There’s a moment on Dragon’s Den when one of the judges asks a pointed question to entrepreneurs: how much money have you made from selling your product so far? Often, the answer is nothing or close to nothing.
A key part of running a business is making money. If a business isn’t making money, it’s a charity, an expensive hobby or a pipedream.
Yet there are startups solely focused on attracting lots of users while making money is an afterthought or something that will magically happen down the road. To me, it’s a cart before the horse strategy. And it’s no way to operate a business.
Maybe I’m old school because I believe startups should sell products or service, rather than giving them away for free. It’s wonderful being the belle of the ball but just being popular doesn’t pay the bills.
If a startup wants to leverage the power of free, it should also provide a premium product that people might want to buy. Several years ago, I had an animated discussion with an entrepreneur who decided to offer a free service after initially wanting to charge for it. I urged him to also offer a premium product with a few bells and whistles (aka freemium), but he politely declined – a decision that he probably regrets.
We live in a strange world in which startups happily give away their products for nothing. Some of them believe collecting data will become a valuable asset, Some believe that they can suddenly turn on the revenue switch while others are counting on being acquired.
Having seen the debacle of the original dot-com boom, you think people should know better. Healthy businesses aren’t built on financial hopes and dream, they’re built on attracting customers that want to pay your product. An entrepreneur knows they’re onto a good thing when a customer pays for it. Even startups with an MVP can generate revenue if their product delivers enough value.
We should stop thinking about startups being sexy or disruptive. Instead, we should look at startups as small businesses that survive and thrive when they have customers, not just users. It’s how businesses stick around.
More: For a look at how free also destroyed a startup, check out Josh Pigford’s blog post about Baremetrics.
If you’re looking to jump-start your startup marketing, I can help you make it happen – everything from messaging and brand positioning to strategic planning and content development. I published a book, Storytelling for Startups, that provides strategic and tactical guidance to entrepreneurs looking to embrace the power of story-driven marketing.