Geoff McQueen is an Aussie Entrepreneur who recently made the shift to San Francisco to base his Startup AffinityLive, a startup that solves the problem of managing work for service-based companies. Affinity Live just got featured in TechCrunch: http://techcrunch.com/2012/02/29/affinitylive-debuts-to-help-businesses-manage-operations-in-the-cloud/ Geoff is also an investor and Mentor for Startmate.
I asked Geoff to contribute to our Picknic Startup Series of posts and he has given me permission to repost his recent post from his blog here on “Why Freemium Fails For Business Sales”. Some very important lessons in this post on what to consider when you decide on your business models.
Why Freemium Fails for Business Sales
I spent a few hours yesterday afternoon with the 2012 class of StartMate companies in our Sydney incubator. As someone who’s spent their career working in business to business technology, I was excited to see 3 of the 8 companies focusing very strongly on solving real pain points for businesses. Smart teams, real problems, solid technology – full of win.
While their target markets – property, film and IT management – were all very different, the common challenge faced by all enterprised focused startups who want to get big was the same - distribution. I know this only too well, as this is the thing we spend more time thinking about withAffinityLive right now than anything else.
One of the tempting ways to try and ramp up distribution is freemium. The theory goes, if I make my product free, I’ll remove a big barrier to adoption, word of mouth will have a stronger effect in driving user volume, and we’ll be able to show VCs a nice hockey stick graph that goes up and to the right.
My concern is that for almost all of the SaaS companies that target businesses, those who try freemium realize it was a mistake, hopefully before they kill their business. Freemium is almost always a very very bad strategy for selling to businesses.
In planning our AffinityLive sales and marketing model, I spent a lot of time talking to people who’ve been there and done that. Most of the conversations were very off the record, but one source I always point entrepreneurs to is the experience of the guys from Chargify. They originally had a freemium model, and the reasons they abandoned it – and the backlash they sustained in the process – were blogged about extensively and very honestly by founder David Hauser. It should be compulsory reading for any entrepreneur targeting the business market.
There’s a lot that has been written by people with a lot more experience in the matter, but just telling you not to do something as trendy as freemium isn’t going to cut it. We all want to see our products used, and most engineers start solving a problem for ulturistic reasons, which explains why freemium has so much appeal.
So, rather than just saying don’t do it, I’ve listed the four attributes that can make freemium a successful strategy for your business focused online service. You don’t need all 4, but you’ll want to have most of them baked into your product and business model to have any hope of making freemium work.
As I see it, here are the criteria to required to make freemium work for business (ie, non-consumer) facing product:
There’s a lot of attention and excitement around freemium today, even as the pioneers of freemium have actively moved away from it. Don’t be another engineer or entrepreneur who just wants to be popular – if you’re selling to businesses, avoid freemium unless you’re that small percentage of products where it actually works.
Future of market is online. Everyday 70,000 new people get internet access. So in order to make your future secure it is imperative to go online. But before putting your first step in the online market you need to be careful about the mistakes that businesses generally do in their first venture and due to these mistakes their future operations suffer. Some businesses end in failure due to some very small mistakes. Bizdrive.biz lists these mistakes to make its customers successful in their very first online attempt.