"Grasshopper Group has been supporting Chargify for 15 months, and Chargify is now supporting 3,000 merchants - again, the large majority of whom are paying $0."
And from the linked article:
"We should have shared the data we collected for over a year that demonstrated quite clearly to us that only 0.9% of customers were paying us at all, and that there was a direct correlation between those that did not pay anything and a high volume of support requests."
3000 merchants total * .009 paying = 27 paying merchants
Now, these numbers could be off in several ways, but even if they're off by an order of magnitude (and I doubt they are) - ouch!
So many lessons to be learned from this:
- Freemium's applicability is so over-rated. I couldn't be happier that we've had a (cheap) pay-to-play structure at Spreedly since the beginning. Personally I think freemium should always be a strategy introduced post-profitability, never before.
- It's been said many times, but I'll say it again: the "overnight success" is a myth. Most businesses take 2-5 years to reach any kind of profitability. Selling to startups? Better keep that in mind.
- Capital infusion causes market distortion. Not saying that's a bad thing, but it's worth recognizing. Spreedly noticed a definite drop-off in signups when Chargify came out, and why not - wouldn't you take the free option vs. Spreedly's pay to play? And wasn't that some great marketing they poured a lot of money in to? And yet their free option and their marketing were only possible due to the Grasshopper Group's investment.
- Put that all together and you end up with this: you've got to keep your burn low until you find your product/market fit and your scalable sales model. Or you've got to have a sugar daddy. Or you've got to win the investment lottery. Spreedly is still alive because we've only allowed costs to grow as we're able to handle them - that's the nature of the bootstrapped startup, hard as it can be at times.
One more bit of math: if my numbers above are correct, Spreedly has 6x as many paying customers as Chargify. And we've had zero outside investment. And, painfully, we're still not ramen profitable. But: we have a pivot in the works that will blow the doors off of what we've done to date (and it doesn't involve raising prices on existing customers - promise!). So stay tuned - this space is just starting to get interesting.
Oh, and if you're an angel investor: we'd love to have some capital to use to distort the market in our favor for a change :-)
Your comments yesterday are appreciated but the asking for angel investors just seems a bit odd. If you feel investment distorts a market and that is bad, then every market is like this and in your view is bad. Beyond that investment is not a lottery in anyway.
We have built Grasshopper Group over 7 years with NO outside capital at all. I am all for talking with competitors and love many of them, but your view of "sugar daddies" and "investment lottery" is just wrong and makes you look bad.
Quoting myself: "Capital infusion causes market distortion. Not saying that's a bad thing, but it's worth recognizing."
If this comes off as an attack on Grasshopper Group - my apologies. I think what ya'll have done is pretty impressive, and I'd like to duplicate it myself. At the same time - Chargify wouldn't have ever gotten into the situation of supporting so many unsustainable free users if it (as a stand-alone product) was bootstrapped. That's all I'm saying. Calling that a "sugar daddy" was probably overly inflammatory.
I'm fairly certain that 3000 merchants are active merchants, and 0.9% is out of global accounts, including inactive merchants. I could be wrong, however. =)
Perhaps - I have no internal knowledge of Chargify's numbers beyond what they've posted publicly. Even if they have 30000 global accounts, though, and it's 0.9% out of that - makes me think twice about freemium.
No doubt. My experience in the processing world jives with what they are saying though. The biggest problems are the smallest customers, usually the ones that aren't earning you anything. Granted, keep in mind that they are focused on B2B. I think they could have handled it better, but I think they made the right call.
What is the difference between active merchants and global accounts?
I have hard time believing that in the past couple months they could have found >3k people out there looking for a subscription billing solution like this. I think there's definitely a market for it (since I'm part of that market), but I don't think you're talking about millions of potential customers. And even if it is larger than I imagine, it takes time to reach them all.
From http://chargify.com/blog/why-we-changed-our-pricing/:
"Grasshopper Group has been supporting Chargify for 15 months, and Chargify is now supporting 3,000 merchants - again, the large majority of whom are paying $0."
And from the linked article:
"We should have shared the data we collected for over a year that demonstrated quite clearly to us that only 0.9% of customers were paying us at all, and that there was a direct correlation between those that did not pay anything and a high volume of support requests."
3000 merchants total * .009 paying = 27 paying merchants
Now, these numbers could be off in several ways, but even if they're off by an order of magnitude (and I doubt they are) - ouch!
So many lessons to be learned from this:
- Freemium's applicability is so over-rated. I couldn't be happier that we've had a (cheap) pay-to-play structure at Spreedly since the beginning. Personally I think freemium should always be a strategy introduced post-profitability, never before.
- It's been said many times, but I'll say it again: the "overnight success" is a myth. Most businesses take 2-5 years to reach any kind of profitability. Selling to startups? Better keep that in mind.
- Capital infusion causes market distortion. Not saying that's a bad thing, but it's worth recognizing. Spreedly noticed a definite drop-off in signups when Chargify came out, and why not - wouldn't you take the free option vs. Spreedly's pay to play? And wasn't that some great marketing they poured a lot of money in to? And yet their free option and their marketing were only possible due to the Grasshopper Group's investment.
- Put that all together and you end up with this: you've got to keep your burn low until you find your product/market fit and your scalable sales model. Or you've got to have a sugar daddy. Or you've got to win the investment lottery. Spreedly is still alive because we've only allowed costs to grow as we're able to handle them - that's the nature of the bootstrapped startup, hard as it can be at times.
One more bit of math: if my numbers above are correct, Spreedly has 6x as many paying customers as Chargify. And we've had zero outside investment. And, painfully, we're still not ramen profitable. But: we have a pivot in the works that will blow the doors off of what we've done to date (and it doesn't involve raising prices on existing customers - promise!). So stay tuned - this space is just starting to get interesting.
Oh, and if you're an angel investor: we'd love to have some capital to use to distort the market in our favor for a change :-)