How does it make money? Shut up! The problem with FREE models in tech.
It appears that discussing business models and profitability has become a taboo topic in our local tech industry here .
People are 'allowed' to discuss every other tech topic but when it comes to business models and profitability, that's a no go area. Go to tech whatsapp groups, facebook groups etc There is almost always someone going to shout down the topic whenever it is raised. Even during live tech events, people are happy to introduce or debut their software but not what the business model is. Its always shrouded in mystery and no one dares ask. Sometimes, its even non-existent.
I've observed an increasing number of young tech startups finding it morally hard to charge for the services they provide.
Like, people will put in several months of hardwork, prepare documents, market research, pitch to investors, get funding, pay salaries, but at the end, guess what, no business model!
The reason, I feel, is that unspoken culture that 'free' is righteous but 'paid' is evil and absolutely wrong.
I don’t know how that belief came to be, but it never ends well for many new tech startups around. Some tech companies around have already figured out how to be profitable, but they will never discuss the topic. Its a don’t ask don’t tell atmosphere within tech. This doesn’t benefit young startups still looking for solid ground to place their feet.
People are comfortable paying Lawyers, Doctors etc for consultancy, but when it comes to tech, someone puts a random call through “Hello, hello, I want to pick your brain!”.
The mindset is already there, “if it’s a tech consultation, it is supposed to be free”. The software development freelancing industry in many countries is already dead because of already existing free-tech culture. When project owners contact freelance software developers, they want to beat the price so low that it only makes sense for top developers to only accept foreign jobs.
These days, if you check job boards, the recruiters are happy to list all the skills needed but will comfortably ignore the salary or salary range. “If it’s tech, it’s supposed to be free” right?
In fact, a potential employee asking about the salary range in the comments of the post is seen as rude and shouted down “shut up”.
Tech employees are seen as being on the same level as the technicians that clean your house, paint it, wash the car, install window fittings etc, no upward mobility on salary structure. Many companies will begrudgingly pay developers 150k ($400), but that marketing team deserves $200k budget.
The in-house social media marketer will be begging the company to provide her even a laptop to be using to do her job. Nobody wants to give her money for data for home use. Yes, because of course, “if it is tech, it should be free”
Someone even told me "you should never ever charge for a tech conference".
And I'm like "really? Where did you learn that from?".
Then I went ahead to share several pictures of silicon valley tech event fliers. Some of them had $1,500 ticket fee! So why is it a taboo here?
The per capita income here is really low, a paid conference must not be expensive. For instance N200 ticket fee x 100 attendees. That’s enough to cover for the cost of feeding at the event. If that money is raised a little further then it will take care of the cost of the whole event.
Solar panel seminar example:
During those days when solar panel first came out, we paid N2,500 to attend a solar panel conference, over 500 of us, students. Because we paid, we got top quality delivery. The speaker brought a live solar panel there, dismantled it and walked everyone through the setup. We were watching it on the large screen. At the end, everyone left with a CD plate containing the video of the tutorial.
The estimated revenue from that event is N2,500 * 500 attendees, that’s N1,250,000. That is enough money to take care of the fee for the hall, and pay all the organizer enough for them to host another such event.
To put that money in perspective, a CD plate then costs N30, now it costs N200. That’s over 6 times increase.
If that event was held today, it would have cost around N15,000 and the instructor would have made N7,500,000! That’s enough money for him to run his solar power panel business more effectively and change the society at a larger scale. This is just for one event.
As you can see from the numbers above, a quality organised paid tech event can be a good source of funding for bootstrapping startups.
Put together a tech event, teach about your startup eg. Photography or programming, charge ticket fee. Use money raised to bootstrap the startup until profitability is achieved.
Success digest example:
I remember during the Success Digest days, a lot of business were born from there — both from the side of the attendees and from the side of the event organizers. Although they later had problems with quality.
Should All Tech Events Be Free?
I believe some tech conferences should be free especially if its a means of sponsored community building. Yes, sometimes big companies like Google and Facebook also sponsor community building and tech education conferences.
I’ve organised and held literally hundreds of free self-sponsored tech conferences myself. It came to a point I was holding 2 tech events per week.
But at some point, we had to call all the attendees and hold a discussion on whether we should start charging and how much will be okay for everyone. We all came to a consensus, N2,500 quarterly per attendee was the agreed price. Guess what, everyone was happy and everyone happily paid.
For the first time, we the organizers were able to pay ourselves and even buy better equipment for the events. That was the first time it occurred to me that we were being un-smart by holding it all for free in the past. Even our attendees knew we were being stupid. They were gaining a lot but weren’t paying because we never asked.
Paid tech events:
So very obviously, some other tech events need to be free.
For instance, a startup that isn't yet profitable should not spend money putting together free tech events that they won't raise money from. They will run out of money pretty soon, shut down and disappear back to LinkedIn profiles and medium posts.
Even motivational speakers have no problem holding paid events and selling their ‘books’.
Like, they are only going to tell you what you have always known but in a stronger voice. Yet they charge for it, and guess what, people pay happily.
This happens a lot around - another startup dies, you go to research what their business model was - nothing! They’ve been running for several months without having a way to make money!
Like WTF? Its a business, not charity!
A profitable business model is the first thing you should figure out, even before figuring out how the product should work or change lives. These are hard truths that has been buried. If a business is profitable, it will last longer, change more lives and impact the society better.
Trying to do charity with the business capital and launching before figuring out a business model is the biggest cause of startup deaths around here, I believe.
People have fallen in love with vanity metrics — 1 thousand event attendees, 300 t-shirts, 1 gazillion website visitors per nano-second, radio and tv station interviews, ”Hey guys, I’ll be speaking at xyz events”, “We have been nominated for xyz African-Asian-Red-Indian award”.
No one is talking about sales and profitability.
There is always this big temptation for techies(and builders in general) to focus wholly on building the product and feeding the nation than marketing the product and becoming profitable.
500% discount offer:
A friend of mine ran a fashion e-commerce online platform. During a discussion, I noticed that she bears 50% of the cost of delivery.
When I asked her, she said she does that so that the customers can get the product as cheap as they would get it from the physical market if they went there themselves. When we did all the math around her crazy discount offers, we figured that she was actually losing money per product sale.
“Bad idea” I retorted instantly.
But that’s not how it appeared to her. She believes she is out to save the world, by not making enough profit to sustain the venture.
She defended her decision vehemently. Fast forward to one year latter, exactly what I told her had happened - she ran out of money and shutdown her business.
When I asked why she thinks her business shutdown, she couldn’t explain. Obviously, she hasn’t learnt from it.
A friend once asked me, how many times have you seen apple doing discount offers? I’m sure they do, but I have never ever seen one, it must be rare. But what do we see from tech companies around here all the time? “500% awoof green tuesday sales week!”
When you look through the numbers, the startup is actually losing a whole lot on each sale because they are bearing the cost of the discount.
Cost of delivery:
I always wondered, what on earth is wrong with showing users clearly on the checkout page "Look, if you come to our pick up location to pick the product, you will get it at the normal price. But if we have to deliver it to you, you will pay this extra full delivery fee. If you return the product, we will still charge our delivery fee."
Some startups aren’t telling themselves the truth about their market.
To me, its that simple. If customers aren't buying because the delivery fee is 'high', then you have to tell yourself the truth - its either you aren't selling to the right customers, or you are in the wrong business.
Period.
The worst thing that can happen to any tech industry is to have its startups constantly run out of money, starve and die.
That defeats the original purpose of the startups in the first place. To change the world, a startup must first and foremost survive.
Making everything FREE all the time or putting huge discount offers might be building a very bad culture in which local customers will increasingly become resistant to paying whenever it is a tech product.
Free can also be limiting in the sense that tech evangelists wont be able to raise enough money to go to other towns and spread the good news of tech.
If the tech industry here was setup like our music and comedy industry, tech speakers would have been riding the Lambos and the Ranges like the comedians and the musicians do.
The same set of people that go to music events and cinemas and happily pay for tickets will come to tech events and not pay. They won’t buy the product from the local e-commerce store until the delivery cost is waived. Yes, the bad culture has already been built of course, “if its tech, its supposed to be free! with 500% discount!”
