Taking your Startup from Free to Paid

REVENUE MODEL: What best way to charge your customers?

Dave Schappell - @daveschappell

Bonus Topic: (Startup) Company/Office Culture

Who am I?

• Founder – TeachStreet– Angel-funded / VC-backed– Founded in ‘07 – Profitable in ‘11

• ex-Amazon, JibJab

• Former CPA

• NEVER built a profitable business on my own (yet)

TeachStreet, Inc. Confidential 3

49M College Grads / 77M Baby Boomers / 31M Retirees>$30B/year spent by 54M in U.S. taking personal interest classes

$5B/year TAM (Marketing, Transaction Fees, Affiliate Sales)

Transform the Lifelong Learning Marketplace

Why Should You Listen to Me?

You

• done that• almost did that

• thought that too (& was wrong)• wasn’t positive either

• Want to start a (web) business• Don’t want biz to go bankrupt

• Think customers will pay• Aren’t sure how they’ll pay

• Not sure how to find out/test

I’ve

What Type of Business?

Direct

• Ads

• Lead-Gen

• Affiliates/CPA

• E-commerce

• Subscriptions

• Virtual Goods

Indirect

5 Steps to Business Planning

1. Plan next 2-3 Years of your Biz2. What HAS to come first?

- Features, Assets, Office, Employees * Make a Good/Great Product! * What’s your MVP (Minimum Viable Product)?

3. Remove unnecessary items4. Create a timeline5. Add 3-6 months to everything

http://www.seattle20.com/blog/Business-Beta-2013-Prioritizing-Startup-Features.aspx

Product / Market Fit

80% on Optimization

Revenue When?

Don’t Put Ads on your Site!

Don’t Worry about Viral

5 Tips to Transitionfrom

Free to PAID

5 Tips to go Free to PAID

1. Give plenty of notice & (real) chance for feedback2. Price it ‘fairly’ (probably still at a deep discount)3. Offer customers a way to get product for free4. Provide Grandfather’d Pricing5. Make transition gradual– People should/will only pay if you’re delivering value

#1-Give Notice & Chance for Feedback

http://www.flickr.com/photos/whitehouse/4753634006

#2-Price it Fairly

http://www.flickr.com/photos/emilyandthemagic/4974797851

#3-Give Customers a Way to get Free

http://vincee87.wordpress.com/2009/09/12/will-work-for-beer/

#4-Provide Grandfather’d Pricing

http://www.flickr.com/photos/orinrobertjohn/4297220022

#5-Make Transition Gradual

http://www.flickr.com/photos/sepblog/3570992970

So, How’s TeachStreet?

• Launched ‘All Paid’ in late April 2010– Pro/Sub Revenue up 56%– Listing Fee Rev is now 75% of Pro/Sub Rev• And, it’s 2x’d since May 2010

– Operational Revenue up >120%– Leads to Teachers up >115%

“Overnight” Timeline to ‘Semi-Success’• Jun ‘07 - founded company; raised Angel $• Apr ’08 - ~25k classes & teachers in Seattle – teachers could add unlimited classes;

students could contact teachers. Limited functionality. Let us demonstrate value & learn (100% free)

• Apr ’09 - +7 cities; expanded tools (phone tracking, teacher metrics) (100% free)• Jul ‘09 - Student-to-Teacher payments. 15 months to launch?!? Believed needed to

demonstrate value-add. Students paid small booking fee (to cover costs); Teachers paid commission (still free to add listings)

• Sep ‘09 - Pro teacher $29.99/month; extra promo, marketing tools, free payments. (still 100% free to add listings; revenues are building from services)

• Apr ‘10 - optimize/weblab – addt’l lead-tracking – believed we’d never earn biz if didn’t deliver value (more, new students) to teachers (still free to add listings)

• Apr 7, 2010 - “pre-announce” introduction of fees for all new class listings• April 27, 2010 - “turned on” listing fees (100% new listings paid; All rev-enabled)• May 12, 2010 - last day of $10/month “Pro”-motion (100% new listings paid)• At present - Traffic’s growing, Revenue's ramped sharply, and we’re 100% sure that

we’re going to have to keep pivoting. Because that’s what startups do.

Rules We Break• Both Direct & Indirect– Subscriptions & Listing Fees– Lead-Gen, Affiliates & Ads

• We have (some) Ads• We don’t Weblab/test enough– Too few resources / too many ideas

• Still are attracted to shiny objects

Startup Culture(Myths & Reality)

Startup Culture Conundrum

Myths Reality

No Bureaucracy! Benefits, Vacation, Sick Time

Flex-time / Work-from-home! Communications / Sharing

No Meetings! Minimize Meetings

Democracy! Benevolent Dictator Needed

Office Culture Reco’s

• Office Space for Cheap / Free• Real Estate advisors work for free!• Door Desks + Craigslist = Awesome• Salary = $$$ Snacks = “nothing”• Paint (and big-screen TV) are cheap• Office Cleaning saves Marriages• Weekly Beers & ‘vision connect’• Dogs, Art & Fun• Rent out your space!

Resources

• Andrew Chen – www.andrewchenblog.com

• Dave McClure – 500hats.typepad.com

• Alyssa Royse – Seattle 2.0 Post(s)

• My TechCrunch Post on ‘Free to Paid’ http://techcrunch.com/2010/06/13/free-to-paid-tips/

• My 500Startups Office Culture post:http://blog.500startups.com/2010/10/11/how-to-sustainably-make-the-startup-office-more-livable/

• Hops & Chops Startup Happy Hour (Thursdays)– www.hopsandchops.com