The Power of Free - For Entrepreneurs

The Power of Free - For Entrepreneurs

One of the most powerful techniques available for customer acquisition is giving away a free product or service. The trick to doing Free or Freemium business models right is to ensure that the product/service that you are giving away free is of very high value to the customer, which should result in both high customer satisfaction and a likelihood that they will tell others about your product/service, leading to viral effects.

The usual temptation is to stop short of this, and take out the valuable features that would make the product interesting and valuable. However, entrepreneurs and executives who understand the power of free realize that in a typical business, the single biggest expense is sales and marketing. They recognize that offering a free product/service is an extremely smart way to acquire customers at a low cost that can then be monetized in a different way.

Another less well-known example of this strategy is the recent high-priced acquisition of SpringSource by VMWare. In that situation, VMWare far overpaid for SpringSource if one looked purely at revenue multiples. However, the real value of SpringSource lay in their large base of developers inside of enterprises that were strongly committed to the Spring free Open Source framework. This demonstrates the power of having a large customer base using the free products, who become proponents for your company.

Another way of looking at the importance of footprint or market share is to recognize the significance of market leadership. Even if you have gained market leadership by giving away a product/service for free, the financial markets and acquirers realize that market leadership is worth a significant premium over niche players that may have more revenue.

Entrepreneurs and executives who fall into the "wrong" camp are so focused on trying to extract the maximum dollar out of every customer that they fail to realize that this only leads to very slow (and usually expensive) customer acquisition, and consequently a small footprint or market share. In the Free strategy, the company is going to shift the expense of customer acquisition to the product development group.

It is important to note that human beings are very competitive, and when they don't get a good score, they want to find out how to improve their score. This leads them to wanting to find out more about a company or product that can help them improve their score. This is an interesting insight into the power of free as a customer acquisition strategy.

One actionable advice for entrepreneurs looking to leverage the power of free is to focus on creating a product or service that provides high value to the customer. By ensuring that the free offering is of top-notch quality, entrepreneurs can increase customer satisfaction and generate positive word-of-mouth, leading to viral effects.

Another advice is to consider market leadership as a key goal. Even if giving away a product or service for free may initially seem counterintuitive, gaining a large customer base can lead to market leadership, which holds significant value in the eyes of potential acquirers and investors.

Lastly, entrepreneurs should shift their mindset from solely focusing on extracting maximum revenue from each customer to prioritizing customer acquisition and market share. By offering a free product or service, entrepreneurs can acquire customers at a lower cost and build a larger customer base, setting the stage for future monetization opportunities.

In conclusion, the power of free is a highly effective customer acquisition strategy for entrepreneurs. By offering a valuable free product or service, entrepreneurs can drive customer satisfaction, generate positive word-of-mouth, and gain a larger market share. By shifting the focus from immediate revenue extraction to acquiring a larger customer base, entrepreneurs can position themselves for long-term success in their respective industries.