No matter whether you sell for someone else’s nascent company or are startup CEOs, what is the goal of your enterprise? If you tell me it’s to attract investors, you may be selling yourself short, literally.
Are your activities focused on chasing after angel and venture capital investors as the goal of your venture? How about shifting your focus to acquiring customers? That’s also the job of startup CEOs.
Most investors will tell you that seeking their support should be your last resort as startup CEOs. It’s a lot better if you have customers, and paying customers at that. Otherwise, you just may have traded your company for a job, essentially working for the investors’ company.
Recently, I was at a meet-up with entrepreneurs. There were lots of aspiring startup CEOs in the room. Several of the companies talked excitedly about how large their potential marketplace was (1 million, which, for some types of apps, isn’t that large at all). These startup CEOs also told me they currently have thousands of users, which indicated rate of adoption by and traction within their marketplace.
I asked them how many of their current users were paying customers. I think you know the answer to that question.
These startup CEOs insisted that nearly all of the current users of their free service would willingly make the transition and pay for the same service. My recommendation to them: don’t assume anything; go look for a different segment willing to pay for your service.
What users tell you they will do, and what they actually end up doing once the service is no longer free, are two different things. Do you, as startup CEOs, know the difference?
When your entire marketplace is composed of users who are used to getting your service for free, you have to demonstrate tremendous value for them to decide to make the leap to a paying customer. Even if your fee-for-service is no more than a few dollars per month. A wake-up call for the startup CEOs.
A paying customer versus a freebie user can represent two different mindsets for perceiving the value of your service, product or platform. This scenario describes when customer discovery moves into the translational, and most importantly, transactional value of your venture.
I questioned these startup CEOs about the value of the various mentors that various organizations had assigned to their enterprise. They were excited about all the help they were receiving, all focused on moving their venture forward. I asked them how much they were paying for the services provided by their collection of mentors.
Nothing. Zilch. Zero. Nada.
I inquired how many of these mentors they would retain on a paid basis, once the various entrepreneurship programs were completed. You know the answer to that one. Something like: “We are a cash poor startup, and need our money to pay for modifications to our technology.”
What questions would you then have asked these entrepreneurs? Something like: “If your freebie mentor is valuable to you as long as he/she is free, how can you assume that the current user base of your freebie service doesn’t think the same way?”
Free, or pro bono, service is valuable to many users simply because it is free. Once you give away your services / products / platforms for free, that is the value that marketplace assigns to them.
If you want me to invest in you, startup CEOs need to show me you know how to attract paying customers. Freebies may create a false sense of marketplace short term, and a lot of work for your venture over the long haul.
Babette N. Ten Haken, Founder & President of Sales Aerobics for Engineers®, LLC, brings entrepreneurial mojo and business- and revenue-producing collaboration and communication tools to small and mid-sized businesses and startups. She was named one of the Top 50 Sales & Marketing Influencers 2013. Her book, Do YOU Mean Business? focuses on technical / non-technical collaboration strategies and tools.