The dilemma is much more common than it may seem. First, because one of the main characteristics of startups is that “you don't always look for income from minute zero. There are companies that need to generate a lot of traffic first and then that is when they begin to have a certain possibility of generating income. But until they get traffic… ”, explains Joaquín Guirao, founding partner of Designit and investor.
And second, because once these users are obtained, “it is difficult to monetize them. It is not easy for the client to be willing to pay for what we offer. The entry barriers are few and there is a lot of offer. There are almost great products and at zero or almost zero cost ”, says Javier Megías, an expert in business models.
The good news is that “if you get the user model right, it is likely that a relevant revenue model will appear later,” adds Guirao.
The key moment
Stay with it. If your product is worth it, you will end up finding a solution to monetize them. But until you reach that ideal point, you will have to make three key decisions:
Find a second way of income. It is a road of the cross that almost all startups face (to stay in the market or to grow) and that especially affects content companies, which try to make a living from advertising. “A valid revenue strategy, but we were wrong when to implement it. As it seems that at first I do not get money, I put advertising. And it is the opposite. You need significant traffic to make a living from it. Think that the CPM is so low that with 70,000 visits you can earn 100 euros per month. It is a volume model. And it works well if you have good customer segmentation. It is what gives value ”, continues Megías. And he warns: “Here the fundamental thing is not to try to get income like someone who picks up a blunderbuss. Look for them like you have a laser. Aim well. Don't go to five different lines of income that you can't manage later, but don't tie yourself to just one thing ”.
“Another common alternative is the sale of technology and consulting to other companies. Something that is not usually recommended because it makes you lose the focus of your business ”, warns Mario López de Ávila, managing partner of Nodos.
Don't lose focus. This is a classic warning from entrepreneurs, investors, and startup business experts. “You should not generate income by turning your model on something that is not what you should do. Idealista, at the time, had siren songs from all the big real estate companies that went like a shot, who offered him money to become his channel. With your brand. They decided to continue with the model of charging developers, promoting their homes, preserving their brand, and home sellers for additional services. You might be tempted at first when you didn't have enough critical mass. And they didn't, ”explains Joaquín Guirao.
The same obsession that has made TripAdvisor an international success (the online platform where travelers can share experiences about hotels, restaurants and places of interest). Its managers refused to make reviews and opinions of technological products, airlines, vehicles ... It diverted them from their market: the travel sector. And that they had been running for a year and a half without getting an income. How did they find them? Focusing on what really offered added value to the market: the exchange of opinions between users and not on offering a simple search engine with compilations of articles and opinions to travel companies. It is not that they did not have the ability to generate income, it is that they had not understood the very usefulness of their product!
Charge customer. What if your model turns out to work better by making the user pay for something that you previously offered for free? This is an idea that is difficult to understand when we think that they do not buy the content from us. But sometimes it happens. “A relevant case is Red Karaoke, which started several years ago living only from advertising and completely changed its business model because it could not make a living from it. Advertising on the Internet suffers less than on other media, but it also suffers. The ideal is to move towards a subscription model or freemium. It seems clear that as the only income formula it does not work. It may be one more, but not the only one. Red Karaoke went to the subscription model. From the outset, it is not easy for a karaoke service to think that the user will see so many advantages to subscribe, but they are doing very well. In the United States and Japan, especially, countries where they are very users of these things, ”explains Guirao.
The classic model when it comes to charging for something that they don't buy from us a priori is freemium. You offer something to your clients for free but for superior models you must pay. “In business management software, like Basecamp, it is very common. You have some basic functionalities for free, but the moment they need to share files with clients that are sent to you almost immediately, you have to pay. The critical thing here is to get volume. Size. That is why they tend to look for projects that have a global scope ”, adds Joaquín Guirao.
Another alternative is to sell your customers products or services within a product that they find for free. The well-known concept of purchases within the application (in-app purchase) that video game companies have popularized to go to the next level or get advantages and that can be applied to other models. For example, "any application that offers a utility that is difficult to renounce after a while, such as free budget management software that requires payment through special forms," explains Mario López de Ávila.
Rethink the model
In the end, it's all about “being focused, but not stubborn. Give yourself some deadlines and if things don't work out in those deadlines, see how to pivot, how to change. Do a self-assessment and if you need to make a radical change, do it, ”adds Guirao.
What you should never lose sight of, whether in the beginning or at the time of pivoting, is that “monetizing means having something to sell, analyze well who buys what, how to sell it, do not wait too long to go on the market and do not forget to analyze if your acquisition cost and the Customer value, by time of permanence and repeat purchase, make it profitable. These are parameters that are sometimes unknown and without that part of analytics it is never possible to monetize a product ”, says Yago Arbeloa, founding partner of the Association of Internet Investors and Entrepreneurs.
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