The “Free” Model is Killing Start-Ups; Why I Built Trackur to be Different
I’m so glad to see the Financial Times take a look at the biggest flaw with the "free" model that’s embraced the web: you can’t make money with it!
“There is going to be a shake-out here in the next year or two” as many Web 2.0 companies disappear, said Roger Lee, a partner at Battery Ventures.
Despite this, venture capital firms are still eager to throw money around…
Yet that has not stopped a continuing round of venture capital fundraising and acquisition activity at high valuations as investors and corporate acquirers hunt for businesses capable of rising above a crowded field.
“If you look at some of the valuations, you wonder what fantasy of revenues they’re based on,” said Mitchell Kertzman, a partner at Silicon Valley venture capital firm Hummer Winblad.
Which brings me to my own experience. Trackur.com.
While other start-ups spend their time raising obscene amounts of VC money–furnishing swank offices in Silicon Valley, holding elaborate parties, and hiring superstar employees–Trackur is proof that "old school" still works.
Take a look at how Trackur is a departure from a normal start-up:
- It was self-funded, no time wasted finding a VC firm.
- It has one employee–me. Everyone else is a contractor–great guys, mind you–but Trackur is very lean, when it comes to staff overhead.
- Speaking of overhead. Trackur is headquarted in Raleigh, NC–at my home to be exact. You’re welcome to stop by, but I need to ask my wife first.
- The total cost to promote Trackur has been just a few hundred dollars–smart marketing will always beat hefty ad budgets.
- It’s nimble. Trackur didn’t launch with a huge bang, which meant less pressure out of the gate. Likewise, it’s built to scale, as it grows the user base. That helps prevent the kind of issues faced by others.
Perhaps the biggest difference between how Trackur operates, compared to the many VC-backed start-ups is, we have a business model! I’m often asked to provide a free version of Trackur. My response is typically: "why?"
Offering Trackur for free would require a huge investment in servers, would take more employees to provide feedback and support, and would need VC funding just to keep the lights on. By actually charging for the service, I can:
- Scale it with fewer issues
- Spend more time on customers
- Adopt a "cash in, cash out" approach–which means new features are added without being out of pocket
- I retain 100% ownership and control
- I don’t ever have to worry about explaining to a future buyer, "how exactly do you plan to make money?"
Twitter, YouTube, et al may have the limelight, but Trackur has the business model. While "free" start-ups are dealing with scaling issues and monetization headaches, I’m building a company that will (hopefully) continue to increase revenues each month.
You can have the TechCrunch/Wired/Lifehacker buzz, I’ll take the old fashioned model of actually making money, thank you very much!