What’s more important to a startup: users or customers?
In meeting with an entrepreneur recently, he mentioned how an advisor was adamant the service capture lots of users to establish as large a foothold as possible.
It’s an approach with merit, but I don’t think it precludes a startup from also attracting customers at the same time. Why sacrifice the opportunity to build a business by simply focusing on attracting users?
In simple terms: users use your product, customers pay for it.
Without customers, a startup is spinning its wheels financially or hoping that it will become a takeover target for another company looking for a large audience to monetize.
A good example is Keek, a free social video platform that attracted millions of users but couldn’t figure out a way to make money.
Keek built a large social network but failed to create a business.
Far too often, startups become distracted by users. They equate success with how many people use their product. It’s an all-important metric to demonstrate traction. But I would argue more important metrics are the number of customers and revenue. These show that value is being created beyond having lots of users.
I believe startups can eat their cake and have it too when its comes to users and customers. It is possible to build a large digital footprint and, at the same, build a business.
One of the most effective approaches from a marketing perspective is providing people with a delightful taste of your product. Show them the product’s value but in a limited way. Dropbox does it by offering a free services with two megabytes of data storage. Freshbooks used to do it with a free service that lets people send three invoices a month. Piktochart does it by offering a free infographic service using defined templates.
Dropbox, Freshbooks and Piktochart let people see the value their products but cap the experience. For many people, the free service is enough. For a small minority, the small tastes whets their appetites to become paying customers.
For early-stage startups, there is no reason not to offer a free AND paid service. If someone wants to pay for your service, let them. It makes little sense to only offer a free service because it’s like cutting off your nose to spite your face.
In the case of the entrepreneur that I met, my advice was to launch with free and paid services. From the beginning, it creates the foundation for a business and helps to shape the product’s development by showing the behaviour of different types of users (free and paid). As important, it establishes a business model
As important, it establishes a business model (aka a way to make money), rather than having to scramble to discover a business model after a significant number of free users are using the product. By that time, it can be difficult to convince people to pay when no one has been paying before.
To be honest, I’m not a big believer in completely free services. (Note: Check out this blog post from HubSpot on the perils of free). Startups should get people to pay for their products from the beginning. They are trying to build a business. They need people to see the value in the product and be willing to pay for it. There’s nothing wrong with giving away “free samples” to boost someone’s appetite, but you shouldn’t let people get the complete meal without paying for it.
Bottom line: users are good, but customers are better.
If you’re looking to jump-start your ability to tell good stories, I can help you make it happen. I recently published a book, Storytelling for Startups, that provides strategic and tactical guidance to entrepreneurs looking to embrace the power of story-driven marketing.
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