Barry W Thornton Blog

Over the last couple of years the mantra FREE has become a big deal in software and web stuff, the idea has attracted my attention but couldn’t see an application. I always looked at it as attracting bottom feeders. How do you build revenues when you give it away? (I know, you get them later or with more features or threaten to cut them off when they get used to it or some other scheme, but it was always about incremental cheap stuff.)

What do you do when your product cost $40k+, can you make that free too?

In some cases, yes. I made us one of those cases so we did it.  We give the hardware free at our dealers. Oh, and by the way, I make more income this way than I ever could selling it. In fact I raised the price to make sure no one buys it so they have to go the free route.

Confused, OK, mine is a special case. I have a product that renders a billable service.  Too expensive to sell easily and without a major marketing effort.

It dawned on me that since the word DISCOUNT sucks when you are on the selling side of the equation that the opposite of MSRP had to be FREE.   I simply said, let me put  it into your place for nothing and let’s split the revenues it generates.  You never buy it, I always own it, you sell the service, and collect the money which we split. Simple, not necessarily a new idea, but one I had never tried. All my life I have sold products as in it becomes yours and you do with it what you want, with it.  I go on to fine a new customer,

Anyway, some folks call it the ATM or Vending machine model.

It is great new world for me.  Now your customer is my customer too because we both get money from them. Turns out there are other benefits too. I now get to see inside a bunch of different ‘retailers” and since it’s in my best interest for the retailer to be very very good at selling and delivering our now shared service, and because of this relationship I have a say in how they do it (if they don’t do well I can take my unit back and get someone else to make money with it), I can make them better even against their will, or perhaps awareness. I learn best practices by watching the good ones and make the poor one learn how to do it right, they have no choice, they make great money with me and that is the glue. If ego gets in the way, if they are dorks, if they are screwing up the market, whatever it is that makes them a poor performer or a pain, I can now fix or flee but I don’t have to suffer. And the revenue flows literally forever.

So I say “Thank You to FREE”, it works in ways I had never imagined.

That’s why we must always learn and adapt.

I would like to offer some supporting thoughts as to the value of the bootstrap process, the wisdom of your choice to follow it, and the ultimate practicality of it today.  First a couple of quotes:

Forbes this month (Jan 2009 ) “The venture capital industry is staring at the most vicious shakeout in its  history . . . Returns are pathetic for most funds, [and] the public offering pipeline on which venture depends for its exit strategy is clamped shut.”

Bloomberg.com, “IPOs historically dry up at the end of a bear market and don’t begin to recover for months after a  rally as issuers and investors wait for signs of stability.”

During the last quarter, 38 companies withdrew or postponed their filings with the Securities and Exchange Commission (SEC). Bloomberg says “it may take until 2011 for the number of companies going public to return to their 2007 level, according to data compiled by the University of Florida. While the S&P 500 rose an average of 24 percent in the first year after a market plunge, the data show, it takes 34 months on average for underwriting to return to its rate at the start of a slowdown.”

Companies pursuing the traditional VC or investor routes are running into brick walls or valuations that are ridiculous

Yet this is one of the best times to start a business.

We are in a world rich with new technologies, applications of those technologies, services that can be based on those technologies, and perceptions based on those technologies that open unimaginable doors.

Even better, established businesses whose inertia, that is inability to change and adapt, and whose debt or commitment (financial, political, or social) are now untenable are thus going on the rocks and leaving unsatisfied customers with unfulfilled appetites looking for solutions.

This is possibly one of the best times in recent history to apply the bootstrap techniques creating your fortune.  I wish you well and in these stormy times expect to see good results for you on your journey down a good path, stick to it.

Happy New Year and New Era, Barry

Let me offer a thought ….. companies sometimes get stuck, lose luster, lose ‘oomph’ as we say. Profits and margins are good, the team is good, but the next hot thing doesn’t seem to come. You know it is buried in there but it doesn’t seem to surface. You can order teams to be entrepreneurial but it just doesn’t happen, what you get is ‘gray’, not vivid color.

It has been observed that an average corporation’s lifetime is about 40 years. 40 years from a wild entrepreneurial start-up to final maturation. Then they run out of steam. Not Margin and Profit mind you, but ‘oomph’, the risk taking, hang it all out, the bootstrapper’s way of thinking that cannot survive inside a functioning organization. You became a successful corporation because that state-of-mind once existed in your founders, but becoming successful mandates a change in thinking and conduct. Stability and control required that the corporate soul change from wild to tame. And guess what, MBA School can’t teach this, it’s in the soul or it’s not. MBA 105 course can teach all about entrepreneurs with case studies and lectures, but how do you teach someone to jump off a cliff into a foggy valley? You can’t, they’ve got to be nuts to do it.

Odds are you have the people who can think like this, but they need a trigger to jump and someone else to blame if it fails, otherwise their careers are shot. In the beginning the company had an entrepreneurial or ‘bootstrap’ state of mind that created new energy and direction and it worked, today the team is good at operating that legacy but locked into a state-of-mind that doesn’t see risk as an adventure but as an adversary. This early stage thinking is disruptive and threatening, and must be killed once it has been successful. Killed so that everyone else can remain secure. But don’t worry, orthogonal thinking and risk taking is a phoenix, you can do it again after a breather and once everyone has settled down again.

Just a thought, you can combine a start-up with a mature company but only if that startup leadership that can see itself as disposable. Only then can it be free enough to make the jump into the fog.

Copyright 2008 Barry W Thornton, all rights reserved