to understand. Be clear about how much someone gets for what price, particularly if you’re offering different types of services (e.g. bronze, silver, gold). Create an easy to understand graphic that spells how each tier is different, and why buying silver is better option for my needs, compared with bronze. And if you’re asking for a credit card before someone decides to make a purchase, make sure it’s for a really good reason.

5. If your product or service fails to perform, own up to it. Don’t try to blame it on another supplier, dismiss it as a minor issue or, worse, ignore it. If you screw up, admit it, apologize and make it right. It doesn’t mean giving away free service but you’ll earn a lot of trust by being honest.

6. Don’t ask for too much information. When kicking off a relationship, it can be strange when one side wants a lot of personal details. In time, I may disclose this information to make the relationship stronger but trying to get it out of me from the get-go is creepy.

At the end of the day, it is difficult to startups to stand out. If customers trust you, it can be a great way to keep them around for a long time and turn them into evangelists.

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Listening to Your Startup Customers is Dangerous

Customers are wonderful, particularly if they pay for your products. But listening them can be dangerous.

Dangerous? Huh?

Sure, they provide valuable feedback, advice and criticism but the stuff customers tell you can be distracting, unfocused, self-serving and a waste of time.

The problem is the disconnect between what your product and what customers want. You make a product that has particular benefits and features; customers use the product to meet a need or solve a problem…but they usually want it to do even more.

In fact, the biggest challenge is customers are never truly satisfied or completely happy. No matter how good the product, pricing or customer service, customers believe it would be even better if it did something better or differently.

It means that when they tell you about your product, they want to talk about the existing product but, as important, they love to talk about what they would like to see.

The challenge for startups is knowing when to nod politely, while being able to ignore what they say. In many cases, their enthusiasm and interest is appreciated but it offers no value because it’s not aligned with your vision or road map.

Startups get themselves in trouble when they listen to what a customer tells them, and then reload on product development because the suggestions seem relatively minor, and it’s a way to make a customer happy.

The problem is trying to make your customers happy to a losing proposition. You can’t please everyone, and you can’t meet the needs of all your customers, otherwise you’ll end up with pig of a product that is bloated with features.

At the end of the day, happiness comes from making a product with a specific vision and mission. It doesn’t have to be all things to all people. But it will be successful if it meets the needs of different customers in different ways to provide value and utility.

So how should startups handle what customers say?

The best approach is active, enthusiastic and engaged listening. Truth be told, customers like to tell you what they think. It makes them feel better about using your product because there is engagement.

All the feedback, however, should go into a big pot where it should it should sit for a while before seeing the light of day. At some point, the pot should be sifted through to see if there is any value. Most of it will be useful but some of it will jump out because it fits with how the product should or could evolve.

This can be a difficult process because too much feedback can be overwhelming. In time, however, startups can develop finely tuned tools that make it easier to identify the “safe” information, while ignoring the dangerous or useful stuff.

This Week in Canadian Startups (April 7, 2013)

This WeekThe latest edition of “This Week in Startups” kicks off with raising $5-million and hiring a new CEO, Rebecca McKillican, to replace Ali Asaria.

Some of the most popular items (based on the number of clicks so far) include Amitra Chandra’s post on 50 startup marketers to watch, the 11 reasons why startups succeed, an infographic on what interests VCs, and a MaRS panel on the do’s and don’ts of pitching the media.

Here’s where you can subscribe to the newsletter, which is published every Saturday morning.

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