Focus on Revenue First, Big Dreams Second.
The Best App Ever
Imagine this. An amazing new app called “Money Machine”. All you have to do is download my app and I will give you $2 every single time you use it. No catch. Just free money.
Pretty great right?
If I made that app I am pretty confident I would have millions of users within weeks. I would have articles on tech crunch/verge/hacker news, and adoration from all of my users. I would have the ultimate “user acquisition strategy” because everyone would want to signup and use my app.
Now, do you think I would have any trouble getting investors? No one would be crazy enough to invest in a company that basically gives away their money right?
- Lyft loses $1.47 per ride. Uber is a bit more cagey, but they lose money on each and every ride as well. Basically the companies artificially lower the rates of each ride so that they can get more and more users.
- Bird/Lime are practically printing money to give away in the form of scooters that cost waaaay more than they earn. They have hopes that once they have a gazillion users they can make enough scooters that it all gets cheap enough to make a profit. In the meantime though…
- MoviePass offered the impossible like unlimited movies for $10 per month. What could possibly go wrong? I signed up for these guys a while ago. It sounded too good to be true, but maybe they had some sort of secret… Sadly, nope. They are still crashing and flailing.
Now, of course, each of these companies are providing a service or a value that goes way beyond just handing out cash, but the user acquisition strategy isn’t that different from my magical app (you can have my idea for free by the way).
These growth strategies will often work and often they will make your company grow (see Uber), but they literally lose money on each and every customer. What is really interesting is that none of these companies have a solid strategy on how to stop the bleeding (at least for the foreseeable future). Twitter took twelve years (!!) to finally make a profit. That is a long time to find your way. Most run out of cash long before that.
Of course millions and billions of dollars of investment money hides a LOT of problems, but eventually all companies have to make a profit. If they don’t…well… they end up like pets.com, Munchery, Theranos, Rdio, and hundreds of others. (Admittedly Theranos had a LOT more problems than just a bad monetization strategy, but they had that too.)
This is why I advise every startup to focus on revenue first and, once you know how you are going to survive, go get some users.
Before You Are Awesome
Unless you are independently rich or you are starting company #3 after two successful exits, this is where all startups begin. No one knows who you are, nor do they care about your idea. At this stage, it is your job as founder to make them care (which is another article altogether *takes notes*). This is also the stage that I would suggest, nay challenge, you focus to on creating a path to revenue rather than user acquisition.
But… but… but… I need users! This becomes the mantra of all of those companies I mentioned above. No one will dispute that you need users, but if you don’t have a solid plan to pay the bills your idea will fail.
Lifestyles of the Poor and Trendy
If you are like most new founders you have great BIG dreams and $5. Even if you have a pile of investment cash, I would still recommend that you get knee deep in some monetization strategies and thought exercises early and often. Here, I will get you started.
- Are you a one-time/many-time purchase or a subscription?
- Are you following a freemium model? What about a trial?
- Who are you making money off of? Your customers? Your vendors? Both?
- What is a good price? Quick note: You can get lost in here forever… simply put… throw a dart and go. You will never feel good about your pricing until you have a lot of data to back it up.
- Are you ad supported? Let me answer this one for you… no. For the vast majority of startups ads are a trap for a user acquisition focus because you need literally millions of users to make ads worthwhile. You may get here, but you aren’t going to start here. Find another way, at least for now.
You are not going to have all of the answers yet, but if you know your customers, then you probably have a good idea on where to start. If you have no idea what to do right now, then go and talk to your advisors, professors, etc., and then come back. (Go ahead. We’ll wait.)
Also… you are not locked in. You can also change your mind as you build and grow. There are no wrong answers here (except thinking ads are a viable strategy for a startup). Remember, you don’t have any users now anyway, so if you change your mind a few times it isn’t a big deal. Your twelve users will understand.
So, what have we learned here?
- Revenue strategy first, user acquisition second (and probably third and maybe fourth)
- Ads are not a monetization strategy. Stop it.
- Don’t be like MoviePass.
Now go forth and build something Awesome.