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Using a Lean Startup Process to Build a Freemium Business
Madhu Narasa
CEO and Co-Founder-Snapwiz
Tuesday, October 20, 2015
Freemium business models giving away one version of a product for free while charging for a more feature- rich version abound in the education technology space. But, even more common are those companies attempting freemium models that ended up at just 'free' when they failed to come up with a product educators would pay for. My company, Snapwiz, has created a platform for some of the largest educational publishers to create digital courses, complete with online textbooks, student forums, and adaptive practice for students. Snapwiz sells white-label technology solutions that are not free. Therefore, when we set out to create a new product for the K-12 education market, under a new brand called Edulastic, we wanted to avoid the 'just free' freemium pitfalls. Following a Lean Startup process has been critical to this success.

Get Out of the Building!
As Steve Blank exhorts, the first principle of the Lean Startup is to talk to customers and listen for their needs before developing anything. Solving a real customer need will help any business grow and succeed, but it's absolutely essential for a freemium business. In a freemium model, the product itself must do a lot of the marketing and sales work. So, the eventual product must be an obvious solution to an important customer problem.

For Edulastic we talked to dozens of educators in different types of schools around the country about their pain points in teaching, and especially the new pain points that other companies may not be solving yet. We found a lot of anxiety with the changes coming in curriculum and testing because of adoption of Common Core, which proved a good starting point for us.

Involve Customers in the Continual Development Process
Because the lean startup process means testing your ideas, we started by building a Minimum Viable Product for customers to evaluate. It solved the customer problem we had identified and only took a few months to build. With working (though minimal) features, the product solved enough of our customers' needs that they started to use it in their schools and classrooms. This helped us measure what worked and what didn't immediately giving us a new way of learning how to succeed which translated back into new ideas.

For Edulastic, we catalog and classify customer support tickets and the sales and marketing team summarize customer feedback at our weekly meetings, what customers are excited about, new use cases, and why they won't use us. We also have an excellent roster of customer advisors who work with us in monthly or bi-weekly calls to discuss the product and its evolution at length. It is critical for any freemium business to determine which features are the most valuable (i.e. worth paying for) to which segment of customers. We continuously rank and prioritize new features and have incremental four week releases that develop-test-repeat in the real world.

This intimate engagement from support to outreach to advisors will go a long way in understanding what you need in order to boost efficacy and evangelism.

Separating Free from Premium
You'll also need to be decisive in determining what should be free. Give the users a good taste of the product, but always remember that the central point of the freemium model is to attract new users, funneling a portion of them into the premium offerings.

Once you have something enticing to offer, you need to be very clear on the difference between what is free and what isn't. Define each value proposition clearly to gain the needed traction. What works well for us is segmenting out our user types and then listing the commonalties, and differences, of their needs everyone gets something they like for free and they are happy to pay for the things they love.

Lean Development through Crowdsourcing
As an EdTech startup, Edulastic offers both software and content with its solutions. When developing products in the lean, grassroots-like manner, just as with the software development process, you can leverage customer involvement and lower your upfront content development costs through crowdsourcing.

We actively encourage sharing of anything that is created in the platform. Comprehensive tools and learning analytics support a collaborative peer review process for rating and curating content this helps users discover relevant content easily and benefit from it without sacrificing quality. It's also important to note that the crowd-sourced content may serve as a bridge between your free and premium services.

Evolving Your Sales and Marketing Strategies
The reason to give away a product for free is to get users to evangelize for you, so word of mouth must be a primary driver of users for any freemium business. If your product meets an obvious customer need, this should start happening right away. Then the sales and marketing teams' job is to amplify it.

Rather than investing in a salesforce that is trying to sell a whole line of products in one swoop, a freemium model demonstrates value for each product or even each feature by allowing customers to try before they buy. Deliver value before you ask for a commitment of funds. Promote your value and attract users through an airtight Inbound Marketing process, leaning on social media, content marketing, and customer evangelists.

What's Next?
With just one school year under our belt, Edulastic is still a startup navigating its freemium model. We will officially launch our premium version next school year but we already have schools and districts signed up for it, so we are optimistic. Nevertheless, we will keep listening to customers and refining our strategy to scale and grow the company, guided by Lean Startup principles, even after we are not a startup anymore.
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