Why You Should Charge Users Early

Hey y’all — charge your customers.

I recently saw an investor update from a startup that shared they had just taken on their first paying customer.

It sounds like good news, but it came after nearly 2 years of heads down building.

Typical startup advice will tell you to make users pay early because it helps you validate you’re building something people will pay for.

But there’s a second, equally important reason…

On the Pod: Adam Nathan

Raising a bunch of money at a high valuation is not inherently a great thing.

When we raised a $12M Series A for Launch House, it was at an $85M valuation. It was a big number, which made it feel good, but it left us in a position where we had to grow revenue incredibly quickly in order to avoid a down round or becoming a zombie.

Adam Nathan had an even more precarious position.

He raised a $35M Series A (out of $45M total) at a $150M valuation and then realized his product, Almanac, wasn’t growing fast enough to ever grow into the valuation.

So he started over and pivoted to something completely different, Blaze.ai.

15 months later and Blaze is one of the top 1% fastest growing products on all of Stripe, and Adam should be able to successfully justify that $150M valuation, and then some, with his next round.

Check out the story below on YouTube, Spotify, or Apple Podcasts.

Why You Should Charge Users Early

Let’s level set.

There are startups that do years of R&D before worrying much about revenue and end up delivering a generational product.

Examples that come to mind are Airtable, Figma, Attio (who I talked to over a year ago), and Notion.

So, it does happen. Especially with productivity-centric SaaS where you simply have a ton to build before you meet the standard of high-powered teams.

The reason this can work is because these are not new or rapidly evolving categories — in Attio’s case, CRMs are used by just about every company in some capacity.

The problem space is well understood and (relative to other sectors) somewhat static, so spending time with potential customers can be valuable even if you aren’t asking them to pay yet.

However, I’d guess that for every Figma there’s 1,000 failed startups who tried the same playbook.

They’re the exceptions, not the rule.

The reason is that, when people' have to put their money on the line to use your product, they’re going to be a lot more honest with you about what you need to deliver in order for them to get value from it (and stick around).

It’s easy to tell someone their product is great when you get it for free, or when you’re just giving them some feedback as a friend, even if it isn’t. Maybe you even say you’d use it without thinking too much about whether you actually would or not.

You’re not necessarily lying, you just haven’t been put in a position where you need to make an actual decision.

But if your money is on the line, you need to see value in exchange. And if a product isn’t delivering that then you’re either going to quietly ghost and cancel or ask them to build or fix things that would change that.

And, to be fair, the startup acknowledged this in the investor update.

But this is exactly why, when I launched Megaphone, I priced it seemingly unreasonably at $1,000/mo (it’s now much lower, of course). Unreasonable pricing put me on the hook to deliver right away.

We only added 3 users that first month, but it was a pressure cooker for understanding what people expected from the platform. Each of them was highly engaged with me throughout the month (dedicated Slack channels, detailed daily feedback, etc) and we managed to retain all 3.

Those 3 users were each unique and became our 3 customer personas, which we still use today as well.

You don’t necessarily need to use unreasonable pricing.

But, unless the product is unusable you should be charging customers — the increased honesty in their feedback will keep YOU honest in terms of making sure you’re building what they want.

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