A great article from David Spinks of Feast making a case for having a solid business and revenue model over and above a user base of free users.
It all makes very much business sense. And yet as I read it I can feel the brakes come on. Yes, it is important to test your revenue model (let alone have one to test!), but I can’t help to feel positive about the prospect of building up a large user base (for free). Why is that? In part we’re conditioned to associate “large user base of free users” with success given the highly mediated examples of acquisitions and huge valuations of free user bases. Entrepreneurs (and clearly many in the startup funding community) are willing to take a leap of faith that if you have a sufficiently large user base, you will be able to convert enough of them to paying customers – somehow. So the thinking is that it is harder nowadays to amass a huge following of faithful customers than it is to come up with a business model that can generate revenue. It’s a classic case of perception vs reality. You are perceived to be successful because you are grabbing lots of users (and there is no question that it is an accomplishment to do so given the zillions of free apps and sites that get no traction). Reality is you may be far away from converting them to paying customers. But as always perception trumps reality, and our current business and cultural mindset supports that perception.
We also need to caveat that in most entrepreneur circles, acquisition or IPO is the end game. You won’t raise much money if you don’t make that your priority. That can open up an escape pod for the entrepreneur (and VC) of amassing a sufficient user base to be of interest to somebody else that will take on the responsibility of monetizing your customer base (or will buy you out to stop hemorrhaging paying customers to your free solution).