Mailchimp for example spent 8 years refining their product and pricing before they felt confident a Freemium offering would be beneficial. While companies like Dropbox, Evernote and Slack embraced Freemium from the beginning and the majority of their success is based on their Freemium model.
That said, businesses that target markets above 100 million, can be quite happy with 1% conversion rates as 1 million paying customers can generate an extremely healthy business.
My general feeling is that it is extremely important to truly understand what customers value in your product before embarking on a Freemium journey. This need not take eight years like Mailchimp, but really understanding and your market for a period of time prevents the guesswork associated with launching Freemium from day one.
Also you don’t need to be worried about not launching, you can always introduce Freemium when the time is right.
This quote from a recent article I read encapsulates my current thinking:
Freemium is definitely something I want to explore in the future but in the first instance I want to measure and understand value. That said, I will have a Free Trial Version so that at least allows potential customer to access the product before committing.
Quite often things take longer then expected! But today marks the official start of something new.
Ive been trying to get something off the ground for over 12 months and after a few misguided attempts today marked the incorporation of a new business.
We’ve got a lot ahead of us before we’ll be in a position to talk about it but it is a great feeling to have my own business again.
Today marks the point where various prototypes from the last 6 months get put to the side and we start development of what will hopefully be v1 of our product.
Getting started is always a hump to get over, but while we have lots of challenges ahead of us as we begin to build a new business from the ground up, we now have a single minded goal and focus to aim at.
This is a tougher question for me as there is no clear cut answer and the ideas I have are spread across all platforms – web / phone / tablet / desktop. All platforms have different pros and cons and also require different development skills.
I’ve been developing web based apps for over 20 years. The original ARCHICADselect Website was powered by early ASP and SQL Database. This evolved over time and became a whole front and back office system integrated with accounting, support, payments, subscriptions.
More recently I have been learning iOS development with Swift and SwiftUI. This has certainly been fun and has been great to see some early ideas come to life on my iPad – even if they are very primitive!
When considering platforms I’m also coming back to business models like subscription and freemium.
Freemium is where you have a Free Version and a [paid] Premium Version of the software. The general idea (and the details should be a post on themselves) is that the Free Product is a marketing Tool to capture as many users as possible and then convert a number of these to paying customers.
A key consideration with regards to Freemium is the “cost to serve” that is, how much does it cost to serve each freemium user. There are many businesses that have failed purely due to the excessive costs associated with supporting their ‘free’ users.
A fairly simplistic view admittedly is that free customers on a “web based” system will have costs that can increase significantly as the number of customers increases. While a piece of software installed on a users iPad has a very margin cost to serve which (should) stay under control with large volumes.
This is not the only consideration but an example of how different platforms can have different affects. Like I say Freemium is a strategy in itself and I’d be jumping the gun a little to be deciding my business model detail without first knowing what I am developing.
In short, this is one area I still need to give considerable thought, though based on some prototypes to date I can at least reduce the options to web or iPad – or ultimately maybe a mix.
For those of you who know me or are readers of this blog you’ll know I have a passion for creating business models based on recurring revenue – the majority of my consulting projects have been based on this aspect of business.
While Salesforce is generally credited with making Subscription based Software / Software as a Service mainstream, the last 20 years have seen
Subscription businesses build revenue over the long term so have high cash requirements during the short to medium term. However, the pay off, if executed well, can be very rewarding.
Another advantage is that the cost to get started can be very low if based on a monthly model. This is not to say that sales are or will be easy – value still needs to be delivered at any price – but having a fee based on a period of time reduces risk for the customer.
The flip side of this is of course the ability for customer to stop paying if they don’t see value. Therefore the sales process for a subscription business continues long after the initial purchase.
As a person who has always had a customer centric mindset I see subscription models and the associated customer journeys as compliments to the overall strategy.
While this may seem obvious, it also requires more explanation. With Cadimage we created a series of Tools for ArchiCAD. While the Tools were our IP, our customers also needed to own ArchiCAD before they were even a prospect for us.
Some estimates indicate there are 3-4 million architects worldwide. Let’s keep it simple and say 2,000,000. If you create a product that you hope will see a 15-25% uptake (tough) you could have 300,000 – 500,000 customers. But if you rely on that customer already owning a particular piece of software the 2,000,000 total addressable market is considerably reduced.
We found with Cadimage that even simple marketing like Google Ads was fraught with difficulty, as we’d constantly pay for clicks that were worthless as the people didn’t even own ArchiCAD.
I want to create something that can be assessed completely on its own merits and provide value in and of itself. Depending on what we end up deciding it may need to work alongside other software, but I don’t want other software to be a pre-requisite.
While there is huge potential to create add-ons for the different BIM systems other issues we faced was customer expectations that the primary software should “just do that” ie the tools we were delivering were expected “out of the box” this led to many people not investing (even a relatively small amount) to buy tools that could increase their productivity. They would say “the product will do that at some time so I’ll wait” I could never understand people who would prefer to wait in order to increase productivity.
If you look at business you can sell things or you can sell time – I realise this is reasonably simplistic but I have owned and advised both types of businesses. I find the ability to scale a product business far more compelling as you can scale without the direct correlation to employing staff.
Don’t get me wrong, it is great to create, build and nurture a strong team, but with a service business the easiest way to scale it to sell more time which requires more staff (again apologies if this is too specific)
If I was interested in the service business I could focus my current consulting business in that direction and think about how I could expand and scale. This isn’t really me, I want to be more hands on creating something tangible (or at least as far as software is tangible!)
Its been over 4 months since my last contract finished and with Covid spreading throughout the world we are in lockdown here in Hungary. It could be sometime till I get a new contract one feels.
I’m not one to sit idle for long so I’ve kicked off a number of ideas to see what may come of them.
Starting can be tough and although I’ve started researching, prototyping and thinking whether it will result in a new business is anyone’s guess.
Since moving to Hungary I have worked for GRAPHISOFT SE, and then subsequently started my own Consulting Business. While I’m working for myself from the consulting point of view, it is still for other people’s businesses and deep down I feel I want to build something of my own.
As I’ve been investigating I’ve started to think about what I would want a new business to look – maybe it’s a weird place to start, but based on past experience there are some things I have strong feelings about.
I’ll explore my ideas in a series of posts, and update this post with links as I continue.
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