When Free Stuff Online Becomes Dangerous

Ask anyone if they want to get something valuable without giving up a single penny in return and they will definitely say “yes”. It’s a human trait – we really love free stuff.

On the Internet, we’ve gotten used to getting products and tools for free. There’s nothing inherently wrong with this. Some companies are using a freemium model where they give away part of their product for free to entice you to buy the full product. Game companies do this all the time as do companies like Dropbox. Other companies give away their product for free in an effort to build an audience and sell ads – Google, Facebook, and Twitter for example. Although the ads can get annoying sometimes, these are all perfectly acceptable business models.

Where things get more dangerous and scary is when tools that involve sensitive information, such as healthcare, personal finance, or security are given out completely free. I want to be clear here: I’m not talking about freemium or free updates. I’m talking about 100%, no strings attached, free.

Why is this dangerous? Because companies need to make money and the easiest way for these “free” products to do it is by selling your personal data. In its most innocent form, this simply involves lead generation – think Mint.com and all the credit card offers you receive through their site after making an account. At a more insidious level, personally identifying or user activity data could be sold to third parties.

Don’t believe me? StopDataMining.Me was featured in Lifehacker last year identifying 50 data brokers who store and re-sell your personal data to others. They all have ways to opt-out but let’s be honest: how many of us even know the names of all the companies reselling our data? Even worse, you have to opt-out from each site, one by one. The problem is so widespread that The Federal Trade Commission issued a report earlier this year recommending that Congress require data brokers be more transparent and give consumers greater control over their personal information. Not much has happened with that so far but the recommendation by the FTC is a step in the right direction.

At the individual level, there’s not much we can do about all this except be aware of it. I’m not saying we should stop using free tools. Just be sure to think through the business model of whatever tool you’re deciding to use. My one recommendation would be to opt for paid tools and services for things that involve sensitive data – the extra few dollars per month is worth it.

The One Thing They Don’t Tell You About Growth Marketing

True or False: Accomplishing your goal 30% of the time is good.

The answer: It depends. If you’re in school and only getting 30% of the answers correct, it’s probably time to stop reading this post and go hit the books. But if you’re a baseball player and have a batting average of 0.300, then you’re one of the better players.

Growth marketing, especially for startups, is more similar to baseball than it is to school. You’ll try tons of different tactics and strategies to grow – the phrase we use is “Throw s**t against the wall” – and most of it won’t improve your growth rate at all. Of the few things that do work, most of them won’t be scalable and allow you to grow 10X. Finding a scalable growth tactic that works is a bit like trying to find a needle in a haystack, except in this case, you don’t even know if there is a needle hidden in the haystack.

So if most things don’t work, how do you find the things that do? By doing lots of customer development and experimentation, which requires a completely different mentality than schoolwork. This was the most difficult leap for me – realizing that my answers were going to be wrong more often than they were right – and being OK with that. It’s hard to overstate the difficulty of this mental switch. We go to school for 12 years and then years of college and/or grad school with the “I should always get the right answer” mentality, which is counterproductive to being a good growth marketer.

The best way I found to handle this leap is to think like a scientist. I start with a theory, for example a new pricing strategy, and then develop an experiment and hypothesis to test that theory in the real world. Testing can only be done by putting your idea in front of customers/users. I try to pick a big enough sample size to make the experiment relevant (sample size depends on what you’re doing/selling) but keep it small enough to where I can speak with the customers individually to learn why they are saying yes or no. Unfortunately, thinking like a scientist is not taught in high school or undergrad, even if you major in science or engineering. It’s something you have to develop on your own.

The last piece of advice I’ll give on this is that successful growth requires thinking outside the box to find something that clicks (terrible pun…). At Mom Trusted, we experimented with phone, direct mail, email, fax, social marketing, SEM, SEO, conferences, and many many more tactics (with lots of iterations in each of those categories) in order to find the channels that worked. Other companies, like Eat24, have gone even more outside the box by advertising on overlooked web properties (including porn sites). All of these tactics were figured out through data-informed (not data driven) experimentation.

Thinking about growth marketing like a scientist is a skill and like any skill, it can be developed through practice and study, with practice being more useful than study. If growth is something you’re interested in, I strongly recommend getting real world experience as soon as possible.

 

Staying Mentally Stable On The Startup Rollercoaster

Lately, there’s been some much needed talk in the startup community about the mental health effects of the constant ups and downs that come with being involved in early stage companies. The toll can be especially taxing on founders – take a look at the notes Brad Feld received from founders after he wrote his illuminating “Founder Suicides” blog post earlier this month.

The media usually portrays famous founders as Supermen/Superwomen – which makes “regular” founders feel inferior and inadequate. This is very much related to the “crushing it” culture that has gotten so rampant. When founders are asked how things are going, it’s incredibly rare to hear an answer other than one of the many variations of “crushing it”. With more people like Brad Feld talking about mental health, I’m hoping that honesty will become more common, but maybe that’s wishful thinking.

Having been involved in a couple startups over the past few years, I’ve been through some awesome experiences and also through shitty, terrible things that I wouldn’t wish on my worst enemy. Staying mentally healthy in a rollercoaster environment like that is a huge challenge and to be honest, is something I’ve struggled with at various times in my life. Over the past few months, I’ve taken a more active approach to keeping a healthy mindset. Below are some scientifically untested techniques I’ve been using with success so far to keep my work problems in perspective:

 

Read Books:

I read a lot of books growing up but for some reason I pretty much stopped once I got to college. In 2014, I rediscovered my love for reading and it’s been great. Most importantly, I’ve found it’s a perfect escape for my overactive work brain. When I watch TV or a movie, my brain doesn’t have to do any work and continues drifting towards work. When I’m reading a book, my imagination gets involved and my brain stops thinking about work for awhile.

Stay Physically Healthy/Exercise/Go Outside:

When you’re already not in a great mental state and then something goes wrong physically, you’re just asking for disaster. Re-committing to my health after some issues in early 2014 has helped my mental game so much.

Going out into nature is really helpful to me as well. There’s something about being in nature that just gives perspective and makes problems feel insignificant.

Get a Hobby:

Doing something outside of work gives you two things:

  1. Your brain gets a break from thinking about the same problems – which actually helps you solve them.
  2. You make friends outside the startup bubble

I started taking acting lessons in April and it’s been great. I’ve met people who live in a completely different universe from the startup community, which is enlightening. It’s also given me insight on my own emotions and habits that I wasn’t previously aware of. I started this hobby so randomly: I took a four week Acting for Non-Actors class to improve my sales skills and ended up liking it so much that I started training more seriously. Most importantly, it lets me shut off the analytical part of my brain for awhile and do something different.

Stay Close With Your Family and Friends:

This is listed last but it’s by far the most important one for me. In most industries (including startup world), things work like this: when things are going well, you have a ton of people contacting you and it feels like you’re the most popular person ever. But when things are going badly, no one wants to talk and you feel like an outcast.

The good news is that relationships with your true friends and family don’t change when things are going great or when things are going terribly. They will be there for you. This is why it’s so important to not let your relationships die out of laziness or lack of time – something that happens too often. Friends and family are your mental safety net. When I’m having a crappy day, nothing cheers me up more than gchatting/texting/Snapchatting with friends or having a long phone conversation with my mom, dad, and brother. Invest time in your relationships and you’ll never feel alone.

 

Lastly, I just want to say that having struggled with some of these issues myself in the past, I’m always here if someone needs to talk or get things off their chest.

 

Disruption Is Counter-Intuitive

Question: Pre-Uber, how many startups were trying to disrupt the transportation industry?

Answer: No clue but way fewer than there are right now. Transportation was always viewed as an old school, unwieldy, high investment dollar industry that only fools invested in. The closest we came to transportation disruption was Zipcar and even that seemed like an uphill battle the entire time. However, they paved the way for Uber to come in and fully disrupt transportation and potentially other industries as well.

Today, with Uber being valued at greater than $15 billion, transportation is viewed as a “hot” industry and startups are popping up all over the place.

Never mind that everyone has known taxis were awful since the first time they ever rode in one. It was always just one of those things we lived with:

“Oh man, I gotta carry enough cash for the cab”

“It’s impossible to get a cab in this city” (not in NYC or Chicago but everywhere else)

“I hope this cab takes credit card”

Most of us probably thought, “well this is the way taxis are and have always been”. It’s only in hindsight that the disruption seems so obvious and inevitable.

I can’t see the future but here are some “old school” industries that may be ripe for disruption in the next few years:

Government Services

Arguably, Uber fits in this category since part of the reason for their explosive growth has to be because government has done such a terrible job with public transportation services. Think about how low the bar is with bus or subway service. I’m happy with my BART trip as long as there aren’t any bodily fluids on the seat I’m sitting on.

Parking

Similar to above – how is it that cities have tons of available parking but since they are on private property, no one can park there? That’s lose-lose for both the property owner and the person trying to park. Win-win is so much better and I guarantee one of the parking startups out there (or maybe one that has yet to be created?) will gain mainstream adoption and completely change city parking for the better. As someone who hates (and is terrible at) parallel parking, I hope this happens soon.

Accounting

This one is self-explanatory. Taxes and compliance SUCK for individuals and businesses. Great pain = great opportunity.

 

There’s probably dozens more that aren’t even on my radar because I just think of them as existing and not as industries to disrupt. More likely than not, the next industry to be disrupted won’t come from my list at all. These things usually aren’t logical. And that’s part of the fun.

 

Don’t Get It Twisted: Customer Development = Startup Sales

There seems to be a misconception out there in startup world. There is plenty of talk about “customer development” and Lean Startup Methodology (talking to and learning from potential customers) in the product development stage, which is great. But there is simultaneously a sense of apprehension when it comes to “monetizing”, as if it’s this mythical, frightening beast. I’ll let you in on a secret: customer development and early stage startup sales are literally the same process.

This comes back to a fundamental misunderstanding of what selling is. Way more than any slick sales pitch, it’s about matching your offering with a customer’s need. To create this match between product and need, you need to listen but you also need to expose yourself to failure by trying to sell and seeing what happens. The biggest mistake you can make is giving the impression that your product is free when it actually isn’t.

And once you do bring up price, always be ready to close the deal! Most people separate customer development from sales so that they are either only:

1) Learning during customer development conversations

2) Trying to sell while in sales calls with potential customers and not trying to learn anything

Yesware’s founder Matthew Bellows offers a warning of this exact symptom in one of his early blog posts where a potential customer was ready to buy licenses for their sales team but he was too busy thinking of potential features to notice the buyer’s intentions. Yesware has raised double digit millions and is absolutely crushing it (I love using horrible cliches) so if they can make a mistake like this, it’s very possible that you can too.

But what happens if you misread the potential customer’s intentions, try to sell them, and they reject you? You’ll hit an objection. Objections are great because you learn why the customer is saying no! If it’s something wrong with your product, you can now go fix that problem. If it’s related to your pricing, you can work on that. The real problems come when you aren’t getting any feedback on why the customer isn’t buying – it’s impossible to fix the problem when you don’t know what the problem is in the first place.

There’s another hidden advantage to having paying customers – it’s way easier to get useful feedback. At one of my previous companies, we went down the free trial route and got solid adoption from one of the core audience groups (high school counselors). The problem? They never used the product unless we told them to. We weren’t sure if it was because of our design, our product, or if we just weren’t solving a true need. You’ll never have this problem if you’re asking initial users to pay money to use your product – they’ll either not buy your product or they’ll quickly cancel if you aren’t solving their need.

Don’t overcomplicate things. If you’re doing customer development already, just add a step and try to close the sale. Worst case, you’ll learn more and if all goes well, you’ll have some revenue. And if you’re not already doing customer development and you run a startup, the time to start was yesterday 🙂

 

The Importance Of Pricing Model In Product Market Fit

Product-market fit is the holy grail for startups. Reaching product-market fit means you’re ready to scale. On the surface, it’s a pretty simple concept: you’ve built a product that solves a critical problem for your target customer and they are paying you money for you to solve their problem. That said, it’s actually quite complex to achieve product market fit. In fact, most startups never achieve product-market fit (and this is the reason why so many startups fail). Even if you have a great product that solves a critical problem, having the wrong pricing model will mean you receive all the wrong signals from potential customers. Most entrepreneurs will then continue fidgeting with their product, thinking that’s why customers aren’t buying. Here’s another thing you should tweak: your pricing model.

There are a few different pricing models your business can use (see below). None of them is superior to the other in general – it just depends on the nature of your business and the value you provide to the customer.

 

Pricing models

Subscription – time-period based fee for your product (usually monthly or annual)

Performance – broken down by key performance metrics for your industry (if you occupy a single industry) or general important metrics in your ecosystem (ex. clicks for Google Adwords, Likes for Facebook, or app installs for Facebook mobile).

One time fee – pretty self explanatory

 

The pricing model you choose matters more than you think. If you have a transactional product and sell using a subscription model, traction will be extremely difficult. Customers won’t see the value up front and retention of existing customers will be an uphill battle that you’ll ultimately lose. Transactional products (particularly marketplaces) have irregular “trigger events” which means that on a subscription model, either the customer is going to be overpaying (you’re delivering too few trigger events) or underpaying (you’re delivering too many trigger events for the price you charge). The former is a much worse problem. Losing customers, especially at the early stage when most people in the market don’t even know you exist, will absolutely kill your business.

Sometimes the pricing model is the main thing preventing you from recognizing product-market fit. We saw this first-hand last year at Mom Trusted. At Mom Trusted, we have 2 account levels, free and premium. For months, we tried to push a subscription model for our premium customers. We were able to get a handful of customers but our churn rate was high and revenue was lacking.

After some thought and coming to the realization that we were offering something transactional, we decided to experiment with a transactional pricing model. In our industry, there are 3 key metrics for our customers (child care center owners) – leads, tours, and enrollments. Transactional pricing meant charging our customers only when they received a lead, tour, or enrollment through us. Each of these 3 transactions were priced differently according to the point of the customer’s sales funnel they were delivered to.

So what were the results? After switching to a transactional model 6 months ago, we now have twenty times (20X) more signed customers than we previously did. Even better, we have barely changed the product on the customer side during that time. The only change we made was a tweak in our pricing model.

Figuring out the ideal pricing model for your company starts with truly understanding your customer, the problem you’re solving for them, and the solution you’re offering. If you’re struggling to find product-market fit, play with your pricing model a bit. The exercise of thinking about what goes into a pricing model will force you to think deeply about your target market and offering which is never a bad thing in the early stages.