I’ve seen a few startups recently who want to have their customers sign contracts to get started.

The logic being that you can guarantee recurring income for your business (for the length of the contract) or you’ll have some recourse if the person fails to pay.

But there are two flaws with this thinking:

1. If your product is actually good, customers will stick around whether you have a contract or not
2. If the customer owes you less than a few thousand dollars, it’s not even worth your time to sue them

So if you are left with a contract that you’ll never enforce, why even ask for it in the first place?  All you’re doing is creating a hurdle to getting new customers to try your product.

Google Adwords is a good example.  Most agreements in the advertising world are still done with paper contracts, but Google decided to let anyone start advertising on Adwords in just a few minutes with no up front cost or contracts.

If you fail to pay your Adwords bill, Google isn’t going to sue you for $500.  It’s not worth their time.  They simply shut down your Adwords account until you pay your bill.  If two years later you are finally ready to try Adwords again, hey – no hard feelings – you can just pay it and your account is instantly re-enabled.

When I see an internet company asking for contracts up front, it feels like their product must not be very good – otherwise why wouldn’t they just let me try it knowing full well I’m likely to stick around?

Brian Armstrong

P.S. I certainly don’t mean to imply all contracts are bad.  For independent contractors, real estate, anything involving larger sums of money, etc it can make perfect sense.  But most internet companies are charging relatively small sums of money per person.  

P.P.S. Another way to look at is "what would it cost you if the customer doesn’t pay?"  Most internet companies have low marginal costs in their products (ad space, some CPU time, etc).  If you’re in a high margin business you can afford to give away all sorts of "free trials" in the form of people not paying after signing up.  It’s often worth it just to get your product in the hands of more people.

P.P.P.S.  Most companies (including Google) still make you agree to a "Terms of Service" by clicking a checkbox.  Don’t confuse this with a contract though.  The terms of service is usually there to prevent *you* from suing them, not the other way around, and it’s a sufficiently small hurdle that it probably won’t affect your signup rates.

Gotta have a little fun with it :)

I recently put up a project on 99Designs.com to get UniversityTutor redesigned.

I put up a $795 prize and got 46 entries from a half dozen designers

Most of the designs weren’t very good, but one designer stood out and I awarded him the prize.  His name is Jack Herbert and he is in the UK.  Below you can see the screenshots of his final design which I selected.

These are just photoshop images right now, so I’m spending the evening next few days turning them into CSS on the real site.  It should be launching soon.

Main takeaway: there is just no reason not to have a decent design for your web business these days.  For a reasonable price you can get some great design work done.

Until next time, keep breaking free!
Brian Armstrong

This is unfortunate. I no longer have access to the Google Group I use for support http://groups.google.com/group/feedmailpro on FeedmailPro.com.

It seems there is a known bug with Groups where people are getting unsubscribed. This happened to me, which in itself is no big deal. But when I re-subscribed by emailing the +subscribe address for the group, my ownership of the group disappeared!

This means I can’t moderate incoming messages and no new members can be added. The group is currently orphaned, without an owner, and there are pending messages waiting from customers that have gotten no response. I can’t even delete the group to recreate it since I’m no longer the owner.

I’ve posted to the Google Groups support forum to see if anyone could help. But it looks like they are swamped and I haven’t gotten any reply.

Googlers, can anyone out there help? Has anyone had better luck with an alternative platform for Q&A and customer support?

Former Google Group Owner,
Brian Armstrong

Here are a collection of questions you can answer to come up with business ideas. These are taken from Paul Graham’s excellent article on the subject which is worth reading if you have the time.

Sit down with a cup of coffee and force yourself to write out 10 answers to each of these questions.  Even if you think they are silly, force yourself to write 10.  You’ll be off to a good start.

• What do I find intolerable?
• What luxury can I turn into a commodity?
• What big companies solution could I make easier to use?
• What will kids in 10 years look back on and not believe about how difficult our lives were?

Photo by annais

Twitter is currently trying sponsored trending topics, ads, and licensing deals to see if they can monetize their platform. But there is a much simpler business model right in front of them: freemium.

Make it free for up to 10,000 followers. If you have more than that, it’s $5 a month. Over 100,000 followers maybe $49 a month. Over a million followers $99 a month. Etc.

The exact numbers aren’t important. This tiered business model is proven to work by lots of companies, and anyone with that many followers is clearly deriving some sort of benefit that they should pay for.

This business model is so obvious – why haven’t they tried it? I feel like I’m taking crazy pills over here. What am I missing?

Photo by tveskov

This is from the excellent book, Founders At Work, that I’m reading right now.

I find new reasons every day why I’m thankful that we never took any kind of outside investment. Let me give you a small example… Jared had a friend that had an idea of some way that we could modify FogBugz to be really useful to the investment community as something – I don’t remember what, but something that the investment community could really use that’s 5 percent different than FogBugz. And I kept thinking, “This is a huge distraction, and there’s not a big enough market. I just want to stick to our core competency, and I’m not interested in doing software for the financial markets.” He kept saying, “No, no. You’ve got to talk to this guy. You could make a lot of money off this. It would be great.”

I kept thinking, “You know what, if it was a real board of directors and the VC’s were bringing you these great ideas, you wouldn’t really have any choice but to say yes. And you’d keep getting distracted to do their pet projects that they dreamed up in the shower one night and they think might be a good idea, and you just don’t think it’s a good idea.” You really don’t have the ability to say no when you take those outside investments. It’s hard to tell your investors, “Let me just go in my own direction.”

I can identify with this thought process. There is a big difference between thinking up a cool idea, and actually having to go implement it. But I found it interesting because he may have changed his mind (at least in part) since he wrote this a few years back.  He went on to take VC money for his new project, StackOverflow.com.

…displaying data exactly how it’s represented in the database, instead of how humans think of it.

This person might just  want a “new” Honda Accord and doesn’t care if it’s a 2010 or 2011.

It’s harder to build technology based on how humans think, but it tends to be better when you do.  Google does a great job of “understanding” what you meant with fuzzy matching, for example.

The example above really isn’t even that bad (some people want to choose  a year).  What other examples of “database driven user-interfaces” have you come across?

Related: What should I pay for a car?

Mark Andreessen talks about the 3 criteria to judge a new business idea, including the idea that it has to be a major improvement over existing solutions.

If it’s not a 10x improvement, is it really worth doing?

I tend to agree.

This past week I made it over to Henderson, Nevada and took a tour of Zappos Headquarters.  I went with all the folks in the startup I’m working for, just because we thought it would be fun and we liked their approach to business.

I also ended up reading the new book by Zappos CEO, Tony Hsieh, Delivering Happiness which I’d highly recommend.  The story of how Zappos came to be a billion dollar company is filled with many twists and turns, and near death experiences.

I just wanted to jot down a few ideas that stuck with me from the tour and the book:

1. Customer service = good marketing
   Zappos today is known for having great customer service.  But that wasn’t always the case.  When they were nearly bankrupt and had no money for marketing, they decided to reach out to their existing customers in the hopes they’d become repeat customers.  It worked.  Taking a $39 loss on a free pair of shoes might appear to be bad business on the surface.  But when that person told 5 of their friends, it ended up being more cost effective than $39 worth of advertising.

   This is a powerful idea that your customer service can actually be your best marketing.

2. Don’t outsource your competitive advantage
   At one point Zappos was relying on manufacturers to drop ship all the products they sold on their site.  This allowed them to carry zero inventory and run a simple business, but the orders only had about 95% accuracy and were slow to ship. It also limited the selection of what products they could sell.

   At some point they had to make a tough decision: if customer service is what they were all about then they needed to control the entire customer experience from beginning to end.  They made a major shift (and nearly went bankrupt) in the process of starting to keep their own inventory, but it paid off.

   It’s worth spending some time thinking about what your core competency is and focusing only on that.  Once you decide what it is, you may have to sacrifice in other areas to achieve it – so you can’t make everything your focus.  As Jim Collins said, “If you have more than three priorities, you have no priorities”.  What are you willing to sacrifice so that you can focus on your competitive advantage?

3. Fun & purpose > Money
   Finally, one of the most interesting take aways is that Tony ended up preferring fun and purpose over money.  Even after nearly going broke trying to keep Zappos afloat, he still realized that the money wasn’t that important.  He started valuing seemingly unimportant things like hanging out with friends at work or playing pranks around the office as bigger contributors to his happiness than money.

   This definitely showed during their tour as there were plenty of shenanigans.  It’s surprising how once a person’s basic needs are met, money starts to become much less important than how they get along with bosses and coworkers.

You can check out Tony’s talk from South by Southwest here and checkout Delivering Happiness on Amazon.

Thank you Zappos for the tour!

Until next time, keep breaking free!
Brian Armstrong