Bad Business Model Evolution

can't fail cafe

There’s a right way to evolve your business model, and a wrong way. Every business changes throughout the company or project’s time line – especially those small ones who are still trying to find themselves and the money. But, there are a few things that in today’s culture and marketplace which have the potential to kill businesses as they evolve.

Let’s say we just start a project as a hobby. Originally, the project is different because the we’re just one person and we don’t have time to add a bunch of crazy features. We add just what it needs to be functional and work elegantly well. We release it to the world and people love it because of it’s simplicity (differentiation from all the other similar, commercialized projects out there in the market).

So, our little project gets some popularity. People talk about it. They love the simplicity. They share it with their friends. Everyone’s happy.

Then one day the popularity is overwhelming. There’s the pressure to keep revising the product to keep it fresh. There’s the bug lists, good ideas, and feature requests. People are telling us we should add this feature and that feature. So, we add a few.

Now the product has hit the masses. It’s competitive with all the other products out there in features and functionality, which spawns more talk and more users.

Now this little hobby has turned into what could be a full time job…. if we were getting paid for keeping up on everything. But we’re not. It’s just a hobby right? … But wait, what if we monetized this little project and turned it into a full time job. We could get paid to create things that people already love us for doing right now. We think about it for 10 more seconds and exclaim, “It’s a win win for everyone!” thinking if we had more time, we could make the product better. And with a better product, people would love us more. Yay!

To get to full time status, we need to earn some dollars, so what’s the easiest way to do that? Move to an advertisement supported model. Nobody would really complain because it’s still free. Then, we’ll make a “Pro” version of our product without ads and with more features. People would buy the “Pro” version and if they didn’t, we’d still get ad dollars from the free one. So we go about “upgrading” our project.

Hold on!

Now let’s just stop here. Let’s look at what we’ve done.

  1. Start with a simple (different) product
  2. Start with a free product (and by “free” I mean no ads too products that are “free” with ads are not really free – they take a mental expense to ignore the ads)
  3. Make the product similar to other products out there by adding features (effectively removing our differentiation point)
  4. Make the product ad supported (removing the “free” part)
  5. Make a pro version of the product that people pay for with more features (more like other products)

See what I’m getting at here? This process is never good for the consumers. Never good for your users. They will forget your product existed and move to a different one, because what makes it different now? Nothing. The features are the same. The cost changed (in both pro and “free”).

Don’t do this.

(photo credit: pbo31)

Nate Ritter lives in the Pacific Northwest (U.S.), popularized the #hashtag and creates web applications for a living. He also does miles and point hacking to enable cheap travel for his family. More here →

3 Comments on "Bad Business Model Evolution"

  1. nate says:

    Now, I realize this was a pessimistic approach. And perhaps in the future I’ll give some case studies for good business model evolution. But, I have seen this so often I wanted to point it out as a “What not to do” item first.


  2. Chad says:

    There are some handy little free programs in my arsenal that are multiple versions behind the “latest and greatest” because the program creators followed your failed business model. Once upon a time I downloaded the program, probably didn’t click their “Donate” button, and have been using thierever since. I’ve probably told lots of other people to use the app, but that still doesn’t put money in the developer’s pocket.

    I’m interested to read your view on good business model evolution. The karma model of giving projects away for free as a way to build a following sooner or later needs to translate to paying the rent.

  3. nate says:

    The short of my advice would be (1) leave the free item free (no ads either), (2) build new and “essential” features into a Pro version and charge for that.

    If it’s really worth more than $0, people will pay for it. If people aren’t willing to pay money for something then why are you trying to turn it into a business anyway?

    If people aren’t willing to pay for it, you have 3 options.. (A) keep it a hobby project, (B) give up on it or (C) find a new way to make money off of it. I prefer (C) because it forces you to be creative about how you’re going to get money and that seems to work well for many many businesses which offer a free product. Plus, you’ve spent a lot of love and time on the project.

    But putting ads on it is just pimping out your loved app/hobby/project. I’ve done it before (on this blog and in other apps and businesses) and every time it felt dirty (which obviously is subjective and allegorical, but a worthwhile and pretty common experience from what I’ve heard).

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