This model might be great if you have a successful and well-researched idea. But I'm concerned about validation, costs, and pivots.
What happens when your learnings pivot the app in a direction that [some] paid users aren't interested in? They have bought access to a service which might not align to their needs anymore and they likely wouldn't have access to the version which they paid for. Sure, a dollar is a small amount, but I feel as though the effect is more pronounced than with free services. Heck, free services get flack a lot of the time for changing strategy or shutting down.
I guess if your feedback and learnings are from the vocal majority, you might underestimate the backlash from the silent real majority.
Furthermore, what happens when you have 10 paid signups (let's say $10 total) for a service that needs $100 worth of infrastructure? Do you end the service and refund the money? Do you pocket the money and move on? Do you fork up the remaining infrastructure cost from your pocket and continue? I thought the value of kickstarter and the MVP model was the validation to support the product, whereas this model seems to have a grey area in that regard.
I have a critical mass of paying users and I
have to disappoint a small portion of them.
I hope I'm not misrepresenting your comment because on the spectrum of problems afflicting early stage startups, them's the good kind.
On a more serious note, we didn't have too much of a problem with it and we had to say "no" quite a few times. We'd just offer to refund their money and explain the situation the best we could.
Yes but you're describing this as an alternative to the free beta/mvp model. With an equal number of hypothetical users, you're disappointing paying users, where the alternative is that they haven't paid (and I postulate that they would be less disappointed because of it!). Perhaps the free model could be a more positive experience for a brand, and have less frustrations on the customer service side.
I guess it's just another factor to consider. They both seem to be viable models. And I'm not experienced with either.
We actually found people who paid us to be much more helpful and understanding with potential issues. Probably because they knew we were working hard on solving a problem that they paid for. We also offered a money-back guarantee, but barely anyone ask for one (<1%). Customer service isn't bad since the volume for a paid beta isn't what you'd see for a free beta. This has the side affect of keeping your beta group contained so that you really get to know your users.
Free users were the opposite. They would be angry when things didn't work out quite right and complain about the beta price (roughly $5, though we moved it around some). Free also has more issues on the customer service side simply because you have to do more of it.
I can certainly think of scenarios where a free beta makes sense, but if I'm starting another B2B company I would charge from day one all over again.
We've taken a similar approach to building Vidpresso, and it's worked out really well. We literally found one customer who'd pay up front for a year of our service, then they suffered through the woes of an early product. Then, we found our second customer who'd pay for our basic product, and then we started to scale out and launch more features.
I think for any product that results in a sale, ie not a social net or the like (not disparaging!), this is the right approach.
I really like this and I'm doing it with a new product we are building. We have existing customers on our main product and this new one is based on a survey of them. So, I think we have enough validation to do a paid beta.
I think in a kickstarter-like way, this could work. If you make your users feel like buying in early could benefit them in the long run, and that they get some say in how the product develops, I could see myself paying into a startup service I really felt like I needed.
Of course, it only takes a few of these to crash and burn, or completely not listen to their users and turn against them to make people lose trust in the whole model.
There is a valuation issue here - if you have # of customers x, price your product at y and make revenue z=xy, your valuation in future seed rounds will somewhat become based on revenue z. If revenue z is not pivotal to your runway, you might be better off pitching to VCs that your revenue can be z'=xy', where y' is your real value to customers. If y and y' differ by a significant factor (which the OP seems to be advocating), you can make a significant negative impact on your valuation as a company.
I don't see that charging customers a fraction of what they would pay in the future provides the benefits the article says: "It meets two pretty crucial components of a proper early stage startup: talk to users and write code." You can talk to free users and you will still be writing code.
"The minor revenue is not the prize. The fact that someone will pay you at all for some promised product is the prize." If you are providing real value for your beta customers, it will not be hard to determine that they would pay in the future.
This sounds great on the surface but I'm always wondering about specific implementation of this method. How do you charge people for a promise? Do you set a certain timeline so people have something to look forward to?
It seems apparent that it wouldn't - convincing all your friends to download some random app is one thing, convincing them to pay more than $2 is another.
Then again, app.net went with this model and a fairly high price and is moderately successful. (The combination of a target audience generally highly willing to pay money for internet things and a large amount of hype probably helped.)
I don't agree with that but you have to admit Zapier is in an entirely different category than most apps. The product is delivering things almost no other app is doing, and it can solve major problems with high development costs. I would have thrown money at it without even using the product, whereas these newly executed old idea apps are just not that interesting...
What happens when your learnings pivot the app in a direction that [some] paid users aren't interested in? They have bought access to a service which might not align to their needs anymore and they likely wouldn't have access to the version which they paid for. Sure, a dollar is a small amount, but I feel as though the effect is more pronounced than with free services. Heck, free services get flack a lot of the time for changing strategy or shutting down.
I guess if your feedback and learnings are from the vocal majority, you might underestimate the backlash from the silent real majority.
Furthermore, what happens when you have 10 paid signups (let's say $10 total) for a service that needs $100 worth of infrastructure? Do you end the service and refund the money? Do you pocket the money and move on? Do you fork up the remaining infrastructure cost from your pocket and continue? I thought the value of kickstarter and the MVP model was the validation to support the product, whereas this model seems to have a grey area in that regard.