It really gets to me when people become “frustrated with startups that refuse to raise prices”.
To be fair, Mark Andreessen is in tune with a real problem though:
“It has become absolutely conventional wisdom in Silicon Valley that the way to succeed is to price your product as low as possible and then, under the theory that if it’s low-priced everybody can buy it, and that’s how you get to volume,” he said. “And we just see over and over and over again people failing with that … They don’t charge enough for their product to be able to afford the sales and marketing required to actually get anybody to buy it.”
I agree with him on this. But I’m not sure that him and others complaining about this, are in tune with the fact that this is not a problem that startups alone can fix.
Bullet point history lesson on how I think we most likely got here, because I love looking at the big picture and I think about this a lot:
- Healthy ecosystem existed, or a closer version of healthy. Basically both companies & sole traders were at least able to make a living by getting paid by customers.
- Zuckerberg, Brin, Page, & other privileged kids championed a culture where software should be free. Well funded / well connected / well educated entrepreneurs who meant well, but were too young and too privileged to know that this would hurt indie app makers and unfunded startups the most, set the tone for this and educated the market.
- Investors saw the value of evaluating products on number of users, and further encouraged more entrepreneurs to aim for FREE — whatever it takes — to get your user base up. I don’t know if this was intentional, but this played right into investor’s hands. Because they then created a culture where entrepreneurs relied on them in order to build anything.
- The App Store came around and breathed some last hope into the sole trader ecosystem. After a small spike of 1 or 2 years it was mostly too late, because Millennials were entering the disposable income realm and had been had been conditioned that “software IS free”.
- So here we are. All scratching our heads wondering why startups can’t get customers to pay for their products that customers love to use but think “should be free”.
I don’t think investors and other thought influencers will realize this for another few years, because they still see a stream of well connected and privileged people (Stanford students, etc) coming to them with ideas. But this is how it looks on the ground. In 2016 anyone who doesn’t have the connections to “get funded” not only doesn’t have a chance, but they aren’t even trying anymore. They know how hopeless it is. Yes, it’s easier than it’s ever been — anyone can go technically go to the valley and try to spend 6–12 months to “get connected”, so they can inevitably get funded.
But in order to do this, you need to come from a place of privilege anyway (who besides the bootstrapped has 6–12 months to go gambling with no income?). Plus this is kind of a problem if it’s the only way to make it in software now. I don’t think enough investors or gatekeepers or whatever you want to call them, think about this.
By comparison, literally tomorrow I could start making coffee, get the most minimal truck out there, and start earning $ from the minute I start supplying coffee to customers. Or whatever other analogy you want to use of basically any other business that you want to build, apart from software. Yes I know that I would still have to have some kind of capital to get the truck and espresso machine, but the point is that this would be rewarded with revenue from day 1.
Because you can’t make $ from day 1 (more accurately year 1, or year 2 or 3) of supplying software to customers is the very reason why this is an industry of extremely high privilege, and possibly a bubble. This isn’t a story of a guy who went to the valley and couldn’t get funded. I haven’t done that, this is not the story you are looking for. I am just trying to get us to admit that we do not have an ecosystem, so we can try to figure out how to fix this.
We’ve reached a point in time where the tech is finally here for very small teams of 1 or 2 people to build very innovative solutions. That’s pretty cool. But we haven’t reached the point of the business models being here.
This is weird for me to think like this, because I’m usually considered an optimist. I’m usually the person who’s convincing people that the world isn’t as violent, or racist, or classist, as it once was — sometimes we take 1 step back for 2 steps forward, but based on history this is the best we’ve ever had in life.
But we have to admit that the software industry is not a good place to be if you’re a sole trader / indie app maker / small startup. That is the objective truth. People have no problem in paying $5 daily for a coffee. But they have a problem in paying upwards of $0 daily to use an app. Heck, nobody’s going to pay to use your app for $5 a year, let alone a single day.
What it comes down to is this — until we somehow change consumers expectations of software’s worth, we’re never going to have a healthy ecosystem. We shouldn’t have to run to investors to build innovative products, but that’s the culture that we’ve created. Investors have got to understand this and stop complaining that startups don’t have business models.
The battle is not in figuring out how to get customers to pay for our products — that is an expired time period. The present day battle is in how to get customers to pay for software at all.