5 ms·

Revenue could be fatal: 3 reasons your startup should consider waiting

23 points by rrwhite 14y ago

timrosenblatt 14y ago
The post is solid, but one of the things I like most in here are the signs of looking at where revenue came from (the comment about only 1% of revenue coming from the entry-level plan). I'd love to hear more from Richard about how they tested the impacts of moving from the $5 to the free plan. And yes, it's definitely a solid strategy to delay revenue for users. I'm sure someone will argue this is Web 1.0-bubbly thinking. But, provided you're doing it in the way that Richard suggests, it's not totally insane. Twitter might not have found a great business yet, but at least they've gotten past one of the big hurdles -- getting people to come to the party.
- rrwhite 14y ago
  We tested it using Optimizely, what we use for A/B tests, but rather doing a true A/B test we made into a sequential test (by manually setting all traffic to go to one variation versus another). It took a couple days to test and it's tough because since it's sequential traffic spikes will screw everything up and you'll have to start all over. So basically we compared two weeks with "average" traffic: running $5 plans one week and free plans the next week. Obviously if anyone noticed we allowed them to switch their plan to free.
georgemcbay 14y ago
Pesky revenue, always trying to get in the way of creating a business! Might as well take it a step further and consider waiting on building a product. Why define your business with a real product when you can, like Zombo.com, do anything?
- Mz 14y ago
  <smartass remark> But enlighten me good sir: How can I get some pesky revenue? I at least don't have a product to get in the way but would actually like some money. Thank you kind sir! </smartass remark>
- rrwhite 14y ago
  The question, as I wrote in the post, ultimately isn't about whether you need revenue or not. Of course you do eventually. It's about when you go for revenue.
zmanji 14y ago
This is the stupidest drivel I have ever read. If you brought this up outside of the inane SV bubble, you would be laughed out of the room. They even state "for many apps, like Instagram [...]" as a good example when revenue is not needed. I'm flabbergasted.
- timrosenblatt 14y ago
  If Instagram had been charging for their app, it would have been very hard for them to get to the scale where they would be acquired by Facebook, especially for anything near the $1b. I'd say everyone who had a piece in that deal is flabbergasted too, but for different reasons. Is this a strategy people should always aim for? No. But there are legitimate reasons why revenue should not be the top priority, and this post does a good job at narrowing it down.
  - zmanji 14y ago
    [...] it would have been very hard for them to get to the scale [...] Without revenue you can say it would have been very hard for them to, you know, exist as a company for some period of time.
    - timrosenblatt 14y ago
      You can say that, yes. But as a company with almost $8m in funding (prior to the $50m/acquisition thing; http://www.crunchbase.com/company/instagram http://www.crunchbase.com/company/instagram) and low costs, they can defer revenue for a while.
      - ktizo 14y ago
        So if you can blag 8 million without any promise of revenue, then don't bother with revenue. Sounds fine, but I assume that this doesn't apply to bootstrapped companies in areas without large quantities of gambling billionaires.
        14y ago
steventruong 14y ago
Every business and business model is different. This should be considered with a grain of salt. It is not a one size fit all
- rrwhite 14y ago
  Nothing ever is which is why I wrote the answer to "when revenue" is: it depends. I wrote this post because I talked to enough people who thought companies not charging was completely irrational. I believe most people, including politicians, are rational actors you've just got to understand their motivations and goals.
  - ktizo 14y ago
    Only economics folk think that people are generally rational actors. Try talking to some neurologists or psychologists and see what they think of that point of view, once they have finally stopped laughing.
- timrosenblatt 14y ago
  Of course, but look at the concept of "loss leaders" in retail. Or even in gaming, where the manufacturers lose money on the systems, but make it back on licensing and game purchases. Isn't it helpful to understand when a counterintuitive strategy is a good option?
a_m_kelly 14y ago
"A Stable (but perhaps unexciting) Business - This is where most people end up." Really? "Most people" with a new business end up with stable but unexciting businesses? I suspect most people end in failure, not Stable Business. In a post full of deeply questionable logic, this little gem takes the cake for me. I suspect some anecdotal evidence from otehr commenters will back this up or that there is a bevy of statistics to prove that this is true, even in the rarefied atmosphere of web companies.
- rrwhite 14y ago
  I meant that most people end up here rather that in the first scenario of hyper-growth. "Most people (who don't fail) end up here" would have been more clear. Point taken.
jusben1369 14y ago
I think the disconnect, and then perhaps vitriol, comes from the fact that these are small, stand alone companies. Large companies take this strategy all the time with a new group or division "Don't worry about revenue yet. Build a great product, get to market, get solid adoption." Nobody argues when MSFT takes that approach with say the Xbox. It's thought of as wise investments. In this scenario the VC's are acting like the wealthy corporate mothership. It just feels counter intuitive though. If you don't want to take money or you're not in a market that is strongly viral then obviously you have to be concerned about revenue much earlier. If you are though then focusing on revenue in the short run may be detrimental.

23 points by rrwhite 14y ago

The post is solid, but one of the things I like most in here are the signs of looking at where revenue came from (the comment about only 1% of revenue coming from the entry-level plan). I'd love to hear more from Richard about how they tested the impacts of moving from the $5 to the free plan. And yes, it's definitely a solid strategy to delay revenue for users. I'm sure someone will argue this is Web 1.0-bubbly thinking. But, provided you're doing it in the way that Richard suggests, it's not totally insane. Twitter might not have found a great business yet, but at least they've gotten past one of the big hurdles -- getting people to come to the party.

rrwhite 14y ago
We tested it using Optimizely, what we use for A/B tests, but rather doing a true A/B test we made into a sequential test (by manually setting all traffic to go to one variation versus another). It took a couple days to test and it's tough because since it's sequential traffic spikes will screw everything up and you'll have to start all over. So basically we compared two weeks with "average" traffic: running $5 plans one week and free plans the next week. Obviously if anyone noticed we allowed them to switch their plan to free.

georgemcbay 14y ago

Pesky revenue, always trying to get in the way of creating a business! Might as well take it a step further and consider waiting on building a product. Why define your business with a real product when you can, like Zombo.com, do anything?

Mz 14y ago
<smartass remark> But enlighten me good sir: How can I get some pesky revenue? I at least don't have a product to get in the way but would actually like some money. Thank you kind sir! </smartass remark>
rrwhite 14y ago
The question, as I wrote in the post, ultimately isn't about whether you need revenue or not. Of course you do eventually. It's about when you go for revenue.

zmanji 14y ago

This is the stupidest drivel I have ever read. If you brought this up outside of the inane SV bubble, you would be laughed out of the room. They even state "for many apps, like Instagram [...]" as a good example when revenue is not needed. I'm flabbergasted.

timrosenblatt 14y ago
If Instagram had been charging for their app, it would have been very hard for them to get to the scale where they would be acquired by Facebook, especially for anything near the $1b. I'd say everyone who had a piece in that deal is flabbergasted too, but for different reasons. Is this a strategy people should always aim for? No. But there are legitimate reasons why revenue should not be the top priority, and this post does a good job at narrowing it down.
- zmanji 14y ago
  [...] it would have been very hard for them to get to the scale [...] Without revenue you can say it would have been very hard for them to, you know, exist as a company for some period of time.
  - timrosenblatt 14y ago
    You can say that, yes. But as a company with almost $8m in funding (prior to the $50m/acquisition thing; http://www.crunchbase.com/company/instagram http://www.crunchbase.com/company/instagram) and low costs, they can defer revenue for a while.
    - ktizo 14y ago
      So if you can blag 8 million without any promise of revenue, then don't bother with revenue. Sounds fine, but I assume that this doesn't apply to bootstrapped companies in areas without large quantities of gambling billionaires.
      - 14y ago

steventruong 14y ago

Every business and business model is different. This should be considered with a grain of salt. It is not a one size fit all

rrwhite 14y ago
Nothing ever is which is why I wrote the answer to "when revenue" is: it depends. I wrote this post because I talked to enough people who thought companies not charging was completely irrational. I believe most people, including politicians, are rational actors you've just got to understand their motivations and goals.
- ktizo 14y ago
  Only economics folk think that people are generally rational actors. Try talking to some neurologists or psychologists and see what they think of that point of view, once they have finally stopped laughing.
timrosenblatt 14y ago
Of course, but look at the concept of "loss leaders" in retail. Or even in gaming, where the manufacturers lose money on the systems, but make it back on licensing and game purchases. Isn't it helpful to understand when a counterintuitive strategy is a good option?

a_m_kelly 14y ago

"A Stable (but perhaps unexciting) Business - This is where most people end up." Really? "Most people" with a new business end up with stable but unexciting businesses? I suspect most people end in failure, not Stable Business. In a post full of deeply questionable logic, this little gem takes the cake for me. I suspect some anecdotal evidence from otehr commenters will back this up or that there is a bevy of statistics to prove that this is true, even in the rarefied atmosphere of web companies.

rrwhite 14y ago
I meant that most people end up here rather that in the first scenario of hyper-growth. "Most people (who don't fail) end up here" would have been more clear. Point taken.

jusben1369 14y ago

I think the disconnect, and then perhaps vitriol, comes from the fact that these are small, stand alone companies. Large companies take this strategy all the time with a new group or division "Don't worry about revenue yet. Build a great product, get to market, get solid adoption." Nobody argues when MSFT takes that approach with say the Xbox. It's thought of as wise investments. In this scenario the VC's are acting like the wealthy corporate mothership. It just feels counter intuitive though. If you don't want to take money or you're not in a market that is strongly viral then obviously you have to be concerned about revenue much earlier. If you are though then focusing on revenue in the short run may be detrimental.