Why Freemium Could Be a Costly Trap

While in B2C startups the freemium model is widespread, in the B2B world it could lead to a costly trap. Case in point is Box, whose imminent IPO also shed some light to its finances and according to a recent Re/Code article says that of its 25 million users “only seven percent — fewer than 2 million at 34,000 companies — are paying for it”. The result is that Box doesn’t expect to see any profitability soon…. if ever. 

You may also recall Chargify, a subscription billing company that almost went bankrupt and had to kill their free plan and start charging customers.

In the enterprise or B2B world the “free trial” is the way most companies use the “free” option, to attract customers that will eventually have to start paying, whether 15, 30 or 60 days latter. This is not freemium, though.

One company that comes to mind that did well with a free offering is HubSpot. They offer their suite of “grader” tools (https://marketing.grader.com/) for free. This allows companies to assess their website and blog ‘score’ with suggestions for improvement. But wait, before you point your finger at the scream and yell “AHA!” look more closely… this free offering is NOT a free version of their product. It is instead a side tool used to promote the company so that other businesses try it out and might eventually decide to see what HubSpot is all about. Clever? Absolutely. Freemium? Not really.

As much as “free” can help attract interest from potential buyers, in the B2B side I haven’t seen a huge success, yet.

Figuring Out How To Make It Work

There isn’t a startup that became successful overnight. It typically takes years of trial and error, tons of money down the drain, wrong bets and wrong hires, and the ever eluding light at the end of the tunnel.

If you are in the middle of the battle of making your startup work, which according to Steve Blank means figuring out a business model that works, then hearing from other entrepreneurs and learning about their miseries can sometimes be helpful. You are not alone, after all!

Check out for example Jason Goldberg’s rant about how he is finally going to take it seriously and really start paying attention to business 101 and turn his startup, Fab.com, around. A good read is Simon Dumenco’s criticism of Goldberg’s post in a recent AdAge article.

Enjoy!

A Startup Show Worth Watching?

HBO recently released a new series, Silicon Valley, that does a pretty good job at capturing the startup environment in the SF Bay Area. It’s funny while not being overboard and makes fun of iconic people and companies in the Valley (Google, Peter Thiel, Paul Graham, and others).

If you are like me and doesn’t have HBO, you can still catch the first episode for free.

Silicon Valley HBO Show

Click to watch the first episode

Fundraising for Startups

MoneyLooking for a primer on fundraising for startups? You are in luck, because Paul Graham, of Y Combinator fame, has an incredibly comprehensive and no BS essay that tells all you need to know about raising money.

This is required reading for startup founders. Read “How to Raise Money” here: http://www.paulgraham.com/fr.html

Understanding Stock Options

Alex MacCaw has a great post in his blog titled An Engineer’s guide to Stock Options that describes in plain English all you need to know about stock options as a member of a startup team. It’s pretty well explained going from shares versus options, exercising your options, what questions you should ask before joining a company offering stock to employees, and more. 

Check the full post here: http://blog.alexmaccaw.com/an-engineers-guide-to-stock-options

Grab Your Seat at Launch 2014

LAUNCH Festival, an event where startup founders can pitch their ideas to investors, network with other startup enthusiasts and rub elbows with those who “made it” will be FREE in 2014.

The event was created by Jason Calacanis, who explained in an email why he is giving away tickets:

When I started in the industry in my 20s, I didn’t have a pot to piss in and was a ‘little rough around the edges’ – I was so lucky to have folks like Esther Dyson, Kara Swisher, John Battelle, Tim O’Reilly and (most of all) John Brockman include me in their events.

These events led to me rubbing elbows with Evan Williams, Yossi Vardi, Larry Page, Jeff Bezos, Ted Leonsis, Steve Case, Mark Cuban and countless other luminaries. Some of them became good friends and/or critical business contacts.

Now I’m trying to pay it forward for the 40+ startups that will launch onstage, the 150 that will be at demo tables, and the thousands of founders and technologists who maybe don’t have the budget yet to come to a world-class conference.

LAUNCH Festival is my legacy and I want as many folks to experience it as possible.

We had 6,000 people sign up last year and this year we hope to have 8,000 (stretch goal FTW!). This makes us the largest startup conference in the world – by far.

Grab your tickets here: http://launch.ticketleap.com/launch-festival-builder/dates

Thank you Jason!

 

 

What Transparency is Like

I’ve seen many entrepreneurs and company CEOs talking about ‘transparency’. They say that they want a transparent culture, where people know what is happening with the company. They say that direct, honest communication is part of their values. They even say they want every employee to feel like they are part owners of the company or startup.

But where do they fail? In actually showing the numbers.

Great Examples

Look at SeoMOZ for example, that posted their metrics and funding deck. Or Balsamiq, that did an interesting public post about the company’s growth when it hit $100,000 in revenue.

It takes courage to post stuff like that internally, much more courage to actually make it public outside the company. But it shows not only where the company is, financially, but also gives you a glimpse at the corporate culture in general.

Which Numbers Are Important

To really be transparent, however, means showing all the numbers. The good, the bad, and the ugly. Unless you show how much money the company is making, how much money the company is losing, and what is happening that is driving such growth/no growth you can’t say you are transparent.

I’m not advocating opening the kimono to the public, but rather to your employees. Case in point is Axcient, a high-growth company in Mountain View (full disclosure, I currently work for Axcient) that holds monthly “all hands” meetings. During these meetings all employees get a peak inside the company’s business metrics. The VP of Sales talks about sales numbers, quotas, and whether the sales team is reaching their targets. The VP Marketing talks about the lead generation programs and key metrics as well. But when the CFO takes the stage is when true transparency really shines.

You see, when you are attending an all-hands meeting at Axcient you are sure to get not only a good look at the financial metrics of the company, you also get schooled.The CFO shows you the total costs that month and for the previous year, shows you revenue numbers and discusses all the details that go into each bucket. You also learn about what constitutes cost and what are expenses, why some numbers are increasing while others are decreasing, and most importantly, what it means for the business.

At the end of that session you don’t just come out knowing the financial state of the company, you also know what it means and whether is good or bad. For employees this is gold. No more guessing if the fact that the VP of Sales bought a new car means the company is doing well or whether the CEO shouting during an executive meeting is cause for concern. You actually know where things are and you can be certain that next month, at the next all-hands meeting, you will be able to see exactly where the company stands financially.

Why Hide The Numbers

But what if all this confidential information leaks? People, after all, are typically the weakest link in any confidential or secret matter (just look at the notoriously bad rep that HP employees and even their board have when it comes to keeping secrets). Well, there are two ways to look at it.

First, you could argue that if those extremely confidential numbers got out the company would be in a bad situation and competitors will eat it live. That the reason for hiding such numbers is to protect employees and the company’s future.

On the other hand, if you are worried that you will be in competitive disadvantage simply by telling others how much revenue you have or what is the exact ratio of certain cost metrics, then you have a bigger problem at hand. If you are worried that employees are not capable of safeguarding confidential information, then you are hiring the wrong people.