Why should an Entrepreneur Charge for Their Services From Day One?

Behind this simple question, there are 3 fundamental answers that define the success or failure of our start up in the short term. It is better to know these truths, as soon as possible, to save time, money and above all, long hours of work and dedication.

After working for five years on our entrepreneurship, in which at this time we are focusing on the regional expansion to Latin America—we have discovered that it is crucial to start by answering this question from the beginning.

Next we are going to share the need to focus on this specific point from 3 different angles.

1)    Is it a real problem?

Going directly to the most important: the question “Why should an Entrepreneur charge for their services from the first day?” it gives clear and direct answers to an existential issue: Does what we are developing solve a real and specific problem to our customers?

When we have an idea, reality is that it is more common to think positively: that it is awesome, the benefits and all the extra value that we can offer if the enterprise is developed.

The problem arises when the customer’s needs are underestimated. Only a few entrepreneurs take the time to meet their clients, show them the idea, have interaction and finally assess if they are ready to use the product/service or not.

In fact at the beginning, that should be the first thing to do. As technological entrepreneurs, we must not write a single line of code without first sitting down with our potential clients and study effectively if they would daily and consistently use our service. At the end of the day, if we are not developing a project that solves a real problem to our customer, then there is nothing to fight for.

In this first point we have personally failed. We began developing software that compared cell phones plans. As time went by, we realized that no one was using it and, not to mention, the time that it took to develop, program and design it.

All this time could have been saved, if we had sat down with our customers and realized that they did not want to compare cellular plans.  They are simply more interested in the mobile device –operating system, digital camera, processor, screen, among others—and also they are “caught” by the company in which they have their cell number; they are not ready to change to another company. In the end, the project failed and we ended it.

At this point, I would strongly recommend reading the entrepreneur methodology of Eric Ries, known as “The Lean Startup” which basically shows the idea of ​​starting small and growing together with the clients. Just the opposite of trying to grow from our “assumptions” of what we think that they client must want or need.

2)  Is it feasible in the medium and long term?

Once we have found a solution for our customer’s problems and also have verified that they are willing to use it because they need it, the process does not end there. As the title says: “we should charge for our service.”

To develop a viable enterprise in a medium and long term, it must generate revenues and even more when the source of financing is our pockets, known as “bootstrapping” (Without foreign investment.)

Note: Please, if you make the serious decision to become an entrepreneur, do not get carried away by exceptions such as “Twitter” that until today, with millions of users, they have no a clear revenue and validated model. It is only an exception to the rule. If we want to succeed, we must, from the beginning, generate revenues through a defined and specific model.

In this process, we must understand and learn together with the customer the level of importance that the problem that we have solved for them has and how much they are willing to pay for it. It is recommended not to ask this, but in our case we are innovating with a new service, and we must have the customer’s perspective, although later we agree with or not.

Related to the previous points, it is critical to know if the customer is willing to pay for using our service, and this is an excellent sign, if not the best of all! This definitely shows us a light at the end of the road as we learn with our own startup elMejorTrato.com in the first 3 months.

3)  Growth

A clear example of this is “37Signals”, an online software firm for small and midsize companies that helps with the management of online projects. 37Signals began answering the question correctly: they developed a minimum viable product, a prototype and then they tested it with the client (they solved a particular problem). From the beginning they charged for the service and have been improving it with user fees.

Finally, that is the reason why we have to charge from the beginning. If we are on the right track, we will be able to generate a virtuous circle where we will work in our enterprise and charge for the service and we will be able to finance our growth from our own users. Today, with the idea that everything is for free on the Internet, it seems unthinkable. However, there is nothing more understandable at business level! This is the way that the world of business works!

Based on my experience throughout these years undertaking online, I would like to highlight that the best business model that we can implement  is the one in which the revenues come from monthly subscription. In this way, our customers pay a fixed and known price every month. This is where we can have an idea of our future and plan our growth and sustainability.

Today there is not a better model than the mention above.  This is why I share it as an excellent opportunity for anyone who is starting a start up. It is the right foundations on which to build and implements our long-term operations.

A concrete example is to think about the past, when Microsoft sold “Microsoft Office” for example for $ 200, or the case of Google Docs that is an online service for companies and costs $10 a month. From this paradigm shift, we do not charge everything at the beginning, we charge continuously throughout time. It is accessible to the customer and it also generates greater visibility for the company!

It is not a new methodology of income. Next I share, in case someone wants to know more and study, the case of leading companies (Mixergy, PowToon and MailChimp) who are carrying it out and it can guide us to successfully develop our enterprises using subscriptions.

Republished with Permission from Everything Small Business Journal – http://esbjournal.com.