This was originally posted on swombat.com in March 2011.
On my first startup, I made the mistake of not talking to customers at all until launch day. As a result, the product sucked – it was not fit for any market. And because it was unfocused, it was impossible to define any sort of effective marketing strategy, either. This is the kind of expensive mistake you don’t make twice, and I extracted it as a one of my “N tips” posts later (see tip number 4).
So imagine how surprised I was when I managed to make a variation on this mistake again with the next startup – albeit in a different flavour. We launched within 2 months, had active users from the right industry right away, saw the product spread… and yet when it came to charging people, the process of getting those happy users to pay was harder than pulling teeth from a cat! Moreover, when trying to sell to other potential customers, who had been unwilling to use the product for free but seemed more inclined to pay for it, there was always a feeling that the product was exciting and had potential, but it didn’t quite do what they needed in order to justify paying for it.
In startup lingo, that’s known as a product/market fit issue.
Fit the right market
It turns out that getting a prototype out there is not enough. You have to get the prototype into the hands of the right market. If you’re planning to sell a paid SaaS product, this means finding early users, from day one if possible, who will pay. Otherwise, you’re getting product-market fit – with the wrong market.
In that context, it was good to see, recently, the following story about SyncPad, who did launch to paying customers right away – which enabled them to discover that their paying market was not who they thought initially:
After Davide launched his app he hit the streets and began talking with his actual customers. What he discovered surprised him. Instead of taking the art world by storm, Davide discovered that his true customers for SyncPad were in the business market. He found that companies were using SyncPad to help manage meetings (both remote and locally), real time visual communication, and for presentations.
SyncPad made some wrong assumptions about who their customers would be, but by charging early, they found those assumptions out very quickly, and were able to pivot their product into the right market.
The price selector
Price is a very strong selector when it comes to users. The people who pay are often not the same as the people who want a free product. This is especially obvious in the B2B market, where “how much the customer wants to pay” allows you to select between enterprises, small businesses, freelancers, etc.
If you build a product with the feedback from free users, you’ll build a product that’s great for free users. If you want to build a product which users will pay for, you need to be charging them as early as possible so your product feedback comes from paying users.
One approach for charging early is to ask users to pay from day one, even while your product is in early beta. Even though they’re helping you out a lot by being some of your first users, you need to validate that they are the right kind of user, and the only reliable way to do that is to ask them to pay you.
Of course, you can’t charge them the full price. They’ll laugh you out the door and you’ll lose a potentially very valuable relationship. So, what do you do?
You give them a steep discount. “We’re still early in the development, so you will get a 90% discount for the first three months, and we’ll review the price upwards as more features are developed.” This can also lead very nicely into a discussion of what feature they would most like to see in order to accept the price increase in three months. This can turn into your product road map, if you manage it well.
Of course, perhaps no one will want your product even at a 90% discount – but if that’s the case, you should revise your assumption that they’ll be willing to pay for it at full price, ever, and perhaps pivot into a different product, one that people are actually willing to pay for.
Thoughts from 2017
This article is still very relevant. I frequently bump into new founders for whom this is a useful idea, and who haven’t heard it from somewhere else. In particular, the idea that price is a selector seems sadly rare, given how many founders would benefit from it.