The Power of Free - For Entrepreneurs: How to Acquire Customers at a Low Cost

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Sep 14, 2023

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The Power of Free - For Entrepreneurs: How to Acquire Customers at a Low Cost

In the world of entrepreneurship, customer acquisition is a crucial aspect of building a successful business. One of the most powerful techniques available for customer acquisition is giving away a free product or service. This strategy, known as the "Free" or "Freemium" model, has proven to be effective in attracting and retaining customers. However, the key to implementing this strategy successfully lies in offering a free product or service that is of high value to the customer.

Entrepreneurs often face the temptation to hold back on valuable features when offering a free product or service. They fear that giving away too much will diminish the value of their paid offerings. However, this approach is counterproductive. By providing a free product or service that delivers significant value to the customer, entrepreneurs can not only increase customer satisfaction but also encourage them to spread the word about their brand, resulting in viral effects.

The smart entrepreneurs who understand the power of the Free strategy recognize that the biggest expense in a typical business is sales and marketing. By offering a free product or service, they can acquire customers at a low cost, which can then be monetized in a different way. This approach allows entrepreneurs to tap into a larger customer base and leverage the power of word-of-mouth marketing.

A notable example of the Free strategy's success is the acquisition of SpringSource by VMWare. While VMWare overpaid for SpringSource in terms of revenue multiples, the real value of the acquisition lay in SpringSource's large base of developers who were committed to the Spring free Open Source framework. This market leadership and the extensive customer base were significant factors that attracted VMWare.

The entrepreneurs and executives who fail to embrace the Free strategy often focus solely on extracting maximum revenue from each customer. However, this approach leads to slow and expensive customer acquisition, resulting in a small market share. In contrast, the Free strategy allows companies to shift the expense of customer acquisition to the product development group, ultimately leading to a larger footprint and market share.

Another successful example of acquiring initial traction through the Free strategy is Medium. They employed an "All the cool kids are doing it!" approach, initially allowing anyone to view the platform but only inviting select individuals to contribute. By leveraging their connections and focusing on the entrepreneurial community, Medium attracted some of the biggest names in the industry, creating a self-sustaining and growing community.

Solid integration with Twitter further fueled Medium's growth, as users were able to easily share their content and engage with others. The platform's success relied not on quantity or search engine optimization, but on the quality of the content and how users engaged with it. Medium's approach of inviting well-known individuals, including former President Barack Obama, to voice their opinions openly on the platform created a sense of exclusivity and credibility.

Incorporating the Free strategy into your business model can be a game-changer in terms of customer acquisition and market leadership. Here are three actionable pieces of advice to successfully implement the Free strategy:

  • 1. Focus on delivering high value: When offering a free product or service, ensure that it provides significant value to the customer. By doing so, you increase the likelihood of customer satisfaction and word-of-mouth recommendations.
  • 2. Embrace market leadership: Even if you gain market leadership by giving away a product or service for free, recognize its value. Market leadership often attracts premium prices and acquirers who see the potential for future monetization.
  • 3. Leverage social proof: Use social media platforms and influential individuals to create buzz and establish credibility for your free offerings. By aligning your brand with well-known figures or thought leaders, you can attract a larger audience and build a strong community.

In conclusion, the power of the Free strategy for entrepreneurs lies in its ability to acquire customers at a low cost and create a larger customer base. By offering a free product or service of high value, entrepreneurs can tap into the viral effects of word-of-mouth marketing and establish market leadership. Through examples like SpringSource and Medium, it is evident that the Free strategy can be a catalyst for success in today's competitive business landscape.

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