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How Do You Bootstrap Freemium Ventures?

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During this week's roundtable, we had Inoh Choe from San Jose, Calif. pitch DemoTunes, a freemium concept. One of the discussions that ensued was about how to bootstrap a freemium venture. I think this is a question on many minds, and we discussed it today as a core topic.

DemoTunes

DemoTunes is proposed to be a LinkedIn of the music industry, where a million-plus musicians would be uploading music, getting feedback from their community, as well as, and more importantly, from talent scouts and connoisseurs who can help them further their careers.

In principle, this sounds great. I love the idea. Once there is critical mass, lots of business can, indeed, happen. However, how do you get to critical mass, and how do you finance the period during which this business runs on red ink? How much time do you budget for red ink financing? If there is friends and family money available to you, how far can that take you? How long can you go without a salary? How do you find cofounders who are willing to work for 18 months without getting paid?

These are some of the practical questions. The answers are highly subjective and situation-specific, but as a rule of thumb, I'd say, budgeting at least 18 months of red ink financing is necessary, including going without pay. One middle ground is to keep a job and develop a freemium site on the side, so that you still have your paycheck to pay the bills. Another is to do consulting or offer some other kind of paid service to bring in some money.

Whichever direction you go, please do not assume that some VC is going to finance you during this phase. Even angels like to see some progress so that the length of red ink financing that is simply validation stage work doesn't happen on their watch.

GoodyTag

Also, Irit Dabby from Tel-Aviv, Israel discussed GoodyTag, a neat concept about tagging photos of products differently than you would tag or "like" a regular link or photo on social media. Rather, you tag a woman wearing a Speedo swimsuit with a Speedo GoodyTag and then encourage your social network to further propagate that as part of an incentivized advertising campaign.

I like the concept, and there is already a prototype and a pilot case with an advertiser. Irit, however, needs to think through some of the details of the business model, pricing model and positioning. For instance, she showed Coca-Cola as one of the target brands advertising on the GoodyTag network. She wants to charge $1 per tag that is generated, but Coca-Cola is probably not the kind of brand that would pay $1 per tag because their unit price is so low. Speedo may, especially if every tag includes an incentive -- a discount coupon -- to buy a swimsuit for $300 or some similar large denomination.

My point is, the concept is good. It requires some serious fine-tuning, which will offer guidance on where the best customers are going to be.

You can select the business you like best of those discussed today through a poll on the 1M/1M Facebook page.

The recording of today's roundtable can be found here. Recordings of previous roundtables are all available here.