There are three ways you can sell your first product to prospects:
- By giving it for free / starting freemium;
- By signing a letter of intent;
- By asking for money up-front.
Here are the pros and cons of each approach:
Giving it for Free / Using a Freemium Model
Some entrepreneurs let prospects use their solution for free, delaying conversion until they feel confident it provides real value.
However, these entrepreneurs don’t realize that, in corporations, budget size often dictates attention. When the solution is free, the problem seems less significant.
In most cases, free pilots never get activated. Prospects take your product, put it on a shelf and you never find out its real value. Author Brant Cooper points out the example of IT labs in telecommunications companies where you can find stacks and stacks of products that are in pilot.
Don’t start free if your goal is to make money. It’s really hard to charge after you’ve given your product away. Prospects find out that you gave the product and end up wanting the same deal.
Signing Letters of Intent
Other entrepreneurs use letters of intent — documents containing a declaration of the intention to buy a technology — instead of asking for money.
Letters of intent make customers feel good about getting things over with you. They delay the moment of truth and, as the MIT Entrepreneurship Center Founder Ken Morse claims, letters of intent can’t be taken to the bank.
Don’t ask for them; they’re a clear path to false validation.
Asking for Money Up-Front
Most successful B2B entrepreneurs ask to get paid up-front. They realize that they are providing value, and if that value won’t lead to revenues, it’s best to know sooner rather than later.
Asking for money is critical. It doesn’t matter that your price is low for your first few customers. Some money has to change hands. When talking, prospects always want to buy. Promises are uplifting, but promises also can’t be taken to the bank.
The only true way to validate a revenue model is by asking a prospect to sign a contract and pay money for a solution. There is no alternative to getting paid.
Conclusion: Close your prospects. A client is not a client if he/she is not paying.
More on Early Sales in B2B
- Why it’s Important to « Close » Prospects in B2B Customer Development
- How to Know When You’re Ready to Close a Prospect in B2B
- Why Founders Should Not Outsource Sales in the Early Days of Startup
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