Episode 194 | Should You Charge Before Product/Market Fit?

Show Notes

Transcript

[00:00] Rob: In this episode of “Startups for the Rest of Us,” Mike and I discuss whether you should charge before product/market fit. This is “Startups for the Rest of Us,” episode 194.

[00:08] Music

[00:17] Rob: Welcome to “Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product, or you’re just thinking about it. I’m Rob.

[00:25]Mike: And I’m Mike.

[00:26] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, What’s the word this week, sir?

[00:31] Mike: I’ve undertaken the task of teaching my six- and seven-year-old boys how to play Dungeons & Dragons.

[00:37] Rob: Sweet!

[00:38] Mike: It’s not even the advanced Dungeons & Dragons. It’s, like, the original one from – I think the ’70s is when it first came out. But, yeah, it’s the really, really old stuff. [Laughs]

[00:46] Rob: Yeah, it’s fun.

[00:47] Mike: But it’s a lot more simple than, like, any of the advanced Dungeons & Dragons stuff. So, you know, they’re picking it up. They’re loving it.

[00:52] Rob: Yeah, I bet. It doesn’t have, like, encumbrance and pack loading and all that stuff. It’s super realistic, but it’s super time-consuming.

[00:59] Mike: Well, it does have that stuff. It’s just it’s a little bit different. Like, all the equipment lists are simplified, and –

[01:05] Rob: Right.

[01:05] Mike: – everything is just simpler. It’s more stripped-down. There’s less to keep track of. There’s less in terms of the equipment lists and stuff that you can buy, and prices aren’t measured in copper pieces for different things. It’s, like, all straight – you know, no matter what it is, it costs at least one gold piece.

[01:18] Rob: Right. Yeah, that makes sense.

You know, there’s a couple other options to teach their kid. There’s a game. It’s a board game called Dungeon. It’s like a Dungeons & Dragons board game; and it was put out, I think in the ’70s to kind of get – it’s like an on-road. It’s like D&D lite, basically – right? You actually have a board, and you have pieces that you move around in a dungeon. And it’s pretty cheap. I think it’s maybe 15 bucks on Amazon. That’s a pretty good way to get in there, because it’s really simple, and it’s all self-contained. You don’t have to create characters or any of that stuff.

[01:46] The other thing that I started teaching my son is Magic: The Gathering. And that’s, like, making a resurgence with, you know, the – I don’t know – the eight- to thirteen-year-old set. I played it in college back in the late ’90s, but you can get a Magic: The Gathering starter deck, or a couple starter decks, for – I think it’s like 15, 20 bucks on Amazon. And my son and I just sat down and just picked it right up, and so it’s great. We don’t have to bring all the stuff; and you can just sit down and, you know, just start playing with the cards. So, I don’t know if you played those in the past, but they’re really cool to get kids kind of on-ramped into this type of game.

[02:17] Mike: Yeah, I think Dungeon was re-released, and then there’s a couple of other variations. I think one of them is called “Hero,” or “Hero Quest,” or something along those lines. It’s another board game. I know I played Magic: The Gathering back in college, but I haven’t really played that in years. I still have a lot of my cards and stuff, which many of them they just don’t make anymore, so –

[02:33] Rob: Yeah.

[02:34] Mike: – they’re worth a lot of money now. But I haven’t played it in a long time.

[02:36] Rob: Yeah. So, you might want to buy a new, cheaper set if you’re going to play with a six-year-old [chuckles].

[02:39] So, things are going pretty well for me. DRIP – things are picking up with it. We’ve moved several people from MailChimp to DRIP in the past couple of weeks, and we’re doing the manual migration right now. Basically either myself or my support guy are helping people move not only subscribers, but auto-responder sequences and create rules based on stuff. We’ve integrated with Gumroad and Stripe now. You know, events in Stripe just can hit right into your DRIP account and send someone an email when their trial’s going to expire. Or, send someone an email when their card is charged, like an invoice email, with dynamic fields and everything. So, we’re hitting that critical mass point, I feel, where we have enough features that people are really starting to take notice; and we’re now differentiated from a lot of things.

[03:19] What’s a trip is that there really is this steady flow of people who are either outgrowing MailChimp, or who have tried to move from MailChimp to Infusionsoft, and they hate it. They don’t like the software, and it’s just not working for them. And so that’s where we’re getting refugees coming from – and I’m learning a ton about the next wave of features that we’re finishing up, but that we need to build in order to better serve those markets. So, it’s been a really good source of not only some new users, but more importantly, information on a future direction of the product.

[03:51] Mike: It’s interesting that you use the term “refugees” from other products, because it’s funny; because I’ve been talking to a lot of AuditShark users lately, and people who I’m trying to talk into using AuditShark. And they keep bringing up products that they’re essentially trying to move away from because they’ve either gotten too enterprisey, or they’re not serving their needs. They say, “Oh, we’ll, do this update,” and they never get through with it. And they talk to Product Management, and they’re like, “Oh, yeah, we decided that that wasn’t a feature that we were going to go after.” So, I’m seeing a lot of people take looks at AuditShark specifically because other products that they’re using and working with just aren’t doing it for them. So, it’s interesting. Maybe we should do a podcast about trying to target refugees [chuckles] from other products.

[04:29] Rob: Um-hm. Yeah, and the nice part about it is that these conversations – or, that type of thinking can then be worked into your marketing and into, like, a sales message of, “Have you outgrown product X?” or, “Are you using product Y; but this, this and that are wrong with it?” because I keep hearing the same this, this and that from all these people. Like, it’s the same stuff they all hate. And so to be able to address that and enter the mind of your prospect in that way – there’s a lot of power in that.

[04:57] For me, I’ve just rewritten the entire home page. It’s not live yet, but I’ve used a lot of that, and I’m hoping it’ll outperform what I have there now.

[05:03] Mike: Very cool. Well, I wanted to say congratulations to Micropreneur Academy member and MicroConf attendee Craig McKeitsche [phonetic], and he just recently launched his “JavaScript Framework Guide.” We’ll link it up to over in the show notes, but it’s at funnyant.com. And he basically walks through some of the different JavaScript frameworks, like Angular JS and Backbone and Ember and Knockout, and kind of talks about what sorts of things you can do with them, or why you should choose each of them. So, you know, kind of choosing the right tools for the job.

[05:31] Rob: Yeah, he sent me a copy, and I read through it. It’s good stuff. I definitely learned quite a bit about it.

[05:36] So, I have a retraction. Last week, I talked about Player.FM, and I said that I had downloaded and installed it on my iPhone. And when I went on to my iPhone to look for it, it wasn’t there. There was some other player there, and I was so confused. And it turns out Player.FM is Android-only. What I had done is I’d gone into the iTunes store. I searched for Player.FM, and I clicked the first one in there; but it’s some other thing called Pod Cruncher, which is a good app, but I realized as I listened to last week’s episode, it was like, “Uh-oh. Someone’s going to call me on this basically saying that I had downloaded something that didn’t exist.” So, if you’re on android, I’d recommend checking out Player.FM. Obviously, they got invited to Google.IO. Mike is doing something right.

[06:13]Music

[06:16] Rob: I want to give a thanks to Franz C for sending this into us. He sent us an email and pointed us to a growthhackers.com thread. I don’t know if you’ve noticed, but Hacker News is no longer moderated by Paul Graham. He’s handed off the moderation to someone else. This was months ago. And the focus of the site has shifted. There’s a lot less marketing stuff on there. There’s a lot less ways about how to grow product, and it’s become more – it’s startup stuff, but it’s definitely different than it was a few years ago; you know, even, maybe, a year ago. And so growthhackers.com was started by Sean Ellis. It has kind of become the de facto place for more of that marketing stuff – the startup marketing and the startup growth approaches. And Sean Ellis is on it, obviously, because he runs it; and he’s grown it pretty quick. And then you’ll see, you know, people chime in in the threads. And Noah Kagan, Hiten Shah, I’ve chimed in on a few of them. There’s a lot of people in there talking, and there’re some really knowledgeable marketers.

[07:08]  So, there’s a thread on there. The question in the thread is, “Should you charge or not before you’ve reached product/market fit?” So, I’ll read through the original post, and then we’ll dive into some thoughts that we have on it. I’ll also bring up some thoughts that other folks have in the thread.

[07:23] So, the original post says, “In Sean Ellis’ prolific interviews on Venture Hacks, he recommends not charging before product/market fit, because you allow people to explore all of the functionality of your app and can continuously survey them until some are saying they would be very disappointed without the product.” And that’s kind of the definition of “product/market fit” they’re using.

[07:41] So, the exact quote from Sean in the interview is, “I think that it’s easier to evolve towards product/market fit without a business model in place, meaning users are free to try everything without worrying about price. As soon as you have enough users saying they would be very disappointed without your product, then it’s critical to quickly implement a business model; and it will be much easier to map the business model to user-perceived value.”

[08:03] And the original poster says, “So, I’d love to hear this discussed further.”

[08:06] I think, to start off, I’d like to limit our discussion; because, you know, does this apply to B to C? Does it apply to B to B only ? Is it only SaaS apps? Is it mobile? And I think for the sake of our discussion, I’d like to limit it to services that will one day have a price. But I think B to B or B to C could work. So, Shawn has worked on products like Dropbox; and you would say, especially when they launched, they were more of a B to C play than B to B. But I still think that what we’re going to talk about today applies to that. So, I don’t think it’s a B to B, B to C line. I think it’s if you have a service that people value and will pay money for – not like a social network, a marketplace, an ad-based revenue model which charging isn’t even really relevant at that point.

[08:44] Mike: And I think that a[n] issue [that’s?] kind of trying to go down that road is that you’re talking about trying to achieve this product/market fit where you’re solving some sort of a problem for people versus something where it’s very nebulous about whether or not there’s any actual value in it for them to be able to pay for – for the users to be paying you directly for it. So, obviously, Facebook kind of falls into that line; because if you were to ask a lot of Facebook users right now, “Would you be disappointed without Facebook?” a lot of them would probably say yes. But at the same time, can you charge those people for it? And the answer is “no.” And for our purposes, I think we just want to limit it and say, you know, it’s only if you are directly charging those people.

[09:22] Rob: Now what I’d like to run through are some dangers of charging, kind of some negative aspects to doing that, and then some dangers of not charging and how to deal with those. And then we’re going to wrap it up with what I consider kind of the middle ground, like suggested solutions and approaches to this after we’ve looked at the pros and cons of each side.

[09:39] So, just kick us off. The first danger of charging is pretty obvious. It limits your user pool, because you’re going to get so many fewer people to come in and use your app. You know, even if you have a free trial, even if you just have a price up front and are not actually charging for it yet, fewer people are going to sign up for it, for sure.

[09:54] Mike: I think this becomes much more of a problem where you don’t have a mechanism for getting in front of people, or you don’t necessarily truly understand the right profile of the ideal target customer. If you have ideas about it, I mean that’s helpful, but obviously charging them is going to push people away. And I don’t know whether this goes back to why Google decided, “All of our products are going to be in beta. We’re not going to charge for anything.” There’s lots of companies that do it that way. There’s lots of people who go down this path, and as soon as you start mentioning money, they’re going to want to kick the tires enough to say, “Is this worth my cash?” “Is this worth the business revenue that we’ve got?” It does negatively impact it because then they have to start making value decisions, and there may very well be a timeline around how much time they can dedicated to it, how much effort can they put forward to kick the tires before the end of that trial period.

[10:46] Rob: I think the second danger of charging is that not only does it limit the number of people that will be involved, but it’s going to limit the range of feedback. So, could there be a market that you had never even thought of that may not be as willing to pay up front; but that, if you let people in for free, you could get added feedback?

[11:05] And then the third danger of charging is that it’s going to take you longer to receive the same amount of feedback; because since you have fewer users, you have a smaller range of feedback. You’re going to have to wait longer; and if you’re, you know, an impatient start-up founder, like most of us are, that’s kind of a pain. You can’t move as quickly, and you can’t get to market as fast as if you let more people in if you’re not charging.

[11:25] Mike: I think there needs to be a clarification here, because I think when Sean is saying this, he doesn’t necessarily mean that it takes longer to receive feedback. What he’s really saying is that it takes you longer to receive enough feedback to be certain of what your conclusions are. It’s almost like making sure that you have a statistically valid response, because if you have a limited trial period for somebody and they only have 14 days, they’re going to try to get feedback back to you within that 14 days; because they know they’ve only got 14 days to work with the software versus if you’ve only got ten people, you’re only going to get those ten responses back from people. You’re not going to get a hundred, or a thousand, or a critical mass of responses that will help you draw the conclusions that you need to draw.

[12:04] Rob: Yeah, and if you’re listening to this and you haven’t read through the thread, it’s definitely worth the listen. There’s good discussion back and forth. Several of these dangers that we’re talking about, or the negatives of doing these things, I came up with and put them in the outline. Some of them I also pulled from the discussion, and I’ll try to credit people.

[12:19] I couldn’t think of a ton of dangers of charging aside from the ones we’ve covered, but I can think of a lot of drawbacks to not charging. And the first one is that, if you’re not charging, and you have an app that people are using, you need a bucket of money to build and support the app in the meantime. So, what this means is really, if you’re truly, truly bootstrapping – and I don’t mean self-funding; there’s a difference – right? Bootstrapping is when you have a hundred bucks to start, or 200 bucks, or a very small budget; and you get to market, and you need revenue just to stay alive. Whereas, self-funding means you have some funding that is coming out of your pocket. And that may only be – maybe it’s 500 or a thousand dollars a month, or maybe it’s 10 or 20 grand that you’ve saved up for it. But if you’re truly bootstrapping it, then you really can’t go this way, because you need revenue up front very quickly.

[13:09] Mike: Yeah, I would say that that’s probably the biggest danger of not charging. I can’t think of too many other things that would so negatively impact your ability to move forward with a product, is this one right here.

[13:20] Rob: [A] second danger of not charging is you can potentially receive too much feedback, some of which can be from people who might never be willing to pay for the product. So, the original poster actually said – and I’m quoting him. He says, “It creates less noise. You can listen to the feedback of people who are paying, if you charge.”

[13:37] And then Sean Ellis talks back and forth about this, which is kind of cool. He gives kind of both sides of it, and he says, “Even if you are a great marketer, you can only get people to keep using your app if it actually provides real value. The noise issue tends to sort itself out further down the funnel, and here’s how. Each step in the funnel that a user takes imposes a real cost on that user’s time and effort.” And he doesn’t just mean marketing funnel. He actually means usage of your app funnel – like, how deep do they get in, and how much usage do they do, and how much value do they get out of it.

[14:05] So, continuing with Sean, he says, “If you think of repeat usage as a step in the funnel, the reward of a great, useful experience needs to be there to justify coming back. Fact is people are just as fickle about a free product as they are for a paid product. Free can drive lots of sign-ups, but often those people give up on the product just as impulsively.” Then he goes on to say, “If you have KISSmetrics, you can actually query specific users; get their emails if they’ve done X, Y and Z events; and then you’ll have a great customer development pool. Even without charging, you’ll know who’s really getting the value from the app.”

[14:36] And he wraps up by saying, “In my original answer, I did say it depends. For pure enterprise products, I generally don’t recommend having it be free during a beta period,” for some of the reasons the original poster had mentioned in his original question.

[14:48] So, what do you think about this issue of having too much feedback, or that you could potentially be receiving it from people who aren’t willing to pay?

[14:55] Mike: That’s definitely a danger when you’ve got a lot of people in there who aren’t paying for it, because they’re like, “Oh, this would be cool if X.” And suddenly, everybody’s an expert in what your software should do, even if they’re not going to use it. And so the danger there is you’ve got these people who are not necessarily well-qualified leads who are giving you feedback and advice that you look at their advice, and it may sound reasonable on the surface, and you don’t necessarily know whether or not they’re going to use it down the road. So, you may follow that advice and find out, oh, well, sure. That’s what they said, but they weren’t going to pay for it anyway. So, you build these features, or do these things that just have no bearing on what the critical mass of users that really would pay for it need or want.

[15:35] So, you do have to, I think, prequalify some of those people a little bit better than just taking in advice from those people. So, when you ask questions, you do things like you ask them what their market is; you know, what problems they’re trying to solve; what it is they do on a regular basis – basically, take a lot of their input with a grain of salt. And until you hear enough people saying the same types of things, you don’t necessarily go down those directions, even if you’re having great conversations with them; because they can definitely you down those rabbit holes that you’re not going walk out of with paying customers.

[16:05] Rob: Yeah, I’ve gotten in a lot of really in-depth conversations with people who weren’t willing to pay for one of my products. And they’ve given a lot of feedback. I’ll say some of it’s good. Some of it is kind of wandery, but I didn’t really know if they were going to pay for it or not. And, in retrospect, I should have; and the feedback sent me off-track. So, I do like Sean’s hack of looking in KISSmetrics and querying what users have done X, Y and Z events and then using those as the people who are actually using the app. So, I think that’s a nice, feasibly work-around around this issue.

[16:35] The third danger of not charging is the danger of legitimate users or businesses not checking out your tool because it’s free and their concern that it’s of low value, or that it’s going to be shut down. I try to avoid tools that really are free, because I know that either they’re not going to stay around very long, or at some point they’re going to implement a business model where they need to charge. And then they’re either going to dump the free users, or give them crappy service. I mean we see this happen time and time again; and, frankly, the switching cost once I’m invested in using an app is bigger than the savings of moving somewhere else.

[17:07] Mike: Yeah, I look at this a lot as well. I think it’s a little different if the app or the business behind it is funded, because you know that they’ve got money and they’ll figure out a business model eventually. And although you may not be paying for it initially, the concern, of course, is that at some point down the road, the pricing may be such that it just doesn’t work for you. And as you said, the switching cost is big; and it’s not necessarily just the monetary cost of switching. It’s the time investment of doing that. If you’re faced with a decision between two players, one of whom is well-established, and they’re doing a reasonably okay job versus another one that’s new; and it sounds great, but who knows what their business model is and whether they’re going to be around or not, I don’t know about you. I tend to bank on the ones that have been around for a while just by default, because I don’t want to have to move my stuff later on.

[17:53] Rob: Yeah, I’m the same way.

[17:54] So, the fourth danger of not charging is that you don’t know if people will pay for your product, or if they’re just using it because it’s free. And Sean weighs in on this point. He said, “The benefit of charging from day one is that it tells you if your product promise is something people would pay for.” And when he says “promise,” he’s talking about the value proposition – right – the value that your customer is going to get out of it.

[18:15] Back to Sean. He says, “In my experience, I can rarely guess the product promise.” I found that very interesting. And he says, “I have to learn what it is based on the feedback from people who consider the product a must-have.” And here he’s implying that, whether they’re paying for it or not, that if it is a must-have for them, that their feedback is valuable.

[18:34] Mike: But I think that goes back to finding out why. If they are paying for it, you need to ask the direct questions about exactly, “What is it that this product is doing for you that is making you pay for it, giving you the necessary impetus to pull out your credit card and say, I’m willing to pay for this?'” “What are the key features for you?” “What business problems or personal problems are you having that you’re using this software to solve?” And whatever those features happen to be, those are the things that you can harp on in your marketing collateral as your headlines and as your product promise. And you can use it to hone in and to help you get to that product/market fit.

[19:09] Rob: And the fifth danger of not charging, Trevor Owens posted in the thread. And he actually does a good of this, so I’ll just quote him directly. He says, “My problem with doing a free beta is that when users stop using the product, I wouldn’t know if it was because the product wasn’t good enough, or they weren’t serious enough. If I charge a small amount, I only get people who, based on the idea of the product, actually have a need for it. Furthermore, if they cancel their account, I can immediately reach out and get their feedback.”

[19:37] Mike: Yeah, this is one of those situations where it’s kind of like one of those long-distance relationships where you gradually grow apart, and you don’t necessarily have that feedback loop, or the daily check-in, or weekly check-in to kind of know really what’s going on. And customers are kind of the same way, but if you’re not getting that feedback from them and they kind of gradually drift apart from your product, sometimes it’s hard to know when that happens, or there was some other, external event. And if they are paying for it, you can reach out and directly ask them. But you also want to draw a line between how often you check in with them; because, sure, you can reach out to them on a weekly or monthly basis; but eventually they’re going to stop listening anyway. You know, I’ve seen email and auto-responder campaigns where you send them a bunch of emails; and gradually over time, most people tune out over time. There’s a lot of engagement up front, and then over time – unless they’re continually using it – that engagement just fades.

[20:31] Rob: Most of the time, when someone actually cancels, they actually churn out of your SaaS app. They’ve typically already churned two months earlier. They just never cancelled. Most people stop using your app and then cancel a few months later, and it’s way too late at that point to try to rescue it.

[20:47] Mike: Oh, yeah. It also depends on what type of application it is, too. Like, I recently cancelled my LessAccounting subscription, and I stopped using it back in January. And I only recently cancelled it within the past couple of weeks, so you’re talking six months later. And the reason I kept it around was because of, you know, the tax season; and I wanted to make sure I got all my data out. And I wanted to make absolutely sure that I didn’t need to go in there for anything else. And to their credit, they did follow up with me and say, “Hey, we see that you haven’t logged in in X number of days.” I think it was a month, or two months, or something like that. They reached out a couple of times [and] said, “Hey, you haven’t logged in in a little while. Is there something we can help you out with?”

[21:19] I thought that their follow-up was extremely good, but at that point, I had obviously already made the decision way, way in advance to say, “Look, I’m going to move to something else, and I just really just need my data here.”

[21:30] Rob: The last bit I’ll add is a quote from Andy Newborn, who weighs in in this thread, and I really liked the way he’s thinking about product/market fit. I never heard it phrased this way. You know, typically product/market fit means that your product solves a problem for everybody, and you’ve found the market, and that’s when it’s time to scale. And you pump money in. You pump marketing, and you just scale that sucker up. It’s really hard to get there. Most apps never get to that point. And Sean Ellis has a test. It’s a three- or four-question quiz. Maybe it’s a one-question quiz, but the big question that he looks at is, if product X went away today and you could no longer use it, would you be mildly inconvenienced? Would you kind of care? Would you be a little bit disappointed? Very disappointed? Extremely disappointed? And if – I think the number is 40 percent or more are very or extremely, then that’s his definition. That’s when you’ve hit product/market fit. Okay?

[22:19] Andy Newborn chimes in. He says, “I’ve found that someone getting excited about your product does not mean you have product/market fit. It only means that you are good at explaining it and found an obvious solution-need pairing. What makes true product/market fit, in my opinion, is when the user changes their behavior to match your product or service and it becomes sticky. That’s fit that can be charged for.”

[22:43] And so while it’s only tangentially related to the topic at hand today, I love the way he put that. In fact, Sean references it back in the thread again. I love the idea of someone using your app, because you know you have a lot of people who come in and log in, and then they never really get on board. And you have some people who come in and get on-boarded and start using it, and then they kind of drift away. And then there are those who use it all the time. Like, they log into it every day to look at an analytics dashboard. Or, they get an email. They rely on an email they get from it once a week. Or, they need it every time they talk to their customers, or every project management “to do” is in there. You know, that’s when an app really becomes sticky, and that’s when you can scale something up; because people really need it.

[23:20] Mike: I think another way to phrase that is that they start using it for things that it was never really originally designed for. You see this with products like FogBugz, where people are using it for customer support. And it wasn’t necessarily meant for that, but people really shoe-horn it in there, and Fog Creek to their credit, has kind of made the products do that sort of thing; because they kind of did it internally for themselves. And then it has kind of caught on, and a lot of people use it for that. But there’s all sorts of things that, you know, that particular product and lots of other products are doing today that are not advertised on their website; because they weren’t ever really designed do that. But they work for it, so people use it for that, and it works for their own mental way of picturing the world of that particular problem.

[24:00] Rob: So, we’ve covered the dangers of both sides. Let’s look at three suggested solutions. These are things that I came up with. These are middle-ground approaches. I came up with the three of them, and then I went and looked in the thread, and all three of them were suggested in the thread as well. So, it was cool to see that the collective had also come up with some good approaches.

[24:19] So, the first of the three is to maybe not charge right from the start, but to have a free trial and maybe have a really long free trial when you start, like a 90-day free trial, or a 60-day, or something that gives people a ton of time to get in there and really knock it out and use it. At the back of my mind, you could even have some lower pricing at the start to allow more people to sign up, because there is a barrier. If you’re going to start, “All right, 99 bucks a month is my lowest plan,” you’re going to get a lot fewer people than if you dropped that down to $20 or $30. They’re going to get different people signing up; but, hopefully, you know, more people signing up. And as I said, it’s like a middle ground, so it’s not charging at all; but it’s giving people a long time to really get in and get on-boarded. And this was also suggested in the forums by Anonda Sanwal [phonetic]. So, I wanted to give him credit there.

[25:02] Mike: The second one is to make it free, but with the expectation that it’s not going to be free forever. So, the way Sean puts it is essentially the product is free during beta. And whether that beta is 30 days, or three months, or six months, it doesn’t necessarily matter. The idea is that you’re setting the expectation up front that they are going to be charged for it, and you have a rough idea of what it is that they’re going to be charged.I think the difference between this and the previous one is that, with a free trial you’re specifying, and there’s almost like this hard line in the sand that’s like, you know, “Once you cross this, we’re going to start charging for it.” But with free and the expectation being placed that it’s not going to be free forever, you’re essentially going to bring in on in the future. And I think you actually did this with DRIP. You basically said to people, “Hey, this is going to cost you money, but it’s going to be free for the time being until you start seeing value out of it.” And I really like that approach just because you’re on-boarding people, and at the point where you feel like they’re getting the value out of it and they can justify paying for it, that’s when you start charging them for it. You don’t draw this arbitrary line in the sand that says, “Okay, after 30 days,” or 90 days, “that’s when I’m going to charge you,” because you don’t necessarily know if they’ve gotten the value out of it. And you don’t know if the product itself needs to be adjusted or changed in order to meet some of their needs.

[26:16] Rob: Yeah, I did this with DRIP, like you said. I did it when I was doing the high-touch sales early on, or the high-touch, on boarding when it had – maybe it was up to about the first 15. “Early-access users” is what I called it – right? And so Sean says “free during beta.” Mine really was “free during early access until you get enough value out of that it’s worth 49 bucks a month.” And since I emailed with every person and manually on-boarded everybody – we didn’t even have a sign-up page at the time, I don’t think – I created their account, and then I would let them know that, like, “We intend to charge this much, but you can have as long as you want until you get value out of it.” I think that was a decent approach.

[26:50] I mean you could do that with – let’s say you have 500 or a thousand people that you’re emailing all at once. I suppose you could just put that as a line, that it’s free during early access. And early access is as long as it takes, but a minimum of 60 or 90 days. I think this could work. I really do feel like this is a decent middle ground to get a lot of people in and trying it. To be honest, early on I didn’t ask for a credit card. Again, we even didn’t have a credit card form in there. So, I had no credit card info for people, and this is for me – right – the guy who always wants to put a credit [chuckles] card form up and have the commitment. But I knew that people were committed. If they were going to take the time to get in and use it and get on-boarded and spend the time to just try stuff out, that if it worked for them, they’d probably be willing to pay for it.

[27:30] Mike: That’s kind of a difference – or, you know, one of those quantifiable points is you said that it’s going to take them some effort. It’s not like a drive-by, where you can sign up for an account, and you can check something out and then kind of walk away and never come back to it, and it’s not really a big deal. With DRIP – and there’s a lot of other applications that are like this, where you go to sign up for it, and it takes some work to set things up. I mean it’s not sign up for a form, and you immediately get value out of it; or, you could start seeing all these analytics from your web server, or something along those lines. You really have to put some effort in in order to make it work for you. It’s not something that you can just be up and running in a couple of minutes with.

[28:05] Rob: And the third middle-ground suggested solution is to go freemium. And I know this is not going to work in all cases; but if you have that bucket of money, and if you have maybe the support staff; or, your app is of low support, and you can actually handle a good number of people using the app, I think freemium could be interesting. Even if you were only freemium during early access, and you had a premium plan that people could upgrade to; or, even having a limited plan – I mean there are cases when this is going to work, and it’s definitely going to get you a lot of feedback. And it gets you a lot of users quickly. And then if you can pinpoint those who are getting a lot of value out of it, whether they’re free, or whether they’re on the premium plan and paying you – and if you can use the technique Sean talked about in KISSmetrics, or if you can just query your own data of who’s using what, I think there’s some potential merit to this approach.

[28:56] But to couch this, I don’t love freemium. I haven’t done it. I didn’t do it with DRIP, but I do think there are some times when it could be used.

[29:04] Mike: If you’re making it a freemium up until you’ve lost and are actually putting a revenue model behind it, then it’s not really freemium; it’s more that free trial. But you’re right. Unless you’ve got this bucket of money behind you, I still don’t think the freemium’s really the way to go – especially out of the gate. I mean once you’ve got everything kind of scaled up, and you’re trying to figure out how to scale the business, and you’ve got a lot of quantifiable metrics behind it in terms of on-boarding and how much it costs to acquire a customer; and, you know, you’ve got your product/market fit, then maybe it makes sense to try out freemium.

[29:34] Mike: Well, I think that about wraps us up. If you have a question for us, you can call it in to our voicemail number at 1.888.801.9690. Or, you can email it to us at questions@startupsfortherestofus.com.

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4 Responses to “Episode 194 | Should You Charge Before Product/Market Fit?”

  1. This was an awesome show guys. My ears pricked up when you mentioned a forum. What forum might this be?

  2. I believe Rob was referring to the Micropreneur Academy forums. There’s a lot of discussion that happens in there which isn’t publicly available.

  3. I think Rob was referring to this thread in the growthhackers.com forum:

    http://growthhackers.com/questions/ask-gh-to-charge-or-not-to-charge-before-pm-fit/

    Here’s Anand Sanwal’s comment that Rob mentions around 24:19:

    http://growthhackers.com/questions/ask-gh-to-charge-or-not-to-charge-before-pm-fit/#comment-10000

  4. Awesome thanks guys – two new forums I wasn’t aware of :)