Hacker News Reader

Comment by Silhouette | Hacker News Reader

You could argue(without seeming crazy) that it is better to have about 1,000 more paying customers for something like an ebook, even it means losing $2,000.

Actually, that does sound pretty crazy to me.

The world is full of entrepreneurs who think having lots of low-paying (or no-paying) customers is worth something.

The thing is, we can easily tell how much a customer base is really worth right now, simply by looking at this month's bank statement. If it's in the bank, it's real value. If it's not, it's just wishful thinking.

Maybe that wish will come true one day. Maybe I can monetize that large customer base and dramatically outperform my higher-priced, lower-volumed competitors. Maybe my product will reach critical mass and go viral. Maybe my business will become the next Google. Maybe I can just skip the whole hard work thing and buy a winning lottery ticket.

Or maybe not.

If the money is in the bank, there is no maybe.

View on HN

Here why I believe you're looking at it incorrectly:

Suppose there's two businesses, each making exactly $10,000/mo in revenue. One charges $10/mo to 1000 active customers, the other charges $1000/mo to 10 active customers. Which business is "better?"

Clearly there will be two sides, neither of which are "crazy."

If the total market size for both is limited, then business B is better because you're extracting more money from the limited potential number of customers.

If the total market size is large, business A has proven it can get orders of magnitudes more customers, which is MUCH more important going forward. If you can get 1000, you can get 2000, etc., and indeed probably ever cheaper to acquire those customers. Company B still has the very risky, difficult job of solving customer acquisition.

If tech support per customer is high, obviously company B is better.

It is a general rule that over time you can find ways to increase prices (i.e. just do it, have tiers, addons, etc) and decrease cost of acquiring customers. That again makes Company A more interesting because they can start doing that whereas B has just embarked.

Again, in the end one isn't automatically better, but your perspective that "it's crazy" I believe is certainly not true.

Companies where people aren't paying AT ALL I agree are often in fact valueless. But when they do take out their wallet, that's not nothing.

I would agree that without context one can't know which set-up has the most potential. However, such potential is by definition just hypothetical funny money until it's realised, if and when it ever is.

You contend that your business A has proven it can get orders of magnitude more customers. Well, yes, it has: in fact, it's proven that it can get exactly 1,000 active customers instead of 10. But if you're going to infer from that statistic that business A can therefore get 2,000 active customers, then why can't I assume company B can go from 10 to 20 by the same logic?

If anything, I might put more faith in the latter, simply because a lot of people are going to drop $10 without thinking much. Very few people are going to drop $1,000 without careful consideration even if it's someone else's money they're spending, and if I were a betting man I'd rather back the product that I know for sure stands up to scrutiny and still gets bought. But either way, getting to relatively modest milestones like those you mentioned doesn't tell me anything in itself about the total size of the target market, how much of it I could realistically convert in the near future, or how well my product will stand up to competition for those sales.

That being the case, it does sound a little crazy to me to argue that it's actively better to have a higher sales volume even if it means a substantial drop in profits, unless you've at least got strong evidence that the higher numbers are expected to return an overall greater profit within a reasonable period of time.

Reply on news.ycombinator.com