Why You Should Charge Money Sooner Rather than Later

written by admin on June 29, 2009 in Startup News with 3 comments
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The following is a guest blog post by Matt Mickiewicz, co-founder of 99designs – a multi-million dollar design marketplace, and Flippa (recently launched). Want to build a business on the cheap, and grow it to multi-millions in revenue. Matt is a jedi-master, so take heed….


WHY YOU SHOULD CHARGE MONEY SOONER RATHER THAN LATER

by Matt Mickiewicz

Just because you’ve got a good idea doesn’t mean people will pay for it.
Just because a product or service is useful, doesn’t mean it will make a great business.

What ultimately determines the success or failure of most businesses is whether customers will pay for the product or service – or in very rare cases, whether the company manages to build critical mass and sell to a large acquirer.

With that in mind, you should start charging money as soon as possible. Charge money even if your product or service is super-early stage. There are enough early adopters out there that you’ll always find customers willing to pay you – if you’re delivering enough value.

HOW I TESTED “STICKINESS” BY CHARGING $10:

Let me give you a concrete example…
The idea for 99designs.com, which is now the largest crowdsourcing marketplace for graphic design, began its life in the SitePoint Forums, a community for Web Professionals.

In the early days, designers started playing “Photoshop Tennis” with each other, essentially holding an online competition to test their skills against other designers. Eventually, this evolved into contests where an entrepreneur offered a cash prize for whoever could create the best design for their particular needs.

As a first test of whether this could be a business, we tacked in a $10 listing fee to post a thread in the Forums. We didn’t have any software to facilitate the experience, just a separate forum called “Design Contests”.

Despite the fee, entrepreneurs found tremendous value in being able to connect with designers and see multiple design options for their particular project, before choosing a favorite. Listing volume continued to grow until the “Design Contests” sub-forum became the most popular area of our Community.

We quickly realized that our forum, which was based on vBulletin, was not an ideal solution to accommodate these design projects, and what we needed was a basic Web Application.

In the space of just a couple of months, with one designer & one developer, we hacked together v1.0 of the Design Contests Marketplace, gave it a separate tab of SitePoint, and doubled the listing fee to $20. Despite some initial protests, the idea of crowdsourcing graphic design was so powerful and so appealing, that volume continued to grow month by month throughout 2007.

…WITH REAL REVENUE, I COULD BUILD A REAL BUSINESS:

With a small, but healthy stream of revenue, we found it all the easier to invest additional time & development resources into creating 99designs which launched on February 2008 and is now a successful multi-million dollar marketplace.

These small, incremental steps – which allowed us to fail “cheaply” at any point – proved out our business model, customer demand, and allowed us to re-invest back into the business. We were able to maintain profit margins the entire time, and therefore took on only minimal financial risk.

We built a company based on data & results (people spending money with us, and a continually increasing stream of listings) rather than strongly held opinions and theories.

TEST ASSUMPTIONS EARLY. FAIL CHEAPLY – NO ONE WANTS TO FIND OUT CUSTOMERS AREN’T WILLING TO PAY ONCE MILLIONS WERE SPENT BUILDING IT…

Test your ideas & assumptions early and often, and find out whether or not customers will spend money with you as soon as humanly possible, because customers, not the coolness of your product or service, will ultimately determine your success.