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PAY NEVER AKA bootstrap-the-VC business model for software web services companies
PAY NEVER AKA bootstrap-the-VC business model for software web services companies
PAY NEVER AKA bootstrap-the-VC business model for software web services companies
PAY NEVER AKA bootstrap-the-VC business model for software web services companies
PAY NEVER AKA bootstrap-the-VC business model for software web services companies
PAY NEVER AKA bootstrap-the-VC business model for software web services companies
PAY NEVER AKA bootstrap-the-VC business model for software web services companies
PAY NEVER AKA bootstrap-the-VC business model for software web services companies
PAY NEVER AKA bootstrap-the-VC business model for software web services companies
PAY NEVER AKA bootstrap-the-VC business model for software web services companies
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PAY NEVER AKA bootstrap-the-VC business model for software web services companies

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The "PAY NEVER" model is perfect for consumer web & app companies without a clear monetization strategy, that is if you have the (financial) runway to gain traction. The focus is users, users and users.

However, the only place in the world to finance this model is Silicon Valley as it requires very deep (VC) pockets hence the name: bootstrap-the-vc model.

These 10 slides explain all you need to know about this business model

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  • Financial Business Models for software en webservice companies

    The 'Pay Never' Model better known as bootstrap-the-vc-model

    The 'Pay Never' Business Model: if the product is free, the users are the traded goods

    Market share for the “PAY NEVER” model is typically one of these:
    - Twitter model: “winner takes all” market
    - Google model: power-laws apply: the second company has a market-share of roughly half, the third-ranked will be one-third of the first, and so on
    Monetization comes from advertisement or data. It requires a critical mass: millions and millions of users

    2 main business models:
    User based: personal (Facebook, Twitter etc)
    Usage based: consumption (Techcrunch, Google etc)

    Often consumer web based levering “Maslow needs”:
    The most important thing in human relationships is conversation
    We are human because we share

    Pros of the “PAY NEVER” model
    Hyper-growth and extreme scaling
    Often multi-billion-dollars companies
    IPO as main liquidity event & NASDAQ darling
    Become the acquirer not the acquired
    Dominant monopoly-like position
    CEO becomes poster-boy of a new generation

    Cons of the “PAY NEVER” model
    Get big or die
    Requires significant financial resources - organic or bootstrapped growth unlikely
    Advertisement based revenue follows an economic cycle: expansion & contraction
    Often a race against time & competition
    Driven by the tyranny of “page-views”
    Capital-intensive growth path without a clear path to profitability

    Examples of “PAY NEVER” companies
    Majority of consumer web companies are based on the “PAY NEVER” model:
    Facebook, Twitter, Zynga, Yelp, Yahoo, Google

    Typical “PAY NEVER” sales play
    Growth Hacking
    Use APIs to growth (Spotify, Airbnb, Zynga, Instagram, Twoo…)
    Use forced or encouraged viral to growth (Hotmail, Skype, Dropbox, LivingSocial…)
    Getting critical mass users is key for monetization - every major brand will talk to you to access 'your customers”)
    First, acquire users (virality); second, maintain users (stickiness)

    The “PAY NEVER” Ecosystem
    Users / Communities
    Brands
    Lawyers
    The only place in the world to find investors for the “PAY NEVER” model is in Sandhill Road, Silicon Valley

    Typical financial KPIs for a “PAY NEVER” business
    growth phase maturity phase
    gross profit margin: N/A 75 - 90%
    operating margin:
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