FREE Is Not A Business Model

At today’s roundtable, we had a chance to discuss a topic that continues to bother me endlessly – the Internet’s obsession with FREE.

MyStream
Richard Zelson, from New York, New York, discussed MyStream, a music streaming app that allows multiple people to listen to the playlist of one individual, serving, roughly speaking, the function of a headphone splitter. Richard is currently charging $1.99 for the app and has 30,000 customers. He asked me if he should offer the app for free to get more customers. I said, no. Giving stuff for free is a dangerous game, and it is difficult to sustain operations that have large numbers of free users. You then become dependent on outside financing, and that is a slippery slope. It is much better to grow organically with revenue. So Richard, please continue to charge money for the value you offer.

Cortese Design Bags
Debra Cortese, from Miami, Florida, discussed Cortese Design Bags, a designer of tote bags with natural designs. Debra has made a lot of mistakes already, especially, by making it a practice to offer her services for free, in the name of bartered promotion, and at this point, needs to focus on finding a segment (e.g. luxury resorts) that is willing to pay for her services.

For those interested in some further thoughts on free versus paid, I encourage you to read my recent post, Capitalism 2.0: The Free Rider Problem.

Please remember, FREE is NOT a business model.

MMIS, Inc.
Also, Michaeline Daboul, from New Hampshire, pitched MMIS Inc., a healthcare IT business for managing compliance requirements for pharmaceutical and medical device companies, recording transactions that involve payments to physicians. Michaeline is a 1M/1M premium member, trying to make decisions around fund-raising versus growing organically using channel partnerships. In 1M/1M premium, we do invest in certain companies on a revenue sharing basis and create channel partnerships with one or more of our partners. Michaeline may qualify for such an investment, and we will be opening dialog on that front before approaching VCs.

Desi Sauda
Seshu Madabushi, from Irving, Texas, pitched Desi Sauda, a Groupon-like service catering to the South Asian communities in the U.S. Seshu has already started operations in Dallas and Houston as well as launched in the Bay Area. He is also planning to launch in Boston and Chicago by December. This, in my opinion, is a ‘spray and pray’ strategy. He should penetrate Dallas, his home base, deeply and monetise that geography thoroughly. It is very expensive to scale operations in multiple cities, and there is absolutely no chance of VCs financing yet another Groupon look alike without serious traction. I happen to be a huge critic of Groupon’s ‘expand geographies at all cost’ strategy. I hear that they are moving away from that strategy, finally. [Related reading: Groupon Following Yahoo-esque Strategy – A Bad Move]

You can listen to the recording of today’s roundtable here. As always, I would very much like to hear about your business, so let me invite you to come and pitch at one of our free 1M/1M public roundtables. We will be holding future roundtables at 8:00 a.m. PDT on the following dates:

Thursday, October 20, Register Here.

Thursday, October 27, Register Here.

If you want a deeper relationship with me, you are very welcome to join the 1M/1M premium program. If you have any questions about the program, please, first study the website, especially What to expect from the 1M/1M premium program and the FAQs. If you have additional questions, please email me, and I would be very happy to respond. Please note that I work exclusively with 1M/1M entrepreneurs.

I also invite you to join the 1M/1M mailing list for the ease and convenience of getting updates. This way we can stay in touch and it will help you to decide if 1M/1M is a program for you.

 

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