Package for Pull

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How you price and package is incredibly important. If every app on the App Store cost a thousand bucks, I would not need to say more. It is usually free: the first thing they do is say “download it,” and what they do not always tell you is that once you start using it, there is an in-app purchase. It is true with online banking too: free banking, no fees, but they make money in different ways (sometimes your data, sometimes lead generation to onboard you, sometimes the credit card they sell you on the back end). When you figure out pricing, it is a series of steps. Think about where you want to start and how you will get to a place where you are delivering value and being paid for it.

Startup Secret: package for pull, not push. You want customers demanding it because it is so easy and efficient for them to download, so cheap or free to try, that they pull it rather than you pushing it.

Wistia (tiered pricing). Wistia is a platform for hosting videos, making it easy for marketers who do not have a videographer to upload and promote video content. They tier their pricing by the number of videos you store, so the more you create, the more you pay. It draws people in because there is no cost to start trying it: if you have a great experience, you pay for the “plus” piece; if it goes viral internally, a work group pays the pro subscription; if the whole enterprise takes it, you pay a lot more. A classic land-and-expand strategy.

Startup Secret: Russian doll packaging (addiction before adoption). This is a way to package, price, and distribute so you can achieve addiction before adoption. Do not get hung up on having your business model perfect on day one, so long as you are headed toward a good place. If you get customers addicted to your product early (the way most web services took off, from Instagram to Uber), they will adopt the rest of it. Come up with a version that is free. Then give limited access at a different price (an upsell). Give a personal edition once lots of people use it. Make a workgroup edition. Then a corporate edition. Then, once it goes global, an enterprise edition. It is not that hard, but it is often the difference between an OEM deal working or not: if you have all those editions, you can OEM the personal or workgroup edition and still sell the corporate and enterprise capabilities, so the OEM’s reach makes sense because you can do the upsell. Do not go in without that in your back pocket, and know exactly up front what you are going to do as an upsell.

Russian doll also gives you channel flexibility: you can go to different channels for a personal edition versus an enterprise edition, or to value-added resellers and systems integrators who want just the core to differentiate in a vertical market (one VAR takes the core to medical, another to financial). The mistake we see constantly is startups trying to put every feature for every person into one “galactic edition” that has everything for everybody in every market. It collapses under its own weight. Eric Ries’s minimum viable product is one example of what I am talking about at the technology level; Russian doll is the business-model flexibility around it. And on the challenge “what if my product is only valuable to an entire enterprise?”: Russian doll still works, because you very rarely get an entire enterprise to adopt in one go, it is indigestible. I made this mistake as a young entrepreneur trying to sell VISA an entire salesforce analytics package. Instead, give them something valuable right off the bat (benchmark data on just one small sales team or region). That team adopts quickly, sees success, recommends it elsewhere, and pretty soon regions, divisions, and theaters adopt. Chunk up the elephant. It is all the same gain/pain equation: take the upfront cost out, make it digestible, and it also gradually builds your credibility.

Design the business model into the product early (Keap / table grouping). David McFarland’s company Keap has a secret sauce, invented by their technical founder, called table grouping: they understand how an application uses data, group that data together, and transactions and queries run 10 to 100 times faster. They released that core as an open-source product to drive viral business, because developers drive these decisions and become a 10,000- to 100,000-strong sales force competing with the likes of Oracle. They let developer communities extend the product by integrating it into their own environments (Ruby, Hibernate), so it becomes a value-add to the developer’s stack, driven through the developer’s distribution. Then they built a pluggable architecture to add unique-value components: for example MySQL replication, so you can plug it into a pre-existing MySQL application on the LAMP stack that is running slowly, redirect the queries, and run them quickly. That series of add-on capabilities supports a multi-tier pricing strategy, plus electronic services delivered as SaaS that make it easy to adopt but also lock customers into your service and brand, and community aspects like shared grouping algorithms. David’s key point: from the very inception of the product, they had these ideas in mind. It was not hugely time-consuming, but it was really important to think about how you package this value up right up front, not at the end of the development cycle. If you develop the product in a monolithic fashion, it will be really hard to later slice it up and sell it in different ways.