I just read Ev Williams’ 10 Rules for Startups and I love No. 7 Be Greedy. I changed it to ‘Get Income’ in the title because that’s what he really means. Here’s the rule, quoted in full.
#7: Be Greedy
It’s always good to have options. One of the best ways to do that is to have income. While it’s true that traffic is now again actually worth something, the give-everything-away-and-make-it-up-on-volume strategy stamps an expiration date on your company’s ass. In other words, design something to charge for into your product and start taking money within 6 months (and do it with PayPal). Done right, charging money can actually accelerate growth, not impede it, because then you have something to fuel marketing costs with. More importantly, having money coming in the door puts you in a much more powerful position when it comes to your next round of funding or acquisition talks. In fact, consider whether you need to have a free version at all. The TypePad approach—taking the high-end position in the market—makes for a great business model in the right market. Less support. Less scalability concerns. Less abuse. And much higher margins.
I like this because it’s brave.
And because it aligns with our thinking here at Forward Partners.
It’s brave because it takes the position that scale isn’t always the most important thing. That runs counter to the ‘go big or go home’ meme that runs through much of the startup world, and the idea that monetising too early can be detrimental to growth.
To my mind there are some companies where it makes sense to shoot for volume first and monetise later, with social networks being perhaps the best known example, but there are many more where selling something early makes more sense.
Within the ecommerce ecosystem where we focus getting to income early is nearly always the right strategy. In addition to the benefits of giving you options and putting you in a stronger position re funding and acquisition talks, ringing the cash register validates demand for your product and puts you in constant dialogue with your customers (don’t forget to listen). Finally, once you have revenues you can start focusing on growth, and as Paul Graham has noted growth is a habit and it doesn’t take many percentage points week on week or even month on month before a business becomes big.