aamir virani

How does good/better/best apply to my product?

While at National Instruments a few years ago, I got to see a large company clean up and simplify its product lines. The company wanted to move from a huge catalog of products (NI-DMA-PCI-6024E-16) to a standard set of lines (M Series, N Series). One mantra I repeatedly heard during this process was breaking things into good/better/best – that is, having three different options to appeal to the main segments of any buying population:

• good – those who always, always take the least costly option
• better – those who don’t want to look cheap, so they go one step up
• best – those who always, always take the most expensive option

If you’re selling a product or service, then you are leaving money on the table if you don’t consider a cheaper version of your product or a more expensive service plan. In fact, this is at the core of the whole freemium meme – slightly interested users will never ever pay for your product, so give them a solution good enough to use and talk about. The more interested and serious user will actually pay for it.

Now, the cool thing is that the same good/better/best breakdown applies in markets. So, fellow startup person, are you:

1. providing a cheap solution in a market dominated by expensive solutions?
2. providing a best-of-breed platform in a market fragmented by other companies?
3. in the middle hoping to fight both ends of the market?

If you answered 1 or 2, best of luck! If you answered 3, then you should really think about how you’ll stand out and get your marketing message across. It’s hard describing that you bought the middle MacBook – the aluminum one without the illuminated keyboard. How will you describe your company if it’s not the cheapest solution or the highest quality one?

Starting Up: What is the two-crime rule?

We went through a lot of iterations and tweaks while working on our pitch for Dropcam. One thing that friends, family, and investors liked is the initial market. At one point, though, we were trying to address concerns from an investor by discussing [our crazy new technology] and he stopped us immediately with:

Wait a sec. Now you’re breaking the two-crime rule. Do you know what that is?

No, we didn’t. What’s that?

Cops will often pull someone over for some minor offense like speeding or a headlight being out. That’s no big deal and you can usually work your way out of it… unless you’ve got some drugs in the car or are driving drunk. The second crime is the one that gets you locked up.

Huh?

Look – there’s enough uncertainty about your success in [market]. Now you want to add the complexity of [crazy new technology]? I know you guys are smart and can do a lot of stuff, but you just added to your degree of difficulty.

Obviously, this person didn’t invest… but it was some good feedback. Investors can deal with uncertainty surrounding your market or technology, but rarely both.

What are typical usage and pricing trends for an iPhone app?

Andrew Chen pointed out an awesome iPhone presentation by Pinch Media, which covers some really useful insights you should use if considering whether to make your app free or paid, as well as whether your app is doing well when compared to other apps. Here are some of the key points.

Whether you have a free or paid iPhone application, the users returning falls off exponentially. If you retain more than 5% of users after 60 days, you’re doing really well. Long term retention is about 1%; this is true for both paid and free applications.

You shouldn’t necessarily give away your application for free and make your money on advertising. Because current CPMs are around $2.00 and applications are usually run 12 times at most, you may be better off just charging $0.99 for an application. Charge first, and adjust as you see a trend (high usage per user, target demographic, or lots of users) indicating advertising makes you more money.

Starting Up: What type of funding should I look for?

One of the big questions we faced while going through a fundraising round is determining how much to raise.

During the 6 weeks we were looking for investors and advisers, we actually moved between a seed round in the hundreds of thousands to a series A for a couple of million to a “series A lite” around a million.

This movement between types is a siren call – as you get some interest you feel you should raise a little more. After all, more money is more runway. It’s more for hiring good people. It’s more for a nicer office. It’s more for marketing and business development opportunities. Right?

Elliott Dahan has a nice breakdown in a recent presentation of the difference between types of funding. Two things differentiating between a seed and funding stage?

• team vs. traction – if you have a product with users, a series A is much easier to attempt
• quick (< 1 week) vs slow turnaround – seed investors can move really fast if they are interested, while institutions will have lots of due diligence

My experience corroborated this. Angels would respond much more quickly than institutional investors. Usually the difference was one week vs about 3-4 weeks to go through the multiple presentations and interviews.

The current economic crisis, though, has made most investors more cautious. In fact, traction is now something even prominent angels want to see. One thing we heard: past small series A investments are now seed, while past seed investments are now going un-funded.

If you’re an entrepreneur looking for investment, realize that the road to financing is getting longer and more uncertain. It’s not necessarily that your idea needs work, it may also be that the investors you’re speaking to are scared.