Fear of Money

Whatever you think of App.net aside (I'm not an optimist about it): this post is dead on. Acting out of "Fear of money" is probably the most common routine unforced error harming startups that post on HN. You can see the syndrome in virtually any thread on this site that involves a price tag.

This is the exact same force that causes enterprise "Account Managers" (direct sales people) to outearn sales engineers by 4-5x, even though the SEs do all the real work. Account managers have learned how to Ask For The Sale. I can't do that, have no idea how they do it, am sort of in awe of salespeople as a result; I function in business largely by understanding and respecting the limitation I possess. Money is terrifying.

Fear of money is definitely a big problem, especially among developers. But the situation is more complicated.

There are two important things to understand here, which I've learnt the hard way.

1. The entire business model, not just the exit strategy, of almost all VC-funded startups is selling the company. They start with selling little chunks of the company to investors, culminating in the exit, when they sell the whole thing to BigCo. IPOs are black swan events in this respect.

There's no fear of money here. When you can get millions selling chunks of your company, purely based on "engagement", why would you break your head trying to sell product?

Founders who are well aware that this is their business model are very good at talking big and using visionary rhetoric. They avoid talking about mundane business details and use phrases like "passionate about X" and "ripe for disruption".

Founders who are actually interested in building a product-based company and running it for the long-term are rare. Drew Houston is a great example, and I respect him a lot for it.

2. If you do not intend to raise venture capital, then following the business tactics of VC-funded startups can mean death. Free and freemium have unfortunately become the default for all software now - even apps built by bootstrapped solo founders. This is a huge mistake.

If you are not actively working the market to sell your company, to investors in chunks or to an eventual acquirer in bulk, you're digging your own grave by giving away your product for free.

Better start actively working the market to sell your product for hard cash instead.

We've actually been charging money the day our Beta went live. Our users have been happy to pay, happy to have the product, and are amazing people. Patient, happy to help, thoughtful people.

This probably isn't the norm - and the people choosing to not pay for our product (at least those that communicate with us) are rude, unwilling to think of things differently, and mad we're trying to make money.

We couldn't be happier with how it's going.

It's not just fear of money. In consumer apps, "free" means the potential of having hundreds of millions of users globally. This includes people in relatively poor countries, who would never pay for anything online. Nevertheless, they pad your numbers. Not to mention that you can have multiple accounts, sock puppets, etc.

The market rewards this behavior: Facebook is worth $40B not because of ads, but because of the potential to eventually sell something to a significant fraction of its billion users. App.net would have a hard time being worth several billion dollars if you do the math, which is completely fine. Perhaps they could have 100k real users paying $50/year = $5M. That might justify a valuation in the tens or hundreds of millions, depending on growth rates. Fantastic for a bootstrapped company. Not nearly good enough for Twitter's investors who put over a billion dollars into the company.

I wrote a blog post about this yesterday: http://diegobasch.com/the-dangers-of-being-a-product-instead...

I think it comes down to what you're trying to achieve with your app.

If your goal (and your software) is based around lots of users, then clearly free is optimal. There are lots of studies which show the power of free, and how free is much more appealing than something costing as little as 1c. It makes sense that FB is free (or at least has a free tier). FB is useless without other people.

If you're writing an app that is entirely / mostly non-social, and your worth is not measured in the number of users you have, then paid makes sense.

Also missed by many startups is that real customers WANT to pay for a service. Paying means the provider owes you something - quality, support, not shutting down tomorrow, etc. Paying also means you are entering into a mutual exchange of value, and supporting the future of a product that brings you value. Good businesses understand commerce is an ecosystem, not winner take all.

This is often difficult for young entrepreneurs to understand, because they are bootstrapping, have no budget, and want everything for free. Actually, offering service for free often makes customers uncomfortable - they think either you are incompetent or won't last.

Often when a free service shuts down and people complain, there is a contingent of HN that responds "it's free so stfu." While somewhat valid, the converse is that when it's not free, you do have a right to demand something.

Personally, I favor products that charge reasonable rates and have a business model. I would not spend a minute integrating with a service that did not seem to have at least a roadmap to billing me because I would rightly believe the service is likely to shut down, leaving me with the task of replacing it.

Investors often flat out tell startups the opposite, go for reach first, then monetization. I guess if you are boot strapping then, fine, cripple your growth and start charging.

"You’ve either built something worth paying money for, or you haven’t."

That should follow "Build something people want."

Brilliant!

Fear of money seems more like fear of failure to me.