Bootstrappers can be tempted to pre-sell their product, accepting payment before it’s complete. This can work but it often leads to tears. There are more effective options
Q: Should I Pre-Sell My Product?
I have accomplished the following in my efforts to develop a new software application:
- Built a prototype.
- Created a promotional video.
- Demonstrated the prototype and video to about two dozen potential customers.
I’ve received great feedback: everyone said they are willing to pay.
I am now building a basic website to allow customers to sign up and start a $15/month subscription to see if they will actually pay before I start coding the actual product, which I think will take six to eight weeks to complete.
I’m at a difficult stage now. I need to see if customers will actually pay for my service before I do any more development. However, if I start accepting payments from customers, I don’t have anything to give them as I won’t have the app finished for another six to eight weeks. I am worried that customers could feel ripped off. I could start their subscription but skip the first month’s payment. However, I could really use the funds to speed up the development of the app.
How have you seen others manage this situation? I am thinking of accepting the first month’s payment (as a joining fee) and then applying a 2-month discount to their account so they won’t be charged again until the fourth month. I also plan on working with each customer through questionnaires and other feedback forms so that they can help build the product the way they see it. I think this will give them a sense of engagement, and hopefully, they will feel that they are more than just a customer.
What are your opinions on this approach?
SKMurphy Take
Pre-selling is one option to consider, but I find that it tempts bootstrappers into enlarging the scope of an initial product–to make the offer more valuable instead of minimum but viable. It makes sense to charge for your MVP. Otherwise, you are not testing the most significant risk: you must solve a problem or address a need people are willing to pay for.
Many startup failure stories start with “prospects told us they would pay for our product once it was developed” and end with “but after we developed the product and asked them to pay no one did.”
Bootstrappers often rely on these four approaches as effective alternatives to pre-selling:
- Shrink the feature set to a minimum that they are still willing to pay for. This may have a lower price than your final product, but it still demonstrates proof of need and starts your cash flow based on the delivery of value, not the promise of the future delivery of value. Shrinking the feature set should lower development time and, therefore, time to revenue.
- Offer a service that provides some or all of the key benefits or results that your initial product will A “service first” approach allows you to start serving customers more quickly, debug teething issues with your technology (which you can manage “behind the scenes”), and gather proof of the results that your product can deliver. It also establishes a need if they are willing to pay for a partial solution. And it starts you on the road to positive cash flow. A service also avoids the need for training or changes in customer infrastructure to get the benefits of your product. It’s essential to include all of the changes they must make and efforts they must invest to get results from your product: prospects do when calculating the the total cost of acquisition and ownership.
- Integrating with an existing solution. This might an Excel macro, a Salesforce script, etc..) that provides some of the value that your first product will and offer that for sale. Again you are trying to provide value in exchange for payment to prove that the demand is real. But the integration can be less work than building that functionality in your own product and this lowers your development cost. It also lowers the prospects perception of the amount of risk in evaluating your offering because they already know how to use the existing solution.
- Freelance or work part time or even full time. This “keeps the lights on” and enables you to work on your product in the balance of your time until you have something people can pay for. Then, mindful of Tarzan’s example of not letting go of the old vine before he is sure that the new one can support him, you can phase out the other work and transition to full time on your startup. You don’t explain why “I could really do with the funds to speed up the development of the app,” so I cannot tell if you are considering paying subcontractors to add to your efforts or need the money for living expenses to continue. If it’s the latter, then I think you should consider freelancing or taking part-time work to get you to break even cash flow on living expenses.
Pre-Sell vs. Refundable Deposit
If you want customers to pay to determine if they are interested, I would back off your implementation time frame, follow your plan to ask for a refundable deposit (first month), and commit to having a basic service operational in four months. That will give a guard band on your 6-8 week estimate: it’s better to delight them by finishing sooner than have them ask for a refund–or worse contact the credit card company and complain, when after three months you are still just a “week or two” away from finishing.
Characterizing it as a refundable deposit that allows them early access at a discount is a cleaner representation of the situation. I hope it also removes the temptation to spend their payments, leaving you unable to provide a prompt refund if they ask for one because your delivery timeline has slipped. If you take a customer’s money and cannot deliver what you promised or provide a prompt refund (because you spent the funds), you will damage your reputation considerably. Not to mention putting yourself at risk for charges of fraud.
Related Blog Posts
- A Common MVP Evolution: Service to System Integration to Product It’s not uncommon for a startup’s offering to evolve from service to system integration to product. Here is an explanation for the reasons and benefits.
- “How to Bootstrap” I got a similar question in my August 2023 briefing on “How to Bootstrap.” See full video at bottom of post.
- Experiments vs. Commitments elaborates on Seth Godin’s “A Hierarchy of Failure” to address the kinds of failures customers expect, will tolerate, and will penalize you for.
- Ebb and Flow explores how to phase out some aspects of your business in favor of new opportunities, what Drucker calls “organized abandonment.’ This is at the heart of making the transition from one business model, for example a service business to a product business that meets that same need. It’s something that startups and large firms have in common: the need for the continual development of new offerings and new business models.
- Impatience for Success works against Learning Don’t put yourself in “do or die” situations–for example I need to deliver a new product in six weeks or get hit by a flurry of cancellations. You choke off your ability to experiment and learn. Impatience for success has the same effect.
- The Lucky and the Wise Some startups make very risky bets and they work out. “It’s hard to detect good luck–it looks so much like something you’ve earned.” Frank A. Clark