As a technical founder, I suck at this big time. Eric Migicovsky, a YC partner who ran startup school told us to pivot if we can't charge for our product. That did it. Now, we have 4000 paying customers. But, at that time it felt exactly like Brad mentioned: "the look of fear on our faces that we have to charge, but it got us out of the door".

One thing I really love about Y Combinator, is that the partners all seem like real founders. Unlike all the VCs who seem a bit more distanced from real problems that founders deal with. I would guess this is also why its so much more fun to be a YC partner vs partner in a regular VC is that you work with founders when they are founding, as supposed to sort of working with more established companies.

I didn't want that one to end. Y combinator, thank you for helping with your content and thank you for doing startup-batches.

Chapters (Powered by ChapterMe) - 00:00 - Introduction 00:47 - Setup 01:30 - Why are people not charging? 02:47 - Successful startups are always testing 03:31 - Dropbox 04:21 - Advice on pricing plans 05:24 - Anti-signal of not charging big companies 07:13 - Assumption - Learn from people using for free 07:44 - Devil's advocate - Open core model 08:54 - Slack strategy 10:19 - Land wraps - Consumer business 11:00 - Airbnb 11:57 - Takeaway

I wish this video went into a little more detail on strategies to getting customers to pay. But none the less, YC has finally found it’s product market fit with KZfaq and I’m super glad!

“. . .Good enough for Drew, it's probably good enough for You”. . That's some sleek rhyme there, Michael 😂

Apple launched the iPhone at $600. Two months later, they dropped the price to 400. They survived :)

Speaking of Dropbox, I remember way, way back in 1999 when we hired our CFO, this was years before Dropbox, and our CFO was a middle-aged lady who was basically computer illiterate. She comes into work one day, says she forgot her laptop, and asked us if there was any way to get her spreadsheet off her laptop from the office. And we just rolled on the floor laughing. I mean, what an idiot, right? Of course there's no way to get it off your laptop. Your laptop is turned off and there's obviously no network connection between here and your laptop. It's the dumbest thing anyone has ever asked. Oops.

I love how Vercel and Supabase handle the princing

If the product is good enough to charge a premium. It’s a sign you have a good product :)

Here are my notes of the video with timestamp. The best feedback you're gonna get about your product is in the three seconds after you tell them the price. 00:33 Michael - So the topic we're talking about today is startups that for whatever reason refuse to charge their users. One of the most common pieces of advice that we give over and over and over again to the founders is it's time to start charging or let's let's start asking for money for your product and without fail that can stress some people out and create friction and some people uh have already been charging something maybe they've done some pilots some people are far from it it's the first time they've ever thought about asking for money. 01:26 What are some of the the reasons why people have talked themselves into not charging? i mean i think one reason is we push people to go out and hey like you need to get feedback, you need to get users and you need to get real feedback and it seems like it's easier to do that if you don't charge because you can you know get people using it immediately and giving you feedback and so i think founders just optmise for that. i.e. feedback over revenue 02:14 Founders have this weird sense that there's like no redos - They think, I don't know exactly how to price my product yet and there's there's no way that i can go out to the market with this price and then change it it's like really like there's no way you could do that but like in their minds you're like oh no like my customers would kill me if I went out with one price and then changed the price. So I'm gonna wait until I find the right price. 02:38 perfectionism is a huge factor here and to your point every week you can change your pricing if you look at some of the most successful startups they have new pricing all the time, every week. 02:43 they're always testing it just like they're testing the features in their app the price that you ask for is just a dynamic oftentimes and so you don't have to get it right from the day 1. In fact its very often, its common in office hours to pick a number in thin air and say thats your price and you are going to charing it from tonight. It brings a lot of fear on the face of founders but it gets them moving and start figuring out if people will pay anything for the product. And this is very very important box to check. Dropbox story: 03:40 I am remember Drew from Dropbox speaking at YC dinner once and he was if someone asked me about how did you decide pricing, at that time dropbox was like 9.99 a month, he's like you know i just picked earth in there like a reasonable number and he's like we've done the analysis and like i might have cost us hundreds of millions of dollars of revenue we don't really know but like it was fine like the point was to pick something reasonable that got them up, and then they could do pricing optimizations. It's always frustating when founders get into finding the perfect pricing for the product. 04:34 What you should do? Start charging and then for existing users, always keep them on that plan and raise the prices for new users and if you're confident and if things go well like the users you have today should hopefully represent a small fraction of the users you have in six months or a year right and so it's not uncommon to actually find the most successful companies who have these early useres that are on some ancient pricing plan. The price Drew would have charged to first 100 users who have made no difference to what Dropbox is today. When you are trying to sell to companies! 05:24 Founders say some version of like oh well charging is going to make it harder for me to get the deal like it's hard enough to get this sale done. If i charge money it'll be worse which i always like we always laugh at because usually they're trying to sell these companies that are massive and spending money on software is just something they do normally everyday and founders don't see the anti-signal of not charging. The company might think like, these guys are not charging, will it even work, are they gonna be able to support us. Founers might would got rid of all these objection just by setting a decent pricing. This is also the way founders end up wasting potentially years of their lives on bad ideas, is that they think they have all these customers, oh like apple's a customer and then you drill into like how much they pay you, its like nothing but we get to talk to apple. You have to do the actual sale and have to get the revenue in the bank to know what you are working on is right. Its like of you have zero revenue, it hits you on the face and you know that you're failing. If you are selling just free pilots, then you are not proving anything that much. 07:06 There's this kind of core assumption that for a product that should be paid if it's free you can still learn and it's like it's pretty obvious you learn a lot more from people who are paying for the product then people who are using it for free. 07:17 The best feedback you're gonna get about your product is in the three seconds after you tell them the price and the the facial expression that they make or the tone of voice they use. This is the most honest reaction they you are going to get about your product. Devil's Advocate now 07:43 let's play the devil's advocate for a second there are business models where free is a core component like you know companies we funded like gitlab open core model like we want people to um adopt our open source software and then we will upsell them later. Isn't that going against what we're talking about? Answer-- 07:57 So to some extent yes i think the difference there though is that there's a plan and and everything is still being tracked. The open core company know exactly what they are trying to get. They are trying to get certain level of adoption from developers who they can then later sell something later. What about slack strategy? 08:44 Like almost no one i knew back in the day who was using slack was paying and that seemed to work out. Slack falls under freemium business model. 09:03 i think is a completely legit good model right like the idea is like we start out with a basic version of the product we make it free we get people using it um but like There's two things that are really important for freemium model. Have some constraint that people want ot get around they like they want more users, more messages, something they will be willing to pay more for and lauch that as enterprise product or upgrade product. As a founder have the discipline to track whether your free users are converting into paid users and over what time frame. When to worry? 09:59 If a founder is like hey we're actually giving the product away for free and you know we think people will pay for it at some point and like you know we'll see how it goes like that's what worries me because those those banners just keep building and building and increasing the product surface area without ever charging. 10:11 What about the land wraps though like what about the the social kind of consumery you know youtube facebook twitter like products? If you are a consumer business that's going to monetise via advertising and you and you need a gigantic user base to generate lots of ads revenue, then it makes sense. You need to be honest and don't fool yourself. 11:08 Like for AirB&B some founders whould have called it network for travel and said so we shouldn't charge anything and like in the future though like once we've got people traveling. We might you could imagine some founders using that argument right. You don't have to imagine it that was called couchsurfing like that existed when airbnb came out. 11:38 In the Airbnb story they talk about a moment early on when Brain had to pay and it felt awkward. So a founder might say no money on the platform because that's awkward whereas the right move is to say let's do it right let's figure out a really good way to handle the money because that needs to be a part of it we need to solve the problem and not just punt. 12:07 Final Takeaway 11:54 I think it's okay to to be free in certain cases where there is a structured intentional plan and path to getting paid. 12:16 The trick is to make sure that you're not charging out of out of fear. 12:37 Ultimately if you don't put pricing out there and start charging you're preventing yourself from really learning if your product is something that people want. Thanks YC for sharing this amazing knowledge. For people who this note can get it from this link askify.video/share?_id=97b29c94-88bd-42a1-8041-cc3e2a32a620 Also this notes has been created using Askify youtube notes taking tool. Thanks.

Michael - "What about the consumery, youtube, twitter situations"...you mean like Twitch? Would have been nice for him to insert his own insight here. In general I find it funny/odd how Micheal always pushes "solve a problem" and "charge users" even though his claim to fame was a free product that didn't really solve anything truly painful . These videos are all great and super interesting and helpful but that detail always sticks out to me.

Another gem💎...thanks guys

Please do a video on building a sales playbook

Thank you for sharing

Thank you 😊

i missed those side notes you used to do with Dalton

Michael looks so cooool 😎

Love these. Thanks YC!

Hey guys why don't you change your profile logo (or at least create something more particular)? Considering that the first letter of our username is what appeared when we don't have a pic (just like in my case haha) seems like you guys have no pic not to mention the color which is the same for some non-pic profiles. I often get confused when I see my KZfaq notifications and I think your channel is an anonymous one. Pls don't get me wrong. It's just a suggestion

Sounds like it’s entirely too easy to get into YC…. At AcceleratingAsia our founders face pricing questions all the time, but no way a company would get in if they were afraid to charge anything.

Finally Michael stopped nodding 24/7. 🙏

You start charging after that one moment when you really feel like your product is outstanding and the consumer really needs your product.

YC, how are you reading my mind?

Even charities need money to operate... Work out your revenue stream.

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2:38 but **how** do you find the right pricing, actually?