For Startups, Free Is Stupid

As a scaleup, you can offer free access to your products and services as a marketing technique. But as a startup, you need to know a.s.a.p. what people are willing to pay for.

Coffee and Cookies

Someone once tried to charge me €9 for an undrinkable caffe latte. It was in a fancy hotel in Cannes at the Côte d’Azur. They had an impressive-looking Italian espresso machine at the bar. But to make my 9-euro latte, they merely pressed a button on one of those horrendous German automatic coffee machines. After one sip of what looked like bile-covered sewage water, I made such a scene in the hotel bar that it was worthy of a Golden Palm award.

There are similar coffee automats at the airport of Munich. I tried them once. Never again. But after that experience, it didn’t occur to me to complain to the airport managers about their machines. They offer that coffee for free. When I criticize an undrinkable 9-euro coffee in Cannes, I do so as a customer. When I would complain about the same liquid muck at Munich airport, I would do so as an asshole.

Likewise, I would never think of complaining about the free cookies and chocolates that the airlines sometimes offer me. Sometimes, I accept their gifts; sometimes I don’t. Thankfully, the carriers don’t ask me for feedback about their free treats. I get my favorite delicacies at specialty stores in Rotterdam and Brussels. I couldn’t care less about the cookies and chocolates from the airlines. I might grab some from a tray because they’re free, but I would never pay them for that service.

All startups should understand the consequences of free.

Two Reasons for Paying

My young company Agility Scales offers a service that is still experimental. We have validated the MVP (people have started paying), but we still need time to tweak and tune the product until we have achieved real product-market fit. To do so, we need high-quality feedback from users to steer us in the right direction.

That’s why we ask everyone to pay.

First of all, product innovation is all about validating hypotheses and testing assumptions. The idea that someone will pay for your innovation could be the riskiest of all assumptions! The last responsible moment to test that assumption is now.

As a startup, we don’t want people to grab our stuff for free. We need to validate that our product is something worth paying for. Offering people access for free would be stupid. If we gave free access, we would not know if they would also pay for it.

Another issue is that people are less willing to give valuable feedback on a product or service that’s free. Pricing is framing. When something is given away for free, it can’t be that valuable, right? But as a startup, we need people to care about our offering. We want them to make a scene when it sucks! Such feedback might be painful, but it’s better than begging for input from people who don’t care because they don’t pay.

If you start out by finding paying customers for your product or service, you make sure to solve the hardest problem first: what are people willing to pay for? If instead you begin by giving free access to everyone, you might end up with another Medium or Trello: plenty of users, but nobody wants to pay because the makers priced all the good stuff at zero.

Scaleups Versus Startups

Don’t get me wrong. I’m not saying that things should never be free!

When you know what people are willing to pay for, and you have validated your product-market fit, your startup is ready to morph into a scaleup. At this point, you can introduce a free version. You already know what people want! In your growth phase, a free version is a great marketing technique to find paying customers at a much faster rate. For scaleups, not for startups.

There is one exception to everything I just said.

When I just started out as a public speaker, I offered all my talks for free, because I needed practice and connections. When you already know what people are willing to pay for (in my case: professional keynotes), but you’re still building up your brand, you can temporarily offer your work for free. Free is OK when the outcome for you is a reputation and a network. It’s just another form of scaling.

But as long as you’re still figuring out what your product or service should be doing, it makes little sense to offer your work for free. You need to learn a.s.a.p. if anyone will want to pay! The only way to find out is to ask for feedback and payment. Postponing your riskiest assumption would be stupid.

Do you want to know what startup idea I’m working on? Check it out here!

(photo credit: © 2013 Anna Fox, Creative Commons 2.0)