My Advice to Todd on his Startup (Timeless Advice)

Over ten years ago on Feb 14, 2014, Todd Gardner reached out to me for advice on his startup TrackJS.

He had a lot of questions, ending with:

What do you think? When is a product mature enough to end free service? Do you think support costs will go up? Should we focus on mindshare or revenue? I know you’ve got a ton going on. We appreciate any thoughts you can share. ~ Todd

Hey Todd,

You know who I am and how I can be very opinionated while having your best interest at heart. I recognize other paths DO work for other people, but I’m a very opinionated guy so I’m going to paint things one way based on my own experiences doing startups here in Minnesota. You can feel free to call BS on me in any of my opinions.

We are considering ending the beta of Trackjs and transitioning into paid service. This allows us to test our business model and begin focusing more on customers that value our service. We can use what we learn here to iterate our product and messaging and hopefully grow.

My opinion here is that you simply cannot go to paid fast enough. Charging from day one by putting up a less-than-ideal product to get a small pool of people who will give me candid feedback through the build cycles is usually the best route because people who use things for free are completely different from customers who actually pull out a credit card. It separates the hobbyist from someone who actually needs your product enough to actually pay for it. Typical free tier to paid tier upgrade percentage is 1-2% (or less). So if you have 500 free users, you can only expect 10 of them to be customers… TOTAL. Dropbox was 4% which was OFF THE CHARTS. Look it up and do some research on it…the numbers are all out there on this. There are benefits to free, but it’s hard to make free work for you unless your numbers are crazy high OMG GROWTH.

Today, none of us are fulltime. We add features as we can and do our best to support customers—and I think we’ve done a great job so far. But we are concerned about higher expectations for a paid service and more operations time. We’re uncertain that we could continue to grow to the revenue needed to go fulltime with the extra obligations required.

You will all burnout if you don’t see money coming in the door. Success breeds success and money bring validation and customers who rely on you for their business needs will fuel your development in ways that free users will never. Even a small amount of money $100-1000/mo is fuel to build on top of. I’ve burnt out with all my free products (even ones with hyper growth).

When you charge, the people who pay for things will take you seriously, give you feedback based on their real business cases and give you their credit card from the beginning of the relationship. You’ll receive much more targeted feedback once you start charging. vs people use products for free they give you 1000 “what-if” scenarios and it’s hard to distinguish what is really important. It doesn’t cost them anything to give you feedback. That’s bad. But, if you have a few customers paying and none of them are asking for features x, you know feature x isn’t really important. What not to build is much more than half of the battle. With feedback from free users the noise is coming from everywhere and you don’t know which feedback is real feedback from people who have business needs.

1 person’s feedback who spent $100+ is more important than 1000 people who’ve paid $0. — When they’ve paid it’s awesome feedback vs when it’s free users it’s a bunch of theoretical feedback.

We’re also concerned about hampering growth. We’re growing at about 10 users/day right now and we are getting a lot of great buzz. The market for this is hot right now and a lot of people are talking about it. If we stay free, we could position ourselves as the error tracking solution, grabbing as much mindshare as we can.

The “hyper-growth” strategy is for VC-backed startups. Even kickstarter, who has raised a ton of money and has funneled $600M in backed-projects and has $6M in revenue, is STILL operating at a loss. These companies play by totally different rules.

For a self-funded startup, I don’t think free user growth is real growth…it’s $0 in the door. Figuring in that you’ll only convert 2% of free users into paid users, means you aren’t actually growing very fast right now.

Free is hampering growth more than it is helping you because living in theoretical-value-land is not healthy for anyone. I’ve been in board meetings… People thinking things are worth more than they actually are and that’s not healthy. Knowing the real value of the business and building from there changes the whole dynamic by setting up proper expectations. You need that to keep motivation in check with reality. If someone effects real growth you will see that by the numbers. Right now it’s anyone’s guess.

We’re considering approaching VC’s again with our current situation and exploring outside investment. But we’re cautious on the amount of equity they would demand, the constraints they would put on our personal incomes, and the amount of time it would take just to run down the deal.

VC’s will have you give up 30% out of the gate and have you swinging for the fences. If you want to move out to the bay area then go for free growth. Otherwise if you want to stay in the midwest you should ring the f’ing cash register. Clay Collins (Lead Pages) raised $5M recently here in the midwest, but he had $50-100k+/mo in revenue. And the only one person in the midwest that raised big money without having income…and he’s famous.

Swinging for the fences free-user growth is simply not a midwest game.

We’re also considering validating our business model in simpler ways. Perhaps introducing a “donation” option in our beta, where customers could voluntarily chip in a monthly cost to help fund the growth.

I created the most used piece of JavaScript in the world and made $400 in donations…total. I’ve talked directly with people with MILLIONS of YouTube views who received roughly the same amount. My experience is that donations simply don’t work…unless you are 1) donating to save someone’s life or 2) specific end-goal that’s tangible (like kickstarter).

What do you think? When is a product mature enough to end free service?

**A product is mature enough when people will enter their credit card and after adopting your software it won’t blow up their business. **Your product is ready… charge for it… Now!

Do you think support costs will go up? Should we focus on mindshare or revenue?

“Going for mindshare” is bad unless you experiencing HYPER RAPID OMG growth…which, sorry to say, but you don’t have. 10 users/day is not hyper-rapid growth. That’s peanuts for a free product from a VC’s eyes. But if you got 1-5 users per day entering in a credit card and paying you, that’s got the inner workings of being able to support 1 or more of you full-time working on software soon that you are passionate about in short order.

Here’s the awesome part! ..You guys have the perfect business to be self-funded — a software product that delivers value while people sleep without you having to touch the product…but in order for that to be a reality you need to learn how to charge money and get real revenue in the door. It sounds like you’ve never done that before or are just afraid of charging money. It’s ok..I have had that same fear of charging to get money coming in the door. It means you’ll have to face real reasons why people reject it. Your fears well-reasoned and very real. But once you learn to charge you no longer live in fantasy land of 500 customers. It will be much, much less than your expectations when you actually start charging, but it’s an important step you need to face sooner than later. Real credit cards are hard to argue with. Free users are worthless.. “BUT MARC >_< these are REAL customers I talked to them!” but did you give them a credit card form? No? Well then, they aren’t customers. Saying “I will pay $500/mo” and actually paying $500/mo is totally different and triggers completely different psychological pathways. Only then will you get what they really think.

I know you’ve got a ton going on. We appreciate any thoughts you can share.

I’m happy to talk over skype, over the phone or in-person about any of these things. I hope I didn’t offend you or set you back in any way. These are just the things I learned from 14 years of startups and 50+ clients and 10+ startups I actively advise.

It’s going to be really painful to put up a credit card form because you will no longer be able to fantasize. But instead…you will have a real business (eventually)! And that’s waaaay better than bragging rights. Especially when you all have a salary and get to work together for real and not worry about next month’s paycheck. It’s MUCH better than investor money which runs out. I feel way better now with 6 figures coming in yearly from products than when I was at $0 dreaming about big money with thousands of free users consulting my ass off. Paid is the way to go, but it’s way more painful than doing things for free…but only temporarily.

Wishing you the best Todd!