Key takeaways:
- Odunayo Eweniyi, Co-founder of PiggyVest, gave some tips on how to run a business on a tight budget at the Lagos Startup Expo.
- Speaking at the masterclass, she said it is essential for businesses to start charging users for their products from the beginning.
- Several business executives agree with this standpoint, but founders need to do some key assessments before deciding how to charge users.
The TV series, Silicon Valley, mirrors what happens when a startup doesn't lead with revenue generation and profitability. Richard Hendricks — Silicon Valley's protagonist — built an amazing product no one was willing to pay for.
Addressing Lagos Startup Expo's VIP audience on May 20, 2023, Odun Eweniyi, Co-founder and COO of PiggyVest, used Hendricks as her example when speaking about the importance of startups charging from the get-go.
While she addressed the VIPs, she touched on how PiggyVest has remained a successful fintech company for seven years with just $1.1 million in total funding.
Start charging from day one
Eweniyi opines that "On a tight budget, you don't have the leeway for experiments. If you release your product into the market for free, the amount of work it takes to reorientate users to pay for that product is simply not worth it," and her thoughts are somewhat echoed by Forbes.
"It’s nearly impossible to get people to pay for a product if they’ve been using it for free."
Charging from day one coincides with revenue generation — every profit-oriented organisation's primary objective — which Ewiniyi believes is a business' biggest problem, whether it is funded or bootstrapped.
While such reasoning raises the question of why some businesses aren't charging their users, this Close article suggests a lack of confidence, fear that the business model is not working, and founders who would rather embrace self-denial than face facts as some of the reasons.
Eweniyi gave no examples of startups that have faced trouble for not charging from day one, but she mentioned a type of startup characterised by not charging from the beginning.
If you're an ardent follower of tech media, you'll know that virtual dollar card businesses are scrambling for revenue.
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From charging users for failed transactions to creating dollar cards, some startups that offer this service have recently had to rethink their model.
It is more than revenue generation
Charging from day one does more for a business than helps it figure out a path to profitability.
"If you don't charge from day one, you have no idea what people are willing to pay for," says Jason Lemkin, Vice President of Adobe Systems and Co-founder of Adobe Sign.
People generally don't know what they need or what they're interested in until there's a price to pay for it.
Three ways charging from day one can help beyond revenue generation
- Validation of product-market fit: You know if there's actual demand for your product when you put a price on it. When people are willing to pay, it validates product market fit.
- Building loyal customers: Ramit Sethi, Founder and CEO of Growth Lab, believes "People value what they pay for," a discovery he made while trying to get friends and family to pay for his product.Customers who pay for a product have a higher commitment level to it and are more willing to provide valuable feedback. They essentially teach you how to get more customers to pay for that product.
- Using resources effectively: Once you know what makes you money, you know where to focus your energy. Figuring out your revenue model means you don't have to waste money experimenting, and with the current funding climate and proliferation of startups, "you only have one chance to get it right," Eweniyi said.
Charging from day one isn't always so simple
While charging users early can help you in the different ways mentioned above, it is not always so simple. There are market dynamics and user expectations, and, of course, competition that can affect your decision to charge users.
While you do not need to start from the moment you open your doors, you need to map out a monetisation strategy before your product launches.
A freemium model is usually the way to go. Give the users a certain level or period of access and upsell them later.
Y Combinator has three models for monetising a freemium business
- Paywalls
- User segmentation
- Monetisation life-cycle funnel
Canva, the design tool common among content creators is free, but users have to pay to access advanced features on the platform. It doesn't miss a moment to upsell users to become paying customers.
Bumpa is one example of an African startup that uses this strategy. The business-management startup charges users based on the size of their business.
Other products like Netflix or Prime Video give users free access to the product for a certain amount of time to help them decide if they want to pay for it.
Monetisation should not be an afterthought for any startup. However, you should carefully assess your product, market dynamics, competition, financial needs, and growth strategy before deciding how to charge your users.
