There’s a basic question every startup founder should be prepared to answer on a daily basis. It doesn’t matter whether you’re speaking with a fellow entrepreneur, a potential investor, or a girlfriend weary of another date that consists of pizza delivery. Everyone wants to know the same thing:
“How are you going to make money?”
I know, I was appalled when I started getting bombarded with this question as well. So tacky! It was mere months since I had quit investment banking to build Treatings, a professional networking platform that connects people over coffee. It took me long enough to swap out my gray suit socks for the flashy, patterned socks that I read were compulsory for tech entrepreneurs. Side note: it turns out that patterned socks are more of a Silicon Valley fad. In NYC, tech trendsetters like to go sans socks, which doesn’t help the lovely city aroma.
After doing my best chameleon impression to look the part, I had to make the mental shift away from banker to startup founder. No sooner had I trained myself to forget about the almighty dollar in favor of an “I’m trying to change the world one coffee meeting at a time” attitude, did people start bringing up dirty money again.
Fortunately, my co-founder Paul and I have had a revenue model in mind for the last year. While we’ve been creating our community of individuals open to talking about their work over coffee, we’ve also been meeting with companies. The goal has been to learn about what, if any, types of employer branding tools they use and how these contribute to their recruiting funnel. We started with venture-backed technology companies in New York, since this is where our network is strongest. Also, these companies are likely to be growing quickly, have hiring needs, and an interest showcasing their unique cultures.
The proposal is fairly simple: A branded company page on Treatings would look like a more dynamic “About Us” page. It would feature employees offering informational meetings to individuals interested in the company. Treatings would allow employees to be recognized brand ambassadors within the company, give them a platform to talk about their work and present them with another way to participate in employee referral bonus programs if individuals met through Treatings are ultimately hired.
As happy as we are with our plan, it’s just that. A plan. We’ve gathered a lot of useful feedback over the past six months on our envisioned business model, but now have to actually test it. This brings us to our current conundrum: Do we offer our pilot customers a free trial or charge from the start? It’s not an irreversible decision, but like many junctions along our product and business roadmap we find ourselves pulled in opposite directions, effectively rendered paralyzed.
We’ve asked many founders who operate B2B companies about their feelings on the pros and cons of providing free trials vs. charging from the start. They all seem to have strong opinions on the topic, laced with plenty of anecdotal evidence. They are also split between the two camps.
On one side, a serial entrepreneur told us, “You need to mitigate the friction for potential customers trying your untested product. You have to start by giving this away for free.” He was very convincing. I walked out of this meeting persuaded that a free trial is the way to go. How would we put a price on something in which we don’t have empirical evidence to support the value? Better to communicate that if we initially work for customers for free we expect full access to the company and employees to get as much feedback as possible and further hone the product.
Initially we planned to provide the first few companies with a free trial. That is, until we started meeting with other experienced entrepreneurs who advocated for charging customers on day one. “It’s lazy to give away your product for free,” said the CEO of one revenue-generating startup. “You need to show evidence that people will pay.” By the end of our conversation I was a nodding in bobble-headed agreement.
“We need to charge!” I said to Paul following this conversation. “It’s just lazy not to.”
Paul agreed, “Companies funnel a lot of time and resources to branding and recruiting. We’ll be saving them money by implementing a program where employees can be brand ambassadors. We don’t want to undersell ourselves.”
We riffed off of each other, going on about how the best way to determine whether we were providing a valuable tool to businesses is to make them take out their checkbook. Additionally, companies will likely value the service we’re providing more if they are actually paying for it. This all made sense as we spoke, but when we talked about it a few days later we realized the absurdity of our abrupt pendulum swing.
Mentor whiplash is a well-documented phenomenon. It’s been tricky for us because of the contrasting opinions of trusted advisors with experience selling to businesses. One thing we know is that we can’t keep capitulating because then we’ll be paralyzed by indecision. We’re going through a development project right now, after which we’ll be ready to pilot with a few companies, and leaning towards charging our first customers, even if at a discounted rate.
It will be nice to have paying customers and more resolutely answer the business model question.
Moreover, a little cashflow will provide us with the means to resolve the second-most asked question we face: “You’re 28 and sleep in a bunk bed?”
This is the ninth in a PandoDaily weekly series that chronicles the experiences of a young entrepreneur as he bootstraps his startup.
Come back next Sunday to read the next installment.
[Image Credit: Happy Socks]