Hi there -
Here is this week’s “1 principle, 2 strategies, and 3 actionable tactics” for running lean…
1 Universal Principle
“Think Premium Before Freemium”
Everyone tells you to get users first and worry about revenue later:
- Start with a free plan,
- build an audience, then
- figure out how to monetize.
Sounds logical, right?
Well, that's exactly what's killing most startups today.
Even Mailchimp, one of the most successful 'freemium' companies, didn't start with a free plan. They spent years as a premium-only product before introducing their famous free tier.
The freemium-first approach is tempting but fundamentally flawed for three key reasons:
- You end up with low or no conversions because founders tend to give away too much under their free plan.
- You drown in a sea of data from free users that doesn't tell you why no one is buying—just that they aren't.
- Free users give well-intentioned but bad advice, sending you on wild-goose chases that don't lead to revenue.
With my first product, BoxCloud, I had thousands of free users but only a few dozen paying customers. When I finally spoke with those paying customers, I discovered I was targeting the wrong segment entirely; I had an overly generous free offering and an overly generous undercharging.
2 Underlying Strategies at Play
I. Recognize that freemium is a marketing tactic, not a business model.
The key insight here is that there is no business in a business model without revenue. Your pricing model is one of the riskiest assumptions that can make or break your business.
Instead of deferring monetization for later, validate that customers will pay for your solution from day one. Once you have the beginnings of a working business model, you can always back into free later if that makes sense for your product.
Look at Mailchimp again: Everyone knows them for their freemium model, but few realize they spent years building a profitable product first. They ran countless pricing experiments before even considering a free plan.
II. Start with a single pricing plan for faster learning.
I see too many founders launch with multiple pricing plans targeting everyone from solo founders to enterprise companies. Having more plans creates more work, and, more importantly, it's a distraction.
It may seem like having five ways to make money will help you grow faster, but optimizing just one way of making money is hard enough. When you're starting, you don't yet have enough information to correctly segment your features into multiple plans.
The same goes for customer segments. Having a clear target helps you prioritize features and pricing based on what your early adopters will pay for today.
3 Actionable Tactics
I. Launch with a premium-only model to validate value.
Start by charging for your product from day one. This immediately separates interested users from committed customers.
When I pivoted BoxCloud from freemium to premium-only, repositioned for B2B, and 10x'ed my prices, something remarkable happened: my conversion rate didn't go down—it went up. I doubled my paying customers at 10x my original price!
Here's the counterintuitive insight: You don't need lots of users to learn. Just a few good paying early adopters will do. Your goal should be to model your product after customers who buy what you have, not users who may never buy.
II. Use time-based trials or money-back guarantees instead of freemium.
If you want to reduce friction and risk for potential customers, use time-based trials or money-back guarantees rather than an indefinite free tier.
Time-based trials, like a 30-day trial, force a conversion decision at a specific point, which allows you to learn and iterate faster. When someone's trial expires, you get a clear yes or no—not the endless maybe of freemium.
Money-back guarantees have the added benefit of quickly separating your users from your customers while creating accountability. You make a big promise that you have to keep to earn the sale, which aligns with my philosophy of "deliver value or go home."
III. Consider adding free plans only after understanding usage patterns.
Once you understand your product's usage patterns from your paying customers, you're in the best position to design an effective free plan.
When done well, a freemium plan should work a lot like a time-based trial where users naturally outgrow it at a predictable point in their journey.
With my BoxCloud product, I was able to determine where to set my file-sharing limits once I studied the usage patterns of my customers. At that point, offering a freemium model that I knew people would outgrow was easy.
The reason to consider freemium at this stage is to take advantage of the "irrationality of free." Most people assume a somewhat linear relationship between price and demand, but once you hit free (which is like dividing by zero), demand shoots up non-linearly.
This is the key to unlocking the true power of freemium—but only after you've validated your business model with paying customers first.
That's all for today. See you next week.
Ash
Author of Running Lean and creator of Lean Canvas
.
.
P.S.
I did a more detailed video on this topic this week:
.
.
P.P.S.
Whenever you're ready, there are 3 ways I can help you:
1 - Get my Just Start course: If you're new to this framework, you'll learn the key mindsets for building the next generation of products that matter.
2 - Take the 30-day Business Model Design Challenge: If you're an aspiring or early-stage founder looking to launch a new idea in 2025, join my next Business Model Design Challenge, where you'll learn how to design and stress-test your idea without wasting resources.
3 - Join LEANFoundry: Join 21k+ founders who use our tools, courses, and coaching resources to build and launch their products to paying customers. Works like a gym membership. Cancel anytime.
