How to OverCome the Fear of Charging Users
Or: How I Learned to Stop Worrying and Love Monetization
Monetization Focus
Something that we’ve seen time and again, often from the most talented engineers and builders we work with, is not the cliched idea that they don’t care about their customers, and only care about their products. That’s a stereotype about engineers that I’ve never found to be true. The really good ones care a lot about their users. The problem is, they can have a hard time seeing their users as customers.
That isn’t surprising when you consider the mindset of an engineer or a coder. They are used to solving problems, and to them, each new solution that they offer to their users presents a new set of problems to be solved. Their sense of their relationship with their users is not transactional, as it is with a shop or a more traditional business. Instead, they see their users as people whom they are taking care of. Their users matter more to them than to a traditional business.
Being obsessed with user satisfaction is great for developing amazing products that work really well for the users who know about them. Still, turning the corner towards a product that can be more broadly monetized means balancing the needs of the business against the needs and expectations of the users- particularly the ones who aren’t paying for the product yet.
Having established this caretaker like relationship with their users, many founders experience a great deal of angst about turning around and asking those same users for money. For them, it must feel like volunteering to mow your neighbor’s lawn, and then asking the neighbor to pay you after they’ve gotten used to having you do it for free.
And yet, the world of tech products isn’t like that- even if it feels that way. Creating value for people is what building a startup should be all about. Even if we used to give away that same value for nothing, doesn’t mean that it isn’t worth something. “Turning the monetization corner” can mean, to an extent, abandoning the cycle of focus on early users, and instead of letting those users guide your decisions, setting limits on what you are willing to offer those users for free, or for the initial price of entry (whatever it may have been when you started).
And that is hard. But why is it so hard?
Turning the Corner
I’ve come up with a graph, based on my observations of startups that have struggled with converting an early userbase into a paying userbase that allows the company to grow.
Of course, this is just my experience, and it doesn’t apply to every startup or every kind of startup. But it rings true for me when talking especially about free-to-try or freemium products that have trouble monetizing, and have an engineering and problem-solving mindset:
Here I’m dealing with a zero-sum equation: the percentage of focus the team has on either development or monetization.
While that’s a bit false, in that development can often support monetization, I’m treating development more in the sense of the “builder mindset,” in which the startup works on the product for the sake of making it better, and not necessarily making it easier to sell or making it more valuable in monetary terms. This is opposed to development in the sense of a “value creation” mindset- development that supports sales (Ie: integrating with other services, offering new plans, or offering paid features).
As you can see, the tendency in my experience is for the startup to jump off with more or less an even focus on the monetization and the development, but to quickly veer towards developing the product. Makes good sense so far- you need something to sell after all. Then there tends to be a slight relaxation of focus on the product as it finds its way to the first customers (or beta testers), and monetization again becomes a bigger concern.
Then, however, is where I think many startups get into a bit of trouble. Having learned -they assume- everything they need to know from their first customers, they drift back into the habits that they established at the beginning: building out the product with less and less regard for what features are actually making it more saleable and profitable.
In essence, they get just enough validation from customers to go back to building whatever it was they wanted to build in the first place- sometimes in spite of what early customers actually say.
Then, and this is not always the case, you have an “OH SHIT” moment, usually when the startup has 3-6 months left of cash to burn, and its revenue is not growing fast enough to continue supporting the burn. That’s when the focus of the startup tends to dip dramatically back towards monetization again. Plans for newer and bigger and better features may be abandoned. Things may get streamlined. Prices may rise.
That’s when a startup is either forced to find a model in which they make enough money to survive and keep developing, or they fail. If they find a balance where what they’ve built to date is attractive enough, and it earns enough for them to either attract more investors, or make a decent profit, then they can find a balance, and begin building a real business.
Finally, you have the positive feedback loop between monetization and development, in which the monetization focus drives the development, and in which new development can introduce new ideas about monetization, like new products, new features, and new pricing strategies. Startup Growth Nirvana, if you will.
Opportunity Cost
The scariest part of this graph is the Monetization Panic Phase. A startup having dedicated itself to building the ultimate product, must now abandon much of its ongoing work in order to make money somehow. And often, I think startups feel some sense of shame or regret in this period- “we’re letting our customers down,” or “we’re not keeping our promises on features.”
Founders feel that what they eventually ask their customers to pay for doesn’t live up to what they wanted to sell them.
In our discussion with the startup I mentioned before, Cedric used the example of a bakery. He asked the founders: “would you walk into a bakery and ask for free bread? After all, that bread only costs the baker a negligible amount. It’s not worth the price they’re asking, is it?”
Well, a single loaf of bread, in terms of material and time, is not worth the typical price asked for it. But the baker has absorbed the cost of developing his business, to the point where he can consistently offer you a loaf of bread, all day long, at a consistent price.
The baker first must learn her craft, open a shop, invest in equipment, invest in supplies, build a customer base, and commit serious resources and time to getting the business up and running. To the customer, what is just a loaf of bread that takes almost no time at all to make often represents years of dedicated work from a few individuals.
Your startup is just like that- it represents an opportunity cost. A loaf of bread doesn’t cost a specific amount because the ingredients cost a bit less than that- it costs what it costs because that is the amount needed to sustain the business, and to modestly enrich the person who devoted their life to building that business.
Overcoming Fear and the Imposter Syndrome
One of the founders said this to me, and I find it very revealing: “but what we do- anybody can do that. We don’t do something that can’t be copied.”
Well, yes, but just as the amateur art critic might look at a Jackson Pollock or Rothke painting that sells for $10 million and say: “what? I could have done that,” the seasoned art collector can respond: “yes, but you didn’t, did you?”
Imposter syndrome is the feeling you get when you *are* Jackson Pollock, and you *do* sell that painting for $10 Million dollars. Many people, when they get raises or promotions, or suddenly begin to earn money, feel as if they don’t deserve it, or as if it’s all been a mistake, and people will soon realize that.
And that’s a feeling pretty much everyone has had at one time or another. Maybe you can’t understand why your partner loves you, or why you won a prize, or why you got a raise. It’s even harder to accept that people are willing to pay good money for something you made- because you know how it was made, and that process was probably messy and embarrassing (as it usually is).
Things are ultimately worth what people are willing to pay for them. And I’ve had many direct experiences with startups who fearfully raised their low prices, only to find that people would gladly pay them more for the same thing. In some cases- they sold even more, because the new pricing was a signal that the product was worth the customer’s consideration- it was a more important purchase, and thus seen as more valuable.
Expecting payment for your expertise is hard enough- even for some professionals who have marketable skills that they can bill for by the hour. I’m often embarrassed to be paid well for doing things I find relatively easy. But at the same time- I can do them, and the fact that they’re easy for me only makes my work more valuable to others, for whom those things are not easy.
A startup is no different, but because product companies don’t sell services, this cognitive dissonance can be even more troubling. It feels unfair to ask someone to pay money for access to something that costs your company, on a daily basis, very little to provide.
But put yourself in the shoes of the baker, or your car mechanic, or anyone else you pay to do things you don’t want to do yourself. Do you envy them that money, or do you appreciate the fact that they offer a service at a price you find reasonable?
So, and at the risk of being incredibly corny- you may simply need to tell yourself that you are worth it. Or do what our startup did, and approach someone you trust for confirmation that yes, indeed, you deserve to make money.
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