Edited excerpt from Five things I will do different for my next startup by Jeff Haynie:
We delayed monetization way too long, using venture capital to extend the time to create a sustainable monetization engine for our business. We always had a plan for monetization, but we waited way too long to get focused on it.
The conundrum that a lot of companies face — in fact most of them — is the balance between reach and revenue (or in another way to frame it: the conflict between the two). The further you maximize reach the harder it is to scale revenue — or at the very least, more friction is introduced in capturing it.
Everyone loves something for free. However, I would prefer to have fewer dedicated power users that get enough value and can’t live without it that they are willing to pay for it, than a lot of users that like it only on the condition that it’s always free.
We learned that it’s never too early to charge (something, anything) if you want to eventually have a business that is sustainable. Even if you have to risk reach in some regards. That won’t always make you the most popular startup but maybe you’ll be around when others fail.
(1) It might be OK to delay monetization if you know exactly how you will generate revenue, and you want to optimize for reach over monetization at this stage. The problem is that most startups that delay monetization haven’t figured out how to generate revenue successfully. Revenue generation is core to building a company — it impacts the product, the target customer base, the distribution channels, and the HR structure of the company. So figuring it out shouldn’t be delayed.
(2) Re. “we delayed monetization way too long, using venture capital…”: cf. Why you should bootstrap your startup before raising money.
(3) Cf. Get to profitability — here’s how.