The contrarian view: With freemium, it’s easier to start with the paid product

Edited excerpt from “Monetize Backwards” to Build a SaaS Business That Lasts by Chris Savage:

At Wistia, we started with a paid plan only, and over the last eight years, we’ve progressively made the product more and more free. It’s counterintuitive, but constraining growth by not making our product free from the start has been one of the best decisions we’ve made.

The #1 question when you’re starting out as an entrepreneur is whether or not you are building something that people actually want. If someone signs up for a free product, you’ve only learned that someone was willing to exchange a small slice of time to try it. That teaches you very little about whether you’ve built something useful. The startups that survive aren’t the ones with the most experience—they’re the ones that can learn the fastest. Someone’s willingness to pay a good hunk of cash for your product provides you with undeniable validation that you’ve found an opportunity to build a business.

It’s hard to have any conviction about the worth of your product if no one has paid for it before. Typically, data from previous sales informs your pricing decisions. When you’re first starting out, you don’t have any information, so it’s crucial to start gathering pricing data. You can only do that if you charge for your product.

Monetizing backwards constrains user growth early on, and it makes it unlikely that you’ll be an overnight success. But for us, slow growth was one of the best things that could’ve happened for our company. Having few, paying customers forced us to focus 100% on what those customers needed.

Notes:
(1) If you start with paid you generate revenue earlier. This is a significant advantage which Chris doesn’t mention.
(2) My personal view is that while both approaches have advantages and disadvantages, you’ll be more successful if you work at figuring out the end game — monetization — as early as possible.
(3) In most cases that means paid before free. The exception is if you are able to monetize your free product. At Seeking Alpha, for example, we have a meaningful advertising business from monetizing our free content. This has given the company income to grow our free audience and figure out our paid products, such as our Marketplace.
(4) “Coming up with the free vs. paid line can be incredibly difficult and is a careful balancing act”, says Sachin Rekhi. Cf. The challenge of monetizing free products and The biggest risk of freemium.

3 thoughts on “The contrarian view: With freemium, it’s easier to start with the paid product

  1. Pingback: Start with the paid product first | Musings of a Turkey

  2. Pingback: Is revenue a good metric for early stage startups? | A Founder's Notebook

  3. Pingback: Build for your best customers | A Founder's Notebook

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s