Considerations for “Freemium”

Freemium – the combination of “free” and “premium” – has become a mainstay business model for many technology companies.

The theory is simple. Users get access to basic features at no cost, while they also have the option to pay a subscription fee for more advanced capabilities. There are examples of prominent freemium companies across every sector. If you have listened to music on Spotify, networked on LinkedIn, or sent an email through MailChimp, you have experienced it firsthand. Slack, HubSpot, and Box come to mind in the B2B world as well.

For businesses the primary benefit of freemium is obvious, it’s an organic marketing tool. For a small company, freemium can seem like an attractive way to get market share fast. In theory, free users will use and share your product or service. Eventually, some of those free users will upgrade into revenue generating premium users.  Yet, as with most theories, freemium is not quite that simple. Before an entrepreneur makes the decision to go freemium they should ask themselves a few questions.

What market type are you entering?

Taking a page out of Steve Blank’s book, The Four Steps to the Epiphany, the first consideration you need to look at is market type.

Let’s assume you are entering the existing market of mobile music streaming. Since you are entering an existing market your goal in year 1 is to gain as much market share as possible. Freemium makes sense. Your free software should market itself and bring users to you. This does not mean you should overlook mature competitors who are offering similar products or services. Organic growth from free users may be stunted if your free feature set is not “good enough” to draw users from alternative free services. (Think about Peter Thiel’s “be a magnitude better” theory).

If you are not entering or re-segmenting a market you must be creating a new one. Your goal in year 1 is to educate your target market. Offering a free version of your product or service can be a cost effective way to do this. You may also mitigate expenses on traditional marketing and sales activities. Organic growth may be hard to come by because there is no community or industry to evangelize around your company yet. But, the benefits of empowering new users to learn on their own can provide meaningful long term benefits.

Freemium can work in any market type. Identify which you are entering to help clarify what potential pitfalls lay ahead.

What is free?

Imagine you are product manager of a new software with 15 distinct features. You decide 5 of the features are basic enough that any user can have access to them while the other 10 are only for those who pay. How do you know that you’ve made the right choice? What do you do if it turns out you were wrong?

Remember, the primary benefit of freemium is in attracting new users. That makes the “what is free” decision overwhelmingly important. A 2011 research paper written by Kim Joar Bekkelund, titled Succeeding with Freemium analyzes the thoughts of many academics focusing on this problem.

There are three main ways to differentiate your free and premium product.

  1. You can offer less functionality in the free version.
  2. You can offer less capacity in the free version.
  3. You can only offer the free version to some users. For example you let nonprofits use your service for free, but charge for-profit organizations.

These concepts are relatively straight-forward, the difficulty comes in executing one, or all effectively. One strategy to optimize your free vs. premium differentiation is to use beta tests as a crutch. Overtime you will be tweaking your free vs. paid differentiators based off of user feedback and the data you collect. Running many rounds of beta tests can be a cost effective way to learn what your users respond to.

Can you afford free users?

The freemium model is only profitable when the variable costs of free users are less than the profits generated by premium users. In the case of software products or services this concept is easy to grasp.

All expenses  that are not “one-time” are part of your variable costs. Money spent on servers, technology infrastructure and people must be less than the operating profit you realize from premium subscribers. If it costs you $1 a month for every free user you need to be realizing at least that much in revenue from every paid user.

By modelling future costs and watching expenses you can somewhat reliably predict if the freemium model is plausible for you.

More questions

This blog post touches on a few important considerations for freemium businesses. Below are more questions that you should pose yourself before deciding to go into the free/premium landscape.

  • Do users need the premium offer?
  • Are free users providing referrals?
  • Are you hitting your target conversion rate?
  • Do you have a large addressable market?

Related readings

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The Life Lesson I Learned from Being Arrested

It was the second night of orientation week at the University of Pittsburgh. The awkward stages of figuring out who was “cool,” and who you wanted to hang out with was in full effect. I had requested to live in the athlete dorm, Sutherland Hall East. My wish had come true and I was surrounded by basketball players, football stars, track runners, and a myriad of other soon to be pro’s in their respective fields. To say I was determined to make a good impression on these people was an understatement.

I weighed 150 pounds, stood five feet (maybe) 10 inches tall, and had a fake i.d. Standing next to Mike, Jamel, or Dez was a physically demeaning experience, but my redeeming quality, the thing that I had that these division one athletes didn’t was that piece of plastic. I was 21 in the state of California. Kind of. The i.d in its infinite glory was “certified authentic,”, at least that was what my friend Nathan had said when he handed mine to me just a few weeks before school. “It’s authentic, it scans, it’s even got holograms and black lights.” I remember sitting in Nathan’s basement, his savvy and seemingly endless knowledge about i.d’s was comforting, and gave me the confidence to show it off to all of my soon to be athlete friends.

Everyone, even these superstar athletes were engaged in this feeling out process. No one was in their dorm room, everyone was in the hall. Everyone was talking, meeting, learning, gauging. Mike and Jamel stood at one side of the hall, Dez and Brylan at another, Izzy and Frederique in the middle. I wanted to make an impression. I had to make an impression. I stood on the periphery with John and Ray, two other non athletes. We listened, talked to ourselves about how cool it was that we were living with all of these people, and mainly watched.

Izzy brought up alcohol. I walked over to her, showed her my i.d and as smoothly and suavely as I could blurted out “What do you want from the store, I’ll get you whatever.” She grabbed the i.d, ran to Frederique, Mike – everyone and showed it off.

Mistake #1

I had $43 in my pocket. None of it was mine. Mike put in $10, Izzy and Fred combined for $15, and John and Ray threw in another $18. I was off. Walking out of Sutherland hall on a Saturday night at 11 pm with a backpack is suspicious. I told myself I was going to night class, a typical 11 pm Saturday night class. No one would bother me. It was cool but warm, with no breeze, and no clouds.

I made my way into the Peterson Events Center. I noticed a girl stuck outside trying to get in. I calmly mouthed through the glass door, “I’ll only open it if you give me a kiss on the cheek.” She laughed. I opened the door, “Nice try, but not tonight,” she said. “Where are you going this late at night with a backpack?” Were the next words out of her mouth. My night class cover had already been blown, “I’m running to the liquor store, do you know of any that are open?” She gave me a dumb look. A ‘is this kid serious, he must be a freshman’ type look. “My names Carly, and I’m going to give you a little tour.”

Carly and I walked through the Peterson, down past Fifth and Forbes Avenue and into South Oakland. She was a junior, 20 years old, a proverbial veteran of the Pitt party scene. We crossed through an empty parking lot. South Oakland was depressing. The houses were old. The beer cans that lay in the street were old. The smell was old. Carly led the way as we approached Semple street. She turned to me and said, “You can thank me later, the beer distributor is right there.” I was lost, but my target was in sight. Carly warned me not to buy from anywhere else. “The cops won’t bother you here, but anywhere north of here they might give you trouble,” she preached. She liked me; she was looking out for me. She had dealt with a freshman in my situation before, you could tell.

Carly turned left, towards her house, I turned right toward Mellinger’s Beer Distributor. It was now midnight. I approached the rust covered door, confidence at a peak, i.d firmly planted in my driver’s license slot of my wallet. I grabbed the iron door handle. Nothing moved. I looked above, the neon ‘OPEN’ sign wasn’t shining. I had come an hour late. I turned, expecting to see Carly there watching over my shoulder to make sure everything went smoothly, but she was gone. Lost, disappointed, and now suddenly nervous I walked back towards were I came, zigzagging my way through the streets.

In the distance I could see the clash of neon lights and the dark black sky. ‘THE ORIGINAL HOT DOG SHOP’ burst into my view. Carly had warned me not to venture into stores on Forbes Avenue, but my desire to impress my new “friends” back in the dorm was immeasurable. I strutted to the store, backpack firmly across my shoulder, confidence mildly restored. I approached the counter. “How much for a 24 pack of Miller High Life, and a twelve pack of Bud Light Strawberitas?” The women behind the counter calculated the total, “$36.24, I will need to see some i.d. please.” ‘Zachary Leonard Shefska, 6002 Sweetwater Avenue, Sacramento, California. Birth date 1/22/1991’ I handed the women the i.d. I knew all of its information by heart in case she questioned me. “I’m going to need you to sign this receipt,” she pointed to a piece of paper that appeared after she scanned the i.d. My name, fake address, and fake birth date appeared on the paper. I signed. She handed me my beer and I placed it in my backpack. One small issue, not all of it could fit. I walked out of the store with a 12 pack of Strawberita’s in hand.

Mistake #2

“Excuse me sir, I need to see your i.d.”

The officer had a small smirk, and I knew that in this moment my life was going to change.

“Officer, are you talking to me?”

I tried to play dumb, maybe he was talking to the man walking in front of me. His smirk grew larger, a sense of pleasure hidden behind his uniform.

“Kid, get over here and show me some i.d.”

I had talked to police officers before. I went to parties in high school. I didn’t drink very often, but I watched. And every Saturday night like clockwork police officers would arrive at these houses, and each time I would react the same way. I would walk to my car, talk to an officer or two on my way out and chuckle with them over the hilarity that ensues when police officers arrive. I had never gotten in trouble, I had never had a reason to get in trouble.

“Here you are officer.”

I opened my wallet without hesitation. I could get out of his situation I told myself, I had never gotten in trouble, I had never done anything wrong. My teenage cockiness had always prevailed. Sure I had that backpack full of beer, sure I was 18 years old, sure there was a police officer looking over my “certified authentic”, but actually fake California i.d, but none of this could stop me.

“Are you sure this is the real i.d. you want to give me?”

I’ve been scared before. I went to the principal’s office in middle school once. That was scary. This was different, this was the white knuckle, hard to breathe, verge of tears kind of scary. The ‘I don’t want my parents to find out’, ‘wow, how did I end up here’ kind of scary. The best kind of scary.

Reality had set in. I went back to my wallet, produced my Maryland drivers license and crumpled to the wall. It was only my second night of college and I had already gotten arrested.

Lesson learned

I didn’t get “arrested” arrested, I got quasi arrested, which in the grand scheme of things probably was for the better. Officer Cetra opened my bag, took out the 24 pack of Miller High Life and placed it next to me. He chuckled as he put the 12 pack of Strawberitas on top.

I sat against a wall in between Oakland Ave and Fifth and Forbes, head in my hands, feet firmly planted in place. 10 officers arrived, some young, some old, some somewhere in between. Officer Druskin, a 2010 graduate from Pitt offered some comfort.

“Kid, you messed up. You a freshman?” Without giving me the time to answer he went on, “Yeah that’s where you messed up. Why didn’t you go to Semple street? We don’t bother you guys down there.”

Carly had been right. Semple street, Mellinger’s, south Oakland, that’s where I should have been. It hit me, I realized there really was an area where the police would look past some 18 year old kids walking around with booze. I had so much to learn. Officer Cetra returned, his grin still firmly in place. He explained that he was letting me off easy, “I should take you downtown kid, showing a fake i.d. to a police officer is a felony.”

Upon further research I learned Officer Cetra was lying, attempting to scare me even more than I already was. Presenting a fake i.d. to a police officer was a misdemeanor in fact, yet it was the three month process of getting fingerprinted, mugshotted, getting a lawyer, and going to court that was more overwhelming and intimidating.

“Look for something in the mail, make sure you sign it and send it back to the court or else there will be a warrant for your arrest.”

I stood up from the cool cement sidewalk, grabbed my now empty backpack, apologized to the dozen or so police officers surrounding me, attempted to shake Officer Cetra’s hand and left. I had never wanted to be back home quite like I did that night.

Home was far away. Home, was the real address, on the real i.d that Officer Cetra eventually looked over. My new home, 3725 Sutherland Drive would suffice for the night. It would turn out that Sutherland Hall East would do more than suffice. Although the address on my driver’s license is in Maryland, my home both mentally and physically between the months of August and April was in Pittsburgh. I may not have been able to buy beer on August 22nd 2013, and I sure as hell didn’t look like the “cool” kid that I had intended, but eventually I fell into place.

It’s pretty amazing what can happen over the course of 8 months. Over the course of my freshman year at Pitt Dez and Brylan both ran new personal bests, with Desmond qualifying for the ACC Championship. Izzy decided to red shirt a year at her coaches discretion, and Frederique posted a career high 16 points in a game against Mount St. Mary’s. John and Ray became my good friends, and I managed to feel secure and content even without my fake i.d.

I may not run as fast, score as many points, or have that little piece of plastic, but that’s not the point. If college taught me anything it is this; get arrested, do it only once, and make sure it counts. It’s an eye opening experience, and if you are anything like me, it may just help you find your place.

One Year after Resigning from College

One year ago I left the University of Pittsburgh.

In early December of 2014 my mom was diagnosed with stage IV lung cancer. On December 22nd she shared the devastating news with me.

Two week later I went back to Pitt for the start of the second semester on January 5th.

Four days after that I had packed up my bedroom and was on a flight back home. There was no decision to be made, I knew that I wanted to be with my family.

In the time since I have had many, “when are you going back to college” discussions. I have not returned to school, and my current plan does not directly involve it.

Without school in the equation I have managed to do a lot in the past twelve months. I’m very proud of how I have grown, matured, and adapted to my new situation.

In case you were curious, here is what I have been up to during the past year.

Family

  • I have helped my mom continue to live a “normal” life.
    • This was my number one priority when I made the decision to move back home. I wanted to do everything I could to help her lead an active, engaging and interesting life.
  • As a result I have also taken some of the burden off of my dad to aid in that cause.

Health

  • Although I was consistent about going to the gym while at Pitt, I have become more committed.
    • I have exercised and written down every workout over the past year.
  • In an effort to save time I have prepared my lunch for the work week every Sunday.
    • This has also helped me increase my savings and productivity (more about that here).
  • I have finally achieved a 1000lb total in the three main lifts of power-lifting (bench, squat, dead lift).

Skills

  • I have greatly improved my knowledge and ability with Adobe Illustrator.
    • I have also learned how to use Adobe Photoshop and InDesign.
  • I learned and now understand the fundamental concepts of HTML and CSS.
  • I finally learned JavaScript and jQuery.
  • I learned my first JavaScript framework AngularJS (more on that here).
  • Recently I have started learning Angular2.
  • I’ve also become well-versed in constructing HTML emails… 🙁
  • I have been fortunate enough to learn how to create a “scope” document for business ideas (this is what I have learned from that so far).

Career

  • In February I found a nice company to start my young career.
  • Within a few months I earned a nice raise.
  • I have been tasked with developing a new product, which has confirmed by desire to develop my own product someday (more on what I’m learning here).
  • I have managed the technical aspects of our company’s largest account for over 10 months.
  • I have also had the amazing opportunity to interview and on-boarded new employees (side-note, building a great team is hard).

Entrepreneurship

  • I started cold-emailing business about a “hiring” solution that I envision creating in the near future.
    • I actually spent a lot of time reading, writing and organizing my thoughts before I ever reached out to any companies. This was the first time I executed on an idea with patience and diligence. In the past I would simply think of something and immediately pursue it.
  • I read and took notes on The Four Steps to the Epiphany.
    • This book has greatly shaped the way I envision starting up my own business.
  • I have been fortunate to have saved enough money to potentially fund my own business.
  • I took legal steps to kill GymBro, the first company I started while in college.

Events

  • I traveled to Pittsburgh to watch the Arizona Cardinals lose to the Pittsburgh Steelers.
  • I bought a car.
    • I never thought I would dislike driving, but doing it for two hours a day wears you down quickly.
  • I traveled to Montreal for my sisters graduation from Mcgill University.
    • I found a way to lose my passport in Toronto (it is kinda fun being stuck in Canada).
  • My picture was featured on SportsIllustrated.com (thanks dad).

Education

  • I attended my first professional conference at NationJS.
  • I failed out of the community college calculus II course I enrolled in.
    • Sorry mom 🙁 Calculus simply isn’t my thing.
  • I applied and was not admitted to the University of Maryland school of Business.
    • This was a bummer and surprise at first. Everything happens for a reason.

Writing

  • I stayed relatively consistent and published 33 articles on this blog.
  • Somehow over 17,000 people visited this website over the past twelve months (thank you).
  • I became a “most viewed” writer on Quora, accumulating over 200,000 views on my answers.

I have been busy, and I love it.

I have written in the past about a three year “goal” plan.

I strive to make those goals a reality.

How to Get an Internship (or at Least What I Look for When Finding Interns)

Internships are important.

You may think you want to live in New York City, but after a three-month internship in NYC you may decide otherwise. Or, vice a versa, you may fall in love.

Internships help confirm (or disqualify) assumptions, and help you determine what career path you may want to follow.

I have been fortunate at 20 years old to interview, review and help decide what interns our company brings in.

I do not have a lot of experience hiring, and most of what I am about to write is obsolete at enterprise companies. (Think of my suggestions as a good starting point for attaining an internship at a small business — less than 50 employees).

My hope is that by sharing how I screen, interview, review, and eventually vouch for an intern will expose the steps that you can take to gain an advantage during the process.

Prerequisites

I am going to make a few assumptions if you are reading this article.

  • You have a resume and cover letter written
  • You’re on LinkedIn
  • You really, really want an internship
  • Your academic advisor has told you that you need to get an internship this summer or else you will fall behind your peers 🙁
  • You have already identified open internship positions that you want to apply to

If you do not have a resume, or have never created one please read What Color is Your Parachute?

You’re on LinkedIn.

You’ve made it this far, you want an internship.

I’m sorry that your advisor put so much pressure on you.

Great! Let’s get started. (Check out indeed.com if you haven’t started looking).

Applying

My first objective when reviewing applications is to determine who are the “qualified” applicants.

I do this by looking for spelling mistakes.

This is ironic, because if I had applied for an internship two years ago I wouldn’t have had a chance. (I’m the guy who managed to apply to Depaul University with my last name spelled wrong, seriously).

Spelling errors on a resume, cover letter, or introduction email say two things:

  1. I am not detail oriented
  2. I do not care about the position I am applying for

Admittedly that is harsh and not necessarily true.

I doubt every hiring manager is as cold-hearted as I am when it comes to a poorly edited applications (this is just an internship), but the overarching theme here holds true.

You can automatically stand out by simply editing your introduction email, cover letter and resume. Get a friend to proof read your application. Ask mom, ask dad, get a lot of eyes to take a look at it.

At a small company an intern will most likely have some serious responsibilities instead of simply managing rudimentary tasks. With an error free application you appear organized, competent, and most importantly interested in the position. You can show a hiring manager (or whoever is reading your application) that you are capable of handling responsibilities by submitting an error free application.

If you can do this effectively than you automatically move on for further consideration in the hiring process.

Following up

I wrote an article a few months back about thank you notes and how literally no one ever sends them. You would be amazed at the positive sentiment a thank you note creates.

After applying for an internship you should absolutely send the hiring manager (or whoever your contact is at the company) a thank you note. Not a thank you email, but a real hand-written, signed card.

Please do this. Please, please, please do this.

Writing a thank you note does not guarantee you an internship offer, but it does differentiate you from nearly all the other qualified applicants. Plus, it’s polite and makes other people happy.

I would suggest sending a thank you note within three days of applying for the position. (This timing is not a huge deal, just send the thing). Writing something as simple as…

Thank you for taking the time to review my application for the ________ position. I look forward to hearing back from you in the coming weeks.

will leave a great impression on your contact at the company.

If you have scheduled an interview or phone screen with the company I would wait until after that to send the thank you note.

I have never had an internship applicant send me a thank you note. I have received a few thank you emails though, and even that went a long way.

Accepting an internship

If a company offers you an internship you need to respond within a week.

In my experience it is relatively easy for the company to be flexible with hours and scheduling. I understand what it is like to be a full-time student, most everyone does. Do not feel like you are jeopardizing your offer by negotiating hours that work well for you, the company will most likely accommodate.

Negotiate your pay. After receiving your offer you will most likely be told what your hourly pay will be. Try to negotiate, use this as a learning experience. Ask if there are going to be any bonuses or benefits beyond the hourly rate.

This is great practice for when you land your first full-time job. Take advantage of the relatively low stakes while you can.

And finally, before you accept an offer, make sure you think you will learn and grow through the internship. Just because one company has offered you a position does not mean you immediately need to accept it.

Conclusion

  • Write a resume and cover letter (help with that here)
  • Go to Indeed.com and find internships
  • Apply
  • Follow up
  • Make sure it is a good fit
  • Accept an offer

Good luck!

The Power of Habits: Forming a Morning Routine

Doing the same thing every day is boring. Getting in a “morning routine” exacerbates this boredom, but with good reason.

What makes routines so powerful? Why are habits so important for success? Do you really need to do the same thing everyday to achieve more?

Think about all the stress associated with deciding what to eat for breakfast. If you could avoid that, would you have a more productive day?

Habits

Routines are formed around habits. Habits are specific decisions that you make, which over time become automatic — you no longer decide to do something, it just happens.

Habits are triggered by “cues”, which form “routines” that ultimately deliver a reward.

With that in mind, think about how powerful a concise morning routine can be. One habit in your routine may be to eat the same oatmeal at 6:30am each morning. Your cue for that habit could be the fact that it is 6:30am. You automatically know it is time to eat because the clock says so, that is your cue.

A slight side note… Cues are interesting and important. Charles Duhigg, author of “The Power of Habit: Why We Do What We Do in Life and Business” explains in-depth how to determine what cues trigger your habits. Compelling stuff.

Routines are constructed of habits which are formed by cues. Ultimately, your routine produces some sort of reward.

In our breakfast example your reward could be the fact that you are sticking to your diet, or rather that you do not have to stress about what you are going to eat every morning.

My morning routine

Beyond breakfast, my morning routine has multiple components. I follow this routine for one main reason… to not think. By doing the same thing every morning I avoid stress and accomplish many little tasks before my day really starts. As a result I save my mental capacity for later in the day, when surprises and stress are more frequent.

This is a typical Monday – Friday morning for me.

  • Wake up at 4:15am
  • Eat a similar high protein breakfast at 4:20am
  • Bathroom break…
  • Leave for the gym at 4:50am
  • Arrive at the gym by 5:05am
  • Do my weight or aerobic training (I even have a routine for this)
  • Leave the gym at 6:15am
  • Listen to Mike and Mike until 6:30am
  • Shower and shave completed by 6:50am
  • Respond to emails and browse Hacker News until 7:10am
  • Eat a small snack, read the newspaper and leave for work by 7:30am

In the first three hours of my day I have already completed a ton of small tasks. I eat, I exercise, I read, and I relax.

By the time I leave for work at 7:30am I have accomplished more than I ever did in a whole day a few years ago. This is an amazing feeling.

The scary component of this is that it just happens. All of these habits that make up this routine simply just “occur”. I don’t question it, I embrace it.

What is the reward I get from this? Some people would argue that my routine is more punishment than privilege. I would strongly suggest it is the latter.

Aside from the mental reward I get from being productive in the morning, I get the luxury of not having to stress, not having to worry, and not having to be rushed. I leave my house everyday for work with a positive mindset.

It is on the days where my routine is interrupted that I find myself flustered, unable to concentrate and less productive.

Forming a routine

Routines can occur organically. You probably already have a few that just seem to “happen”. But, thanks to the research of people like Charles Duhigg there are a few techniques you can employ to help form your own strategic routines.

Duhigg, and other professionals suggest planning specific, measurable, reward-able, and track-able (SMART) habits. A relatively recent Washington Post article does a good job outlining how this process works.

In addition to planning SMART habits you can make your routine public information. Sharing with other people your plans reinforces the chance that you stick to them. With goal setting this is a common practice, the same can apply to routines.

James Clear also did a fantastic job outlining the time it takes to form a new habit. I would suggest reading his article to further understand why it takes up to two months for habits to become automatic.

There are plenty of other resources on line that dive deeper into habit-forming. A 2012 Chicago Tribune article helped me understand that my morning routine (albeit strange) is actually a “blessing”. And, a 2009 study published in the European Journal of Social Psychology (this study is referenced in the James Clear article) helped me better understand how long it takes for routines to become automatic.

Routines are boring, but their benefits far outweigh the taste of eating the same thing for breakfast five days a week.

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