The Benefits of Offering Free Services to Startups

'Pricing is not a math problem. It's a judgment problem.' — Michael Dearing
Professor Stanford University Design School

Let me first hastily clarify that this piece is not about some going-out-of-business type of scheme to work for free for startups. This is about what we hope is an innovative way for startups to get a sense of whether their idea is workable or not, without having to cough up scarce big bucks. We have rolled out a free pilot (write back to me if you want more details) option for startups and I wanted to take this opportunity to try to explain just what motivated us to do that.

A few years ago, I had read a fascinating article, 'Free! Why $0.00 is the future of business.' The article talked about the genesis of the 'free' model with Gillette's 'Cheap razor, expensive refills' and then of how the internet had changed business models dramatically with the so-called 'Freemium' approach. Much of what has been said applies more to products than services, but in our day and age when enterprises are being transformed digitally, I believe it's time for services to catch up here.

What Startups Really Want from Their Tech Partners

Over the years Thinksys has worked with a bunch of startups. I also have the personal pleasure of being a part of the Plug and Play TechCenter in the Silicon Valley, probably the world's largest startup accelerator. Several interactions have convinced me of some startup truths.

1. Startups are a great segment to target:
   The teams may be small to start with but the work is usually cutting-edge and always exciting. That, and the decisions are made quickly and transparently.
2. They are looking for long term partners:
   Assuming everything else works out, chances are the relationship will be a long one with guaranteed mutual benefit.
3. They seek value:
   It's a bit of a myth that startups don't have money. It's true that resources are scarce but they are willing to spend the right amount of money if they believe they can get value
4. Their timelines are short:
   Lean startup, MVP, Agile approach — startups love all of these for the same reason — the accelerated pace of development. 2 weeks is a lifetime and 2 Quarters almost too long a timeframe to worry about.

Helping Startups Test Their Ideas Quickly and Affordably

Knowing this we set out to try and address a major pain point for startups in a manner that would work for them. Many startups, especially at an early stage, desperately seek validation of their idea. They want the opportunity to convert that product idea into a workable prototype that shows them what works and what doesn't. In our software world, the challenge for them is that they may not have access to the technology skills needed to make that happen fast enough.
They may not know what technology to choose, what architecture to put in place to adequately test their assumptions, and they almost certainly will not have the tech resources to put on the job to translate the idea into a working software product. Some startups, especially on the US West Coast, may have the benefit of tech co-founders but turning to them is also not a scalable solution. Hiring people is not easy, carries a lot of risk, and can take time. Under the circumstances, they could turn to an outsourced partner — indeed we have made the case that they should. This does not address one core issue though — that of cost.

It's to address that worry that we decided that we would offer startups a free pilot. In our mind, this is a quick and dirty 2-week sprint. The idea is to take a reasonably clearly defined product idea and roll out as much prototype as is practically possible. Based on past experience, we believe that it's possible to cover a fair amount of ground when working in an Agile fashion even over 2 weeks. Well, definitely enough for the startup to get a reasonable sense of what should come next.
As an added benefit the startup can get a sense of our capabilities and how to draw maximum benefit out of a relationship with us. That said, I don't want to position this as a 'try before you buy' kind of deal — the idea is for the startup to come out the Pilot having made some definite progress. Something that helps them take the next steps forward — with us if it works for them.

It's been said that the key to success of a business model with a 'Free' element at its heart is to ensure that the customer really values the service you are offering, even if it is free. The other, equally important, facet is to ensure that at the end of the 'free' service the customer is super-satisfied. Only then will he (or indeed she) feel the need to either carry on or to tell others about the value they received. We hope to be able to deliver that experience — now it's over to the startups.