

Fear of Money - klous
http://influencehacks.com/fear-of-money

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tptacek
Whatever you think of App.net aside (I'm not an optimist about it): this post
is dead on. Acting out of "Fear of money" is probably the most common routine
unforced error harming startups that post on HN. You can see the syndrome in
virtually any thread on this site that involves a price tag.

This is the exact same force that causes enterprise "Account Managers" (direct
sales people) to outearn sales engineers by 4-5x, even though the SEs do all
the real work. Account managers have learned how to Ask For The Sale. I can't
do that, have no idea how they do it, am sort of in awe of salespeople as a
result; I function in business largely by understanding and respecting the
limitation I possess. Money is terrifying.

~~~
natrius
The post is definitely correct, but I think the App.net scenario is a startup
unicorn from which valuable conclusions are difficult to draw. There's very
little that they did that others could repeat.

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revorad
Fear of money is definitely a big problem, especially among developers. But
the situation is more complicated.

There are two important things to understand here, which I've learnt the hard
way.

1\. The entire business model, not just the exit strategy, of almost all VC-
funded startups is _selling the company_. They start with selling little
chunks of the company to investors, culminating in the exit, when they sell
the whole thing to BigCo. IPOs are black swan events in this respect.

There's no fear of money here. When you can get millions selling chunks of
your company, purely based on "engagement", why would you break your head
trying to sell product?

Founders who are well aware that this is their business model are very good at
talking big and using visionary rhetoric. They avoid talking about mundane
business details and use phrases like "passionate about X" and "ripe for
disruption".

Founders who are actually interested in building a product-based company and
running it for the long-term are rare. Drew Houston is a great example, and I
respect him a lot for it.

2\. If you do not intend to raise venture capital, then following the business
tactics of VC-funded startups can mean death. Free and freemium have
unfortunately become the default for all software now - even apps built by
bootstrapped solo founders. This is a huge mistake.

If you are not actively working the market to sell your company, to investors
in chunks or to an eventual acquirer in bulk, you're digging your own grave by
giving away your product for free.

Better start actively working the market to sell your product for hard cash
instead.

~~~
bdunn
Bingo. Why bother coming up with a business model for your _ahem_ business
when you're hoping to get a hiring bonus when Facebook buys you - I mean,
selling your company.

~~~
il
Everyone is hoping that they will be Facebook, not that they will be
acquihired by Facebook. Acquihire is Plan B.

------
shawnc
We've actually been charging money the day our Beta went live. Our users have
been happy to pay, happy to have the product, and are amazing people. Patient,
happy to help, thoughtful people.

This probably isn't the norm - and the people choosing to not pay for our
product (at least those that communicate with us) are rude, unwilling to think
of things differently, and mad we're trying to make money.

We couldn't be happier with how it's going.

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diego
It's not just fear of money. In consumer apps, "free" means the potential of
having hundreds of millions of users globally. This includes people in
relatively poor countries, who would never pay for anything online.
Nevertheless, they pad your numbers. Not to mention that you can have multiple
accounts, sock puppets, etc.

The market rewards this behavior: Facebook is worth $40B not because of ads,
but because of the potential to eventually sell something to a significant
fraction of its billion users. App.net would have a hard time being worth
several billion dollars if you do the math, which is completely fine. Perhaps
they could have 100k real users paying $50/year = $5M. That might justify a
valuation in the tens or hundreds of millions, depending on growth rates.
Fantastic for a bootstrapped company. Not nearly good enough for Twitter's
investors who put over a billion dollars into the company.

I wrote a blog post about this yesterday: [http://diegobasch.com/the-dangers-
of-being-a-product-instead...](http://diegobasch.com/the-dangers-of-being-a-
product-instead-of-a-customer)

~~~
il
I think the jury's still out on this one. Most active Facebook users would say
they're willing to pay a few bucks a month to keep using it, and there are
many successful consumer products using a freemium model.

If App.net's ARPU can hit about $120 (100x that of Facebook), then it can
capture only 1% of the market and be equally successful.

~~~
diego
Citation? Who are those "most active users" and who asked them? By the way,
what users say they would do and what they actually do are very different
things. Anyone who ever started charging money for something that used to be
free knows this.

Somewhat relevant: <http://www.useit.com/alertbox/20010805.html>

~~~
dohko
I agree. Quite honestly what sane person would pay for the ability to use a
social media website? What does facebook offer that is unique and worth paying
for, other than a large user base? The moment that facebook starts charging
their user-base there is really nothing from stopping them to use it and move
on to the next free social-media colossus.

~~~
runako
People routinely paid for photo sharing on the Web before Facebook. Mentally
strip out the rest of the site if it helps understand, and you're left with a
site where you can instantly publish pictures to your friends and family from
your mobile phone. People have and do pay for that feature alone on other
sites.

------
SCdF
I think it comes down to what you're trying to achieve with your app.

If your goal (and your software) is based around lots of users, then clearly
free is optimal. There are lots of studies which show the power of free, and
how free is much more appealing than something costing as little as 1c. It
makes sense that FB is free (or at least has a free tier). FB is useless
without other people.

If you're writing an app that is entirely / mostly non-social, and your worth
is not measured in the number of users you have, then paid makes sense.

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aneth4
Also missed by many startups is that real customers WANT to pay for a service.
Paying means the provider owes you something - quality, support, not shutting
down tomorrow, etc. Paying also means you are entering into a mutual exchange
of value, and supporting the future of a product that brings you value. Good
businesses understand commerce is an ecosystem, not winner take all.

This is often difficult for young entrepreneurs to understand, because they
are bootstrapping, have no budget, and want everything for free. Actually,
offering service for free often makes customers uncomfortable - they think
either you are incompetent or won't last.

Often when a free service shuts down and people complain, there is a
contingent of HN that responds "it's free so stfu." While somewhat valid, the
converse is that when it's not free, you do have a right to demand something.

Personally, I favor products that charge reasonable rates and have a business
model. I would not spend a minute integrating with a service that did not seem
to have at least a roadmap to billing me because I would rightly believe the
service is likely to shut down, leaving me with the task of replacing it.

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lnanek2
Investors often flat out tell startups the opposite, go for reach first, then
monetization. I guess if you are boot strapping then, fine, cripple your
growth and start charging.

~~~
franzus
In these cases monetization simply means: sell the start up to a bigger idiot.

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j45
"You’ve either built something worth paying money for, or you haven’t."

That should follow "Build something people want."

Brilliant!

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jacques_chester
Fear of money seems more like fear of failure to me.

