Think About Monetization NOW
Uber.
Lyft.
WeWork.
What do they all have in common?
None of them have been able (or were able to in the case of WeWork) to generate a profit.
How can this happen? These names either are or were titans of the modern startup community. How could they grow so big without a path to sustainability?
My suspicion is that the binary thinking prevalent in the startup community has created a scenario where companies feel compelled to either generate users or generate revenue.
To me, the obvious question that hasn’t been asked often or loudly enough is “Why not both?”
Mission and Money: A Tenuous Coexistence
Oil and water. Timeless foes who repel each other with their very existence. This is often how we think of our mission and the money required to make it sustainable.
Whether you’re a 501(c)3 or aspiring to build the next Unicorn, your mission will always have to contend with financial constraints.
Unfortunately, in many cases, money is seen as having a compromising impact on the mission, and vice versa. Mission can overshadow the financial needs (and financial health) of a company or project.
What this leads to is what I call the “Shoehorning Effect”.
Spoiler alert: Shoehorning doesn’t work very often.
Put simply, the Shoehorning Effect is when a company builds a product or service with a mission and, only after they gain traction, try to “shoehorn” in a path to sustainable monetization.
This is exacerbated by the (in my opinion) irresponsible advice given in many places that revenue should be a secondary consideration to building the product and finding traction with users.
In fact, the entire enterprise is a waste of time if you can’t generate revenue that will allow you to be sustainable as a business.
The Lay of the Land
Building software is expensive. It doesn’t matter if you build it yourself or you hire someone to build it for you, software will cost you both time and money regardless of the approach you take.
As stewards of our companies, then, it’s our responsibility to ensure that, at the very least, we make a plan for monetizing our products and services.
You should be planning for monetization NOW.
It’s not only your responsibility, it’s also the best time to do so.
If the issue of monetization creeps up and finds you flat footed, you’ll have to generate all of the momentum to shoehorn in a monetization strategy from a dead stop.
With a somewhat-fully developed product and business infrastructure, the inertia you’ll inevitably have to overcome should be enough to scare you off of this approach.
Better to make your plan now when things are still flexible and fluid enough to adjust to new data and market responses.
The Circulatory System of The Business
Money is like the blood in our veins. It transports “nutrients” to the other parts of our business to keep them healthy and helps eliminate waste from the system.
And, just like our bodies, when the circulatory system suffers, so does the entire organism.
Why, then, are we teaching people to build products without a plan for monetization? Why do we allow the mistaken idea of ”either-or” to persist? Don’t we, as evolved, rational beings have the ability to do both?
I think we do. But I also think it’s hard.
And no matter how evolved and rational we are, we avoid “hard” at all costs.
What you need to know is this: Your business needs a steady and healthy “blood flow” in the form of money to stay alive and, hopefully, thrive. As your business grows and adds team members, these new parts of the body of your business also deserve to be served the resources that they need to be successful.
Those same people will be depending on you and your business to keep the circulatory systems of their personal lives healthy. Mortgages, student loans, groceries, date nights, and more will depend on you and your business.
Failing to plan for sustainable monetization is just as irresponsible as it is unwise for these reasons and more.
Where to start when thinking about monetization
For all of my ranting and raving about this subject, I also want to acknowledge that it’s really, really hard. The people at Uber aren’t stupid. Neither were the people at WeWork.
But they deferred the hard work of finding a sustainable business model in favor of “traction”. This was a huge mistake I want to help you avoid making.
You owe it to yourself, your business, and your future team mates to cast a vision not only for the mission of your company, but also for the sustainability of your company.
So where to start?
For many companies, monetization is a simple solution. We do “Thing X”, you pay us “Y”. Easy peasy.
For software, however, it can get trickier.
Do you charge for the software itself? Maybe you monetize the service, but the software is free? Better yet, if you’re building a marketplace , how about transaction fees? Maybe you could consider affiliate or referral fees?
And all of this is before you even get to the question of subscription pricing, a hotly debated topic in today’s software community.
It can be a lot to consider, so here’s my simple advice:
Map your customer journey. When you do, you should be able to see each point at which you could feasibly charge your customer. There may be multiple.
Based on your research and domain expertise, select what you believe would be the most natural place to charge your customer.
However, before you proceed, try and think outside of the box a bit. Since you’re probably pretty close to your industry, it helps to have a partner here that can push your boundaries a bit.
Devise a simple, low cost test and run it to see if your selected monetization strategy works. If it does, great! Build on it. If not, that’s also great! Choose another and run another test.
Repeat until you’ve got something that works to monetize your concept reliably well.
One more thing
What you’ve done so far is just the beginning. Learning how to monetize your product is a really complicated, years-long task. Why so long? Because the market changes constantly. It’s always moving and new technologies are likely to disrupt and even create competition for your company.
For that reason, monetization should be thought of as an ongoing process. You should always be looking for new revenue streams and new ways to increase the cash flow for your business.
The first order of business for any company is building a good product, but a very close second is monetizing that product. Our businesses rely on cash flow to stay alive and we owe it to ourselves, our businesses, and our colleagues to think about how we can provide that life blood for our business as early as possible.
If you have any questions about monetizing your software product or about building and running a software company, feel free to reach out. We’d love to talk!