Tag Archives: Freemium

It's not B2B, it's not B2C, the problem is it's G2G

We look at a lot of early-stage mobile and internet companies.

Companies with really cool technology. Companies with really cool technology and lots of users. Companies with really cool technology and lots of users, that are failing. Companies with really cool technology and lots of users, that are failing and almost out of money. Companies with really cool technology and lots of users, that are failing and almost out of money……

because none of their users will pay for their product!  

These entrepreneurs tell us “that’s because we focused on B2C aka. the “consumer market” when we should have been focused on B2B aka the “business market,” or vice versa. or whatever.  On closer examination we find that, besides adopting the Freemicide model, in itself a death-wish, they have unknowingly, or perhaps naively, focused on G2G –  the Geek-to-Geek Market.  Their MLVP (Minimum Less-than-Viable Product), rather than attracting legions from their intended target market, has instead found a flock of interested early-adopters (Geeks) who will put up with almost any kind of roadblock or pothole to try a product.  Many of them become faithful users (while not paying a dime for the service).  Soon growth slows and stops and the founders decide that “if we shift our focus on the {fill in the blank} market, we can charge money (almost always deciding on $9.95 per month) and will most certainly succeed.”  They “pivot,” trying to sell their G2G product in the B2C marketplace, burning precious time and money, and producing dismal results.  The simple truth is that their current product is simply too-geeky for the average user to adopt.

There have been online storage providers since prehistoric times (the mid-90s).  Yet none of them were very successful and most have died a painful death – painful for them and also for their G users.  Along comes Dropbox which, in a very short time, dominates the consumer (and small business) on-line storage business.  Why? Because, while they recognized the value of G users, they also understood that the population of G users is relatively small.  They focused their efforts on a larger market – every web user in the universe – and built their product so that it was simple enough that anyone who could fog a mirror and could log on to the web was able use their service. They beat the odds of their freemium model, garnering a gazillion users, enough of whom wanted the paid version for them to succeed — all because they did not focus on the G2G market.

Moral:  Don’t decide that you are wildly successful because you have x thousands of users.  You might have captured 100% of the (non-paying) G market.  Instead, focus on a much larger market – C and/or B – and make your product sufficiently simple to use that anyone can buy it and use it.  Recognize G2G for what it is – simply a data point on your path to success and not an end in itself.

— Steve Hogan

Freemium is Freemicide

Why do we see so many entrepreneurs adopting the Freemium business model? Giving away their base product for free to anyone who wants it and hoping that users will ultimately pay for a more-full-featured premium version – almost always at the low, low price of only $9.95 per month?  Do they have a business death wish?  Or did they fail to answer this question?  Whatever the answer, they ultimately find that —

Freemium is Freemicide

No one will pay for an upgrade to a product unless it materially increases the value to the buyer.  And in most cases, the free product already meets the user’s needs.  There is absolutely no compelling reason to upgrade.  Of course, there will always be exceptions i.e. Dropbox.  However, we believe a better model is —

Try it.  You’ll like it.

You will make more money if you give your product away for a free-trial period and then require payment, even if it is only $0.99 or even $0.49 per month.  Set the price below the pain threshold and capture revenue from your early adopters.  However, recognize that they are probably Geeks, and that you must capture populous packs of princes, proles and peasants to be truly successful – and maybe even charge them $1.99 per month after a 2 month free period.  There is a reason why drug dealers will give you free samples for a week or two.  Assuming that your product actually fills a need, once your users are hooked, they will be delighted to pay you.  Worst case scenario – you find out that no one wants your product before you blow your kid’s college savings.

— Steve Hogan

Another take at "what failing startups have in common" on BusinessInsider

What failing startups have in common seems to be a popular topic. After seeing Erin Griffith‘s post on Tuesday, Business Insider‘s Alyson Shontell agreed on the reasons of what failing startups have in common. Read the full article below or check it out on Business Insider. “Steve Hogan has a special job in Silicon Valley. His firm, Tech-Rx, is hired to save startups that are circling the drain. PandoDaily’s Erin Griffith interviewed Hogan and asked him for the most common reasons startups fail. Surprisingly, running out of money wasn’t cited as reason number one. It’s third. Instead, only having one founder is the most common reason Hogan says startups die. Running a company alone is much harder and more stressful than it seems, and it’s especially unusual for a startup to succeed with just one person behind it. Reason number two: forgetting to ask, “Who’s going to buy this?” before launching. Freemium models are often the fall-back business model, but if a founder doesn’t have a truly amazing product, no one is going to buy an upgrade for it. “Unless you can get paying customers, you are probably going to die,” Hogan tells Griffith. Finally, running out of capital is a sure way to kick the bucket. Hogan says he sees a lot of startups get 90% of the way there then run out of cash, and it’s often because they didn’t raise enough during their last round and plan for enough runway.”

PandoDaily asks, "What do failed startups have in common?"

Yesterday, PandoDaily posted an article titled, “What do failed startups have in common?” As a result, there was a lot of interesting feedback, but for the most people agreed on the number one reason. One of our partners, Steve Hogan, is quoted throughout the article on startup failure commonalities. Read the article below or check it at PandoDaily! “Steve Hogan has seen a lot of startups struggle. His firm, Tech-Rx, aims to save as many of those as possible because, in his words, “all innovations are ultimately good for society.” We published a profile of Hogan and his firm yesterday, find it here. The top thing failed startups have in common, Hogan says, is that they’re sole founders without a partner. “That is the single biggest indicator of why they got in trouble,” he says, adding that it’s especially common for sole first-time founders to fail. The second biggest factor? No one looked into potential buyers before they built the product. He’s not talking about exits — he’s talking about customers. Founders don’t ask themselves who is going to pay money for the product. “We see lots of freemium strategies,” he said. ”Freemium is freemicide. Getting someone to upgrade from a service that is adequate and free never works.” Which is sort of the point. “Unless you can get paying customers, you are probably going to die,” he says. The third most common factor is that the company ran out of time. “They got 90 percent of the way there building their product and they ran out of money,” Hogan says. An engineer since 1968, Hogan knows the tendency of engineers to underestimate how long it will take to build something. He often sees companies in desperate situations because they didn’t give themselves enough breathing room with their initial fundraising. As an addendum to that one: Hogan believes founders often misinterpret Minimal Viable Product, a philosophy which decrees that software — no matter how bare bones — is shipped early and updated often. The startup philosophy is so revered by entrepreneurs that entire companies are being built around it. But it can be dangerous to young startups that have one chance to make a positive impression on users. Often founders have a different idea of what minimum viable product is for consumers compared with what it is for them. The people building the app get into the mindset that they are the typical customer for the product, assuming that if they understand it, all customers will understand it. That’s rarely the case. And focus groups aren’t enough to go on either, Hogan says. “Look at the Groupon Superbowl commercials. The focus groups loved it, and they almost got burned at the stake!””