Discussion on "Grow first, monetize later" philosophy

[juan917]

Hey everybody, new user here. I want to ask for your opinion on starting a company without having a plan to make money. Companies like Twitter and Snapchat take on this philosophy by giving away the product for free yet somehow think they will figure out how to make money later. Currently they are unable to successfully profit.

I am considering starting a SaaS freemium type company where taking a similar approach would make sense but monetization worries me. Say I get a large customer base, at some point I will try to convert them to paying customers. The percentage of conversion is very important but I have no way to determine this value. The amount of money I would charge is very low too, 10-20/month. To offset the low costs I am doing all development and maintenance of the product myself and intend to bring on sales people to bring on customers and compensating them with equity & high commission if our customers ever convert into paying ones.

I think growing first, and monetizing later is foolish but it seems to be accepted in the software industry. What are your thoughts on this approach to business?

 

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[Digamma]

Not even a presentation, ah?

Here's the only answer that anybody can give you: It depends. We know nothing about your project. What is it? B2B? B2C? Professional? Personal?

I've worked in the software industry a lot and I don't see that kind of philosophy as commonly accepted outside social networks, though. The trial model wins for actual value adding software. Social networks are only worth their user bases size, so they need to get users before they have a product to sell (advertising space).

 

[rkmalo1]

I'd echo "it depends". With those type of high-risk, high reward tech companies, you most likely have VC funding, traditionally VC's are willing to wait on the profitability in hopes of "figuring it out", an IPO or a takeover. Think Tesla, Google, Amazon (usually runs at -2 - 2% PM https://ycharts.com/companies/AMZN/profit_margin), Facebook, Uber, the list goes on. Most of these companies have two goals at first: get users, have a superior product.

With a SAAS company you'll have to look at a number of factors. What does the competition look like? Are they funded by VCs? If so, can you afford to have slow growth (is your product that superior to the competition?) How much will product development cost? Maintenance cost? Marketing cost?

Good luck!

 

[juan917]

Not even a presentation, ah?

Here's the only answer that anybody can give you: It depends. We know nothing about your project. What is it? B2B? B2C? Professional? Personal?

I've worked in the software industry a lot and I don't see that kind of philosophy as commonly accepted outside social networks, though. The trial model wins for actual value adding software. Social networks are only worth their user bases size, so they need to get users before they have a product to sell (advertising space).

Thanks for the feedback , it's b2b. What really stuck out to me is your comment about value adding software, now I look at it in a completely different light. I will be focusing on value added instead being fixated on profits now.

 

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[jazb]

Forget that, guys from snapchat/twitter do that because they love what they do.... snapchat guy turned down billions ffs.

cash flow from day 1, always!

 

[juan917]

I'd echo "it depends". With those type of high-risk, high reward tech companies, you most likely have VC funding, traditionally VC's are willing to wait on the profitability in hopes of "figuring it out", an IPO or a takeover. Think Tesla, Google, Amazon (usually runs at -2 - 2% PMhttps://ycharts.com/companies/AMZN/profit_margin), Facebook, Uber, the list goes on. Most of these companies have two goals at first: get users, have a superior product.

With a SAAS company you'll have to look at a number of factors. What does the competition look like? Are they funded by VCs? If so, can you afford to have slow growth (is your product that superior to the competition?) How much will product development cost? Maintenance cost? Marketing cost?

Good luck!

Growth will be key. I am new to marketing but that would be my only cost.

 

[juan917]

Forget that, guys from snapchat/twitter do that because they love what they do.... snapchat guy turned down billions ffs.

cash flow from day 1, always!

Haha, I actually think this can be done but I'm not sure if I can pull it off.

 

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[Mr.B]

I will be focusing on value added instead being fixated on profits now.

Good idea.

 

[healthstatus]

Snapchat/Twitter/Facebook has a market that is virtually EVERYONE in the world with an Internet connection. So comparing that to any kind of niche is just not intelligent thinking. Throwing B2B into the mix really limits it as well, and then getting businesses to rely on a product with no obvious stream of income is something people get fired for doing.

 

[ZCP]

Cashflow, profit, growth. In that order.

If your burn rate up until profitability is funded by startup funds, then the bigger the startup funds, the longer you can wait for profitability. Run out of cash, though, and you are done.

 

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[IvanMontillaM]

I don't know also about your product, but I have two principles to share:

• In general, most people won't like to pay after you gave some features for free. If you state clearly that it is a trial, okay good, but if you didn't and it looks like you improvised, then you screwed it up. The key here is to keep the free features free forever. Make sure you can afford to do that. I have a great example to illustrate this: I have a friend who created a social media management app (competing with HootSuite and the likes), and whilst he was doing the due dilligence with the legal stuff, he used to have only one plan: the free one (and without ads). Today it's a billed service, and despite it's a relatively cheap, his customers (ad agencies, companies and freelancers) are struggling to set money apart to pay for the app usage, why? because the customers of the customers are now charged more thanks to the new added costs to their budgets. Not to mention he ditched the free plan.
• Having that said: Don't burn all your gunpowder on start. Let me elaborate on this: So you have a main feature and other premium features (unreleased) that make the service even better. Again, make sure the free stuff stay free forever, and keep adding features that can be billed. If you release all the features for free, you run the risk of running out of "fastlane features" that would have otherwise made your company highly profitable. If you screw up this point, what could happen? well, the risk is that you'd have to "milk out" your brain for features that produce low-income... ultimately killing the company for lack of profit.

Make sure you save the best for the premium billing.