My partner Seth Levine has an outstanding post up today about the freemium model. It’s titled Pricing models, the freemium myth and why you may not be charging enough for your product and is worth going and reading right now.
He covers a bunch of stuff, nicely divided into the following topics:
Seth has become “the pricing model guy” at Foundry Group – we’ve been dragging him into every pricing conversation whenever they come up.
I have one counterintuitive thing to add – it’s often easier to raise prices early on than lower them. While many pricing curves assume a decay curve toward lower prices over time, early in the life of your business you should consider gradually raising prices until you hit a natural price ceiling. Grandfather your early customers into the old pricing for a period of time (three months to a year) – they’ll feel like they’ve gotten a great deal for being an early adopter. Don’t forget to thank your early customers for their support.
Interestingly, this is the opposite of some very popular (and successful) pricing strategies, such as Apple’s for the iPod and the iPhone. High early prices for premium demand followed by steady price reductions over time as new products are introduced. If you are an established premium provider of a high demand product, especially for a physical good (e.g. a phone) vs. a digital good (e.g. software), this approach makes sense, both from a manufacturing supply perspective as well as a volume manufacturing perspective. But, if you are a digital good, you have a lot more variable manufacturing capacity (as long as you know how to quickly scale) and more margin to play with (ahem – usually 99.9%.)
Seth makes an important balancing point that you shouldn’t start out with too low a price point. This is especially true if you aren’t willing to raise prices to their natural ceiling over time. But, if you have no idea where to start, and have the courage to increase price quickly as you find early demand, consider a relatively low price point “guess” and then move it up until you find a ceiling.
I’m totally wiped out after a full day in LA that included a board meeting at Oblong, a 75 minute interview on This Week in VC, strange drinks at Volcano Tea with some LA entrepreneurs, another interview on TechZulu before the Launchpad LA event, and then a Launchpad LA event. Mark Suster – who is everywhere on the LA entrepreneurial scene – was my gracious host, interviewer, and master of ceremonies for the day. I predict he sleeps well tonight.
I’ve got nothing left to say since I’ve already said it at least twice today. So – I’ll leave you with the This Week in VC interview.
One of the side benefits of blogging is the various inspiring emails I get from readers about different topics. I got a great one yesterday that I thought addressed the question of “Why am I having so much fun with challenges in my personal life and at the same time am so bored with work. And – more importantly – what can I do about it?” This morning, the New York Times had a great article which compliments this titled An Entrepreneur Who Took A Chance on Herself. If you are going to take a chance on something, why not take it on yourself? The email I received follows with minor edits to anonymize the writer. I hope it’s as inspiring to you as it was to me.
Fair warning: I have considered emailing you before, but since you are in Homer with some extra time I decided to send you the ‘unabridged’ version of an introductory email.
I have been following your blog for about month now and I find it to be both informative and entertaining. I was checking it every couple of days or so until I read your post about swimming. In the last 11 months I have gone from occasional jogger to triathlete. Swimming was the part I dreaded the most. After hyperventilating on my first triathlon swim last fall (1/4 mile) and nearly drowning on my second one (1/2 mile). I did manage to complete both events without assistance, although during the latter event a canoe was following me out of concern that I wasn’t going to make it. I really had to question if I should pursue triathlons in the following year. Fortunately after practicing at my gym over the winter I became comfortable in the water (bilateral breathing, endurance, etc…). I also worked on running over the winter and completed my first half and full marathon in early spring of this year. A few months ago I upped the ante and completed a half ironman.
It was shortly before this event that I began to question why I was having so much fun with challenges in my personal life, but opting for the safe and narrow while at work. I work for a large corporation and managed to go from having no degree to an MBA by completing 7 years of night classes. After finishing, I considered pursuing my doctorate, but it didn’t work out. I had been bored at work for the last few years, but really wasn’t sure why. I assumed that when I got promoted things would work themselves out. About this time a friend and past co-worker approached me asking if I would be willing to work and eventually lead with him on a software development venture. Initially I didn’t see myself as a good fit, but decided to help out in any way I could (process development, statistical analysis, survey design, business plan, etc…). After reading a few books on the topic of entrepreneurship, I began to get excited. I went back to the partner and we discussed where I would fit into the business and since then I have mostly done strategic planning in my spare time over the last 3 – 4 months. We are planning to show our first product in mid July to a small company. If the product is successful I may actually be able to make a job transition over the next 6 – 8 months.
While not my primary motivation, the thought of working without the rules and restrictions of corporate oversight seems like an interesting job perk. Don’t get me wrong, I understand why the rules and policies are there, and they serve their purpose of guiding the many at the cost of few. I suppose that from a utilitarian or Spock-like perspective, they are in the best interest of the company. In many ways, I have allowed the rules and expectations of my company to limit my creativity and performance. The blame for this falls solely upon myself as do so many other self imposed excuses for avoiding the idea of following my passions.
I would like to thank you for helping me get some of the basic concepts of starting up and for serving as an example of living with balance (family, work, health). While I don’t know what changes I can expect to experience in the coming year I have already determined that I am happiest and most productive when I seek to live with balance. I don’t expect to be wealthy, in fact I am quite certain that my compensation will reduce dramatically even if the transition is successful, but I’ve already determined that I would rather fail at this than succeed at what I’m doing.
Yesterday, I sent a note requesting something to a long time friend of mine who is an exec at a fast growing tech company. I’m a tiny investor – not on the board – but we are long time friends who have done a lot for each other in the past. My friend is extremely busy so I try to be careful with his time and limit my requests for help.
About six months ago we had a conversation in which he said something profound to me. The quote that stuck with me was something like “every single person I’ve ever met has called me in the past three months and asked me for something. If I add up all the requests, it’s something like 200 year of work that I now have to do that has little to nothing to do with what I’m trying to get done.”
During that conversation I decided that I never wanted to be “one of those guys” that always asked for something. My general life philosophy has always been to “give more than I get” and hope good karma comes back my way over time.
Shortly after I sent the email request yesterday, I thought of this conversation. I sent a separate note to make sure I wasn’t “one of those guys” (confirmed quickly by my friend) but it still caused me to think about the balance of give vs. get in my world – at least enough to write this post to (a) remind me to keep thinking about it and (b) encourage everyone out there to think about it also.
And – for all of you that live by this creed – thanks!
What a great short Nike commercial staring Michael Jordan.
“I’ve failed over and over and over again in my life. And that is why I succeed.”
I don’t care what your political orientation is, if you want an awesome two hour lesson in leadership watch the movie Thirteen Days. It’s the story of the 1963 Cuban Missile Crisis based on the book by May and Zelikow titled The Kennedy Tapes: Inside the White House during the Cuban Missile Crisis.
Amy and I watched it last night. I was exhausted from two weeks on the east coast and was having trouble speaking (Amy refers to it as “getting the dregs of Brad.”) I think I was even out of dregs so I just laid on the coach and watched the movie. I half watched it a few months ago while catching up on email and I saw it when it first came out so I knew the story. But when I watched it a few months ago I didn’t give it my undivided attention. This time I did because I didn’t have the energy to do anything else.
On Thursday and Friday I was in DC and had four significant experiences. The first was a tour of the CIA which, while limited to very specific physical areas (including the CIA gift shop), included a 75 minute roundtable with the CIA’s CTO and his team about the future. Later Thursday night I had a very quiet tour of the West Wing. Friday morning I was on a panel on The Need for Net Neutrality with Brad Burnham (Union Square Ventures) and Santo Politi (Spark Capital) followed by a dynamite meeting at the White House with Phil Weiser and members of the National Economic Council team, Aneesh Chopra (CTO of the US), and Vivek Kundra (CIO of the US). For two days I was immersed in government leadership.
Yesterday I woke up very late in the morning to Brad Burnham’s post titled Web Services as Governments. It’s a must read post where he makes several very specific analogies for which web services act like which kinds of government. He specifically breaks down which government he thinks Apple, Facebook, Twitter, and Craigslist look like. While you may not agree with his mappings, the general construct is incredibly powerful when you think about creating a company that operates on top of a web service (or platform company.)
And then – after sleeping most of the day – I watched Thirteen Days. As I was immersed in it, I kept thinking about examples from Brad’s post as well as my experience dealing with web services that are powerful governments. When I think about those examples, Thirteen Days is a movie that every CEO and every member of the management team in these companies (or any company for that matter) should watch.
As a bonus, in both my CIA meeting and the Net Neutrality panel I got to toss out my line that “in 40 years we will not be able to distinguish between biological machines and non-biological humans. Basically the machines will take over and our goal should be that they are nice to us.” After waking up this morning feeling much more rested, it was extra fun to see a huge NY Times titled Merely Human? That’s So Yesterday about the Singularity.
I’m in Washington DC again – this time to talk about innovation. I’ve been here three times in the past year – the first time was to hear Bilski at the Supreme Court in November and then I was back in March to talk about and promote the Startup Visa.
Yesterday, Thomas Friedman article wrote another great OpEd about the topic titled A Gift for Grads: Start-Ups. As with many Friedman OpEd’s, rather than just railing against the situation, he suggests several specific things that can be done – in this case by the current administrationb. His premise is that to solve the unemployment issue, especially among recent college graduates, we need three things: more start-ups, more start-ups, and more start-ups. And to do this, Friedman talked to Robert Litan (vice president of research and policy at the Kauffman Foundation) and Curtis Carlson, (CEO of SRI International) and came up with the following.
I strongly agree with each of these. My one small addition to the Secretary Newco idea is that person should be an accomplished entrepreneur rather than a career politician, policy person, academic, or lawyer.
Over the next two days I’ve got a meeting with each of my Colorado Senators (Michael Bennet and Mark Udall) as well as a summit at the White House led by Phil Weiser (Director of Technology and Innovation for the National Economic Council), Aneesh Chopra (CTO of the US), and Vivek Kundra (CIO of the US). Our summit includes a small group of VCs from different parts of the US that I’ve helped put together and it’ll focus on the issue of early stage entrepreneurs and innovation throughout the country (specifically – more than just Silicon Valley). I’m also participating in a roundtable titled Implementing The National Broadband Plan and Protecting Consumer Choice: The Venture Capitalist Perspective with fellow VCs Brad Burnham from USV and Santo Politi from Spark Capital. And, as a special bonus, I’m going over the CIA later today for a tour, although I can’t talk about it, so you didn’t just read that.
I don’t spend a lot of time in DC, in politics, or even following politics (I’ve never been a political junkie) so these short immersions are fascinating to me. Hopefully when I look back on the time I’ve spent on this stuff I’ll feel like it’s been a productive effort for the cause of entrepreneurship and innovation in the US which is the thing I spend all my time actually working on by helping create new companies.
The video from the second panel I was on at Google I/O 2010 – Technology, innovation, computer science, & more: A VC panel – is up. Dick Costolo – the COO of Twitter – is the moderator and my fellow panelists are Albert Wenger, Chris Dixon, Dave McClure, and Paul Graham. Someone didn’t like the title so it was renamed “VCs Who Code” but apparently that didn’t stick with the official event panel namers.
While I stopped writing production code in the early 1990’s, I still fuck around with something each summer when I’m in Alaska (in past years it has been Perl, Ruby, and PHP.) I haven’t decided what it is going to be this year, but it’ll probably be Python as I’m seriously considering taking 6.189 using MIT OpenCourseWare.
For the curious ones in the crowd, I’m a self declared “excellent BASIC programmer.” When I got my Apple ][ in 1979 the only choices were BASIC and 6502 Assembler. I learned each, but only wrote commercial software on the IBM PC in BASIC (and compiled BASIC, back when getting a BASIC program to compile was a trick in and of itself) between 1983 and 1985 (using Btrieve as the database manager.) By 1986 I was doing a lot more work in Dataflex and Pascal. At MIT, I learned Scheme (via 6.001) and was ok with it, but never did any production work with LISP even though every time I looked at a Symbolics machine I drooled. I learned a handful of other languages in school, such as CLU and IBM System/370 Assembler (and something on a Prime computer – I can’t remember what) but never used any of it outside a class. Feld Technologies did most of its work with Clarion, although I never really learned it well enough to do anything production quality since by that point I wasn’t coding regularly anymore. While I was proficient with a bunch of database languages such as dBase, Paradox, and R:Base, I never liked any of them and we never really wrote production systems in them (although we took over and managed a lot of crap that other people had tried to write.) Oh – and I was pretty good with Lotus 1-2-3 Macros.
In some parallel universe, I sit in front a computer all day and write code.
A few weeks ago I was on two panels at Google I/O 2010. The video from one of them – Making Freemium work – converting free users to paying customers is up. Don Dodge from Google is the moderator and my fellow panelists are Dave McClure, Jeff Clavier, Matt Holleran, and Joe Kraus. It’s 60 minutes long, but we covered a lot of ground.