Ed Weissman on B2B Opportunities for Startups

August 23rd, 2010 Sean Murphy

Ed Weissman (edw519 on HN) had a great comment a while back on Hacker News at  http://news.ycombinator.com/item?id=83561 that I got his permission to re-publish here:

My target market is small business. 3 Reasons They Prefer Pay Over Free:

1. They don’t want their employees looking at ads.
2. They need leverage when they have complaints. (Why would they listen to me if I’m not paying anything?)
3. They want you to stick around.

Provide them with something they want and charging them will not be an issue.

His answer was in response to the question “Who is building a startup/product and making money by charging customers?” and he offers a great list of reasons why business buyers prefer to pay.

I think an alternative to #1 is that ad driven sites tend to promote more page views and page refreshes, which tend to lower productivity compared to a well designed subscription driven site (so they value their employees time, and the work that they deliver, more than they want to get a “free app”). Also, some amount of screen real estate has to be lost to ads that could instead be applied to improving the information content on the page directly relevant to the task the employee is performing.

#2 is very under-appreciated by the advertising driven sites. I think that startups stay in “free beta” too long in particular. I only want to use an application in support of my business, especially if it impacts prospects or customers,  if I know the developers will respond, and the default terms of service typically say that they can disappear without warning (along with my data). Even a 15-30 day grace period with a warning for shutdown would be a huge improvement.

#3 points out a misunderstanding between how technologists or solo consultants may view a new tool and the total cost of adoption that a small business faces.  A small business  has to bear a lot of cost in workflow and process changeover. They do want you to stick around because their true cost of adoption is much higher than what they are paying you.

Andrew Warner has a great interview with Ed Weissman on “Why Do People Join On-Line Communities” where Ed describes in detail the benefits he gets from taking part in the Hacker News community.

Entry Filed under: Early Customer Stage, Rules of Thumb, skmurphy