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Posted on: Sunday, May 09, 2010

David Heinemeier Hansson in his talk at Startup School describes the typical product cycle and the day dream of making billions and getting bought over by venture capitalist that most young and budding entrepreneurs have using a simple slide:

During the presentation, David's point is focused on a single topic. One way to make money is to hope for a lot of magic in step two and expect that a venture capitalist or a Google will buy you out. David describes the other, more practical, sane and logical way using a simple slide:

If you have not clicked the link to the video yet, you should.

David explains the idea of pricing your product or charging for your online service using simple, direct and wise advice for young and budding entrepreneurs. He explains:  

The really cool thing about all of this is that you don't need to be a fu@#king genius to make it work. Its not rocket surgery. It really is a simple three step idea.

You have a great application. You ask money for it. If people like it, they will pay and you profit.

But here is a kicker. Just because you slap a price on something does not mean you will have a successful business

37Signals has their own offering of free products for the end consumer but the focus of this video, is on their paid versions and how they make money online. As someone who has observed a truck load of software products getting priced, if there is one thing that I have learnt about pricing it is that pricing is just like any other phase of building great software.

Like any other aspect of software development, when it comes to pricing your product, you will fail too. The earlier and more often you fail the better off you are, as long as you do not keep making the same mistakes all over again.

Should you give out your product for free and seek additional business models to make money? Should you use free as a means to keep in touch with potential customers and convert them to paid customers over time? Is free your way to wipe your competition out of market? Are your products too highly priced? Are they priced too low?

You will never find out until you go out there and experiment with pricing. Lose a few customers because you are too highly priced. Get a few customers at a very low price. Give parts of your application for free. Explore other models of making money by giving your entire product out for free.

The beauty of online products and services is that you are always free to come back and fix your mistakes. Long story short, making mistakes is much better than procrastination and analysis paralysis.

Seriously, you really don't have to be a fu@#king genius to make it work.

Now go out there, make a few real product pricing mistakes and then learn from them.

I wish you good luck.