All posts by brydon

About brydon

I run the shared office space ThreeFortyNine in Guelph where we play with Startupify.Me, Ontario Startup Train and more. Hit up brydon.me for more...

FREE…It May Cost You Your Startup

First, a quick quiz…For this quiz, time is important as we want your gut instinct so you only have five seconds to answer before the submit button goes away. It’s multiple choice, there are only two options and you simply need to select one.

When you’re ready, go take the quiz and make sure to return here…

Pricing, Business Models and Virtual Goods

The topic of free and freemium pricing models is a regular one in startup land.While I’m sure it comes up on occasion in more traditional businesses, I have a feeling it’s much less the case. I don’t recall Mark pondering the option of offering free drinks and meals for the first six months at OX Restaurant. Or Beth considering just giving sweatshop free clothes away for the first three months at Grey Rock Clothing.

“When something is FREE! we forget the downside….we just can’t resist the gravitational pull of FREE!”

Over in startup land, it’s almost universal that first time founders plan to launch their product initially for free. While the free excuse list is almost infinite, a few samples include….

  • We really want to get people in and using it, get them hooked on the app before we start charging.
  • Because this is such a new innovative way of doing things, we can’t charge them, they just won’t pay until they use it.
  • Once we have enough users, we’ll start monetizing through ads but we can’t sell ads until we have the users.

A FREE image!

To be clear I’m not advocating against free or freemium models. In some cases they make great sense, however those cases are rare. What I am advocating is that you make that decision explicitly and can back up your reasoning. I have yet to speak with a new founder who plans on offering free initially AND has a good reason for it. Someone who’s explicitly thought it through and has clear, sound reasoning why they’re starting with free.

Making an Economic Choice

In new product development, what is much more important than free users are the hard no’s. What’s a hard no?

“Here’s a pink stuffed animal I made, do you like it?”

“Yes, it looks awesome, you’re a lovely human being, let me hug you…”

“Will you buy this pink stuffed animal from me? Will you please give me 20 of your hard earned dollars for this pink stuffed animal I made?”

“You want me to give you 20 bucks for this crappy stuffy you stitched together? Are you mad?”

There, that’s a hard no. It’s someone saying no, I don’t see enough value in this exchange for me. Hard no’s are money in the bank for startups, if you leverage them. You have to chase down every hard no and ask why, why, why? Why don’t you love me anymore? Why doesn’t my value proposition work for you? Would you pay $10? What if I included a lifetime warranty? What if it was $5 plus a lifetime warranty?

Starting with free removes your ability to get to those valuable hard no’s almost entirely. Now rewind the above conversation…..

“You want me to give you 20 bucks for this crappy stuffy you stitched together? Are you mad?”

“I’m just kidding, we’re giving them away for free as part of launching our new company, here it’s yours!”

“Thank you! I love you again, that was a close one”

See the difference? Few people can resist the power of free. You feel great about your pink stuffed animal, love is in the air, everybody happy, happy, happy.

What happens to the pink stuffed animal? The same thing that happens to most free software apps, it’s neglected and dies a slow quiet death in a dusty basement. Dad never says “hey, why aren’t you loving that pink stuffed animal? I paid $20 for that you know?!”

Here’s the thing you must realize, free is a reality distortion field of it’s own. We can’t control ourselves around free. Remember the quiz at the top of this post? I’m quite confident that greater than 75% of you chose the free option even though it’s not a rational choice. A $30 giftcard for $5 offers you $25 in value. A free $20 giftcard offers $20. That doesn’t matter since we go bonkers around free!

“Zero is not just another discount. Zero is a different place. The difference between two cents and one cent is small. But the difference between one cent and zero is huge!”

Clearly the rational choice is the $30 giftcard but free messes with our minds. In the book Predictably Irrational: The Hidden Forces That Shape Our Decisions, the author Dan Ariely digs into the details of how we tend to apply either market norms or social norms in these situations.  Free confuses your customer into applying social norms instead of market norms. This will certainly increase your user count but if you’re building a business you need to iterate to a value proposition that works when customer’s apply market norms to them.

If it makes good sense, free it up! Just be aware how powerful free can be. Depending on how you use it, it can help or hinder you. Offering free prevents your customers from applying market norms to your offering. Having customers applying social norms can distort your offering in ways you may never recover from. Good luck selling those $20 pink stuffed animals six months from now!

Ontario Startup Train Meetup – June 10, 2013

Update: The event date has changed to June 10, 2013.

In partnership with Via Rail consider this your official invite to our Ontario Startup Train wine and cheese on June 10th at Union Station in Toronto. We hope to get all our train attendees, alumni from last year and anyone considering coming this year together to start connecting and meeting before we even board the train. If you haven’t bought your ticket, come out and meet us.

If you don’t have your train ticket yet, grab one now as we will sell out again this year. Our early ticket purchasers get dibs on spots for our on-train mentoring with the likes of Jim EstillZak HomuthBrian Kobus and many more.

You remember the roadtrips of your youth, some with your parents, some with just friends. For our greatest roadtrips, we remember the journey the rest of our lives but often pause and think “where were we headed?”

“Sometimes it’s a little better to travel than to arrive”, ZAMM, Robert Pirsig

Last year we organized a roadtrip for startup founders and funders. We reserved our own car on a Via train and packed it full of entrepreneurs. Our destination was The International Startup Festival in Montreal for three full days of meeting, conversing, learning and working with a truly international audience of startup people.

This July, we’re aiming to have three cars, two passenger cars along with a bar car that we’ll use for our on-train events.

Startup conferences are very different beasts compared to their corporate cousins. People aren’t attending “because my boss sent me”. Instead the majority have spent what little pocket change they have to get there. The result is a conference filled with hustlers motivated to get a ton of value out of being there. We hope to help.

Instead of wasting your travel time, join us on the Ontario Startup Train and let’s get organized before we’re even registered for the conference. Our hope is to get you thinking and sharing what you need to get out of attending this conference before hand. Sharing that with other people on the train means it won’t be just you hunting for an introduction to Dave McClure or speaking to that potential partner you want to invite into your new project.

Vanity Celebrations

[Editor's Note: This is a guest post by Brydon Gilliss  founded the shared office space ThreeFortyNine in Guelph where he plays with Startupify.Me, Ontario Startup Train and 20 Skaters. A serial entrepreneur and fervent community builder, he’s also busy organizing a train-full of founders for this summer’s International Startup Festival.]

The moments we choose to celebrate say a lot about what we consider important. They’re a proxy for the metrics we value, because we’re signalling to others by their very celebration. And yet, I’ve always been of the belief that startups tend to celebrate the wrong things.

If that’s true, what signals are we sending? We celebrate product launches, government grant acceptance, fundraising, winning pitch contests, and so on. Too often, these are the vanity metrics of our startup ecosystem.

Of course, some of these events are worthy of celebration. A grant lets us live to fight another day; a winning pitch might drive sales or help us to hire a key employee. But they would be way down on my list, personally, if my goal was to build a real business. Let’s stop concentrating on celebrating events like taking on debt or winning what is often little more than a beauty contest—and focus instead on what we should celebrate but rarely do.

At ThreeFortyNine, we celebrate the achievements that matter to the business model. Consider, for example, the first time you sell something to a complete stranger. That’s worth celebrating because it’s the first sign your business might have legs of its own. In our Founder’s Club events, we celebrate selling our first train tickets to strangers; Foldigo celebrated its first-ever sale to a stranger. Our plan is to build up this list and move it into our monthly socials.

We’re building our Startupify.Me program around the concept that talented developers stepping into startup life need options. Incubators, accelerators and government grant programs funnel them into a single, traditional path thereby discouraging experimentation. We want our cohort to have the option to create a lifestyle business or a even a small, local business—if they choose. Of course, any of them can still try and swing for the fences, but they have all options in front of them.

“We didn’t get to where we are today thanks to policy makers – but thanks to the appetite for risks and errors of a certain class of people we need to encourage, protect, and respect” – Nassim Taleb

CC-BY-NC-ND-20  Some rights reserved by RahelSharon

Only in recent years have books like Lean Analytics begun to draw out the real risks of obsessing over feel-good data that does little for the business—so-called “vanity metrics”. There’s a very real danger if a young entrepreneur believes that success comes in the form of taking on debt, winning a pitch contest and launching a product. Those may be required for some businesses but they shouldn’t be misconstrued as success.

Part of the challenge here is the proliferation of what I call success turnstiles in our ecosystem. These are entities whose prime motivation is to funnel as many businesses as possible through their turnstile. It’s a pure numbers game for them as they chase their success metrics. These entities tend to be government funded and these success metrics are defined by bureaucrats and can be tracked up the organizational hierarchy to a speech-writer’s desk.

We need to lead real conversations about what success is because it comes in many shapes and forms. Advocates of this more mindful form of celebration include Jason Cohen imploring founders to get 150 customers instead of 1000 fans and Rob Walling helping startups to start, and stay, small.

Here’s an initial list of milestones and accomplishments worth celebrating to get you started.

  • Performed 30 interviews with real potential users.
  • First customer acquired.
  • First customer acquired and you have no idea where they came from.
  • Covering your monthly personal costs.
  • Identifying the first product feature a potential customer will pay cash for.

Which vanity metrics need to stop being celebrated? What do we need to celebrate more?