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The Tricky Business of Lifetime Guarantees
 

Locking in long-term customers could mean a steady source of revenue. But at a start-up, very little is steady.

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For a consumer, there's nothing like a lifetime guarantee--until you find that the company has gone out of business and you have a problem. But there is something worse: a lifetime guarantee--until it's revoked.

That's what one tech company decided to do recently and the aftermath wasn't pretty.

A Substitute for VC Funding

As TechCrunch noted, a company called TextDrive had offered lifetime hosting plans as a way to bring in money and avoid seeking venture capital.

It showed an inventive approach to running a business. There are always more sources for money than VCs, and TextDrive's management Dean Allen calculated that the cost of carrying some people perpetually would be more than offset by the advantages of not having to sell part of the company and getting enough cash to start the business.

In 2006, TextDrive became part of cloud computing company Joyent. Both companies shared a co-founder in common and had complementary services and products. Initially Joyent promised to continue to support the lifetime accounts "for as long as we exist." But it didn't last. Joyent ultimately decided to stop offering lifetime hosted accounts, not only for new customers, but also for those who had previously held them.

The Backlash

And then the dark rain of customer kickback began. The more understanding customers complained about the mass email the company had sent, with comments like, "I really hate that you chose an approach that showed us we were never more than customers, and suckers at that."

Others ratcheted up the displeasure, saying that being offered fewer than 80 days to move to some other service was an unreasonably short amount of time and others demanding an immediate refund. (According to Joyent's PR agency the company "is not currently commenting on the end of life decision [but] will be making a statement in the next week or so.")

Joyent and TextDrive co-founder Jason Hoffman tried, and failed, to diffuse the tension by responding in an online forum:

Making the decision to discontinue the service was extremely difficult. It was driven by some simple things: the hardware is simply old (6-8 years old), it's failing, there isn't an upgrade path from it, there's more than many of you likely realize and oddly enough it's more expensive with time (while not being used much). The rest of the Joyent's business has been paying for that, and I can't make the argument as to why it can continue.

The Mistakes

Suffice it to say that his view, and the offer, whether tongue-in-cheek or not, to send t-shirts that read "I bought a lifetime hosting account at TextDrive and all I got is this lousy t-shirt," fell woefully short, further antagonizing many and creating a neat package of negative PR that will likely follow the company for some time. Joyent and TextDrive made some critical mistakes that entrepreneurs should learn from:

  • It's fine to offer something like lifetime service or guarantees, but be sure that your business can actually afford to provide them. If not, you're lying to customers, and that's never a good idea.
  • There is little you can offer customers if you can't keep your word. Everything rides on that.
  • Everything has its price. If customers fund your start-up, then don't assume you can back out when things are inconvenient. Pretend they are venture capitalists and treat them with the same respect--because, after all, they are and you owe it.

To be fair, conditions change and sometimes you might find that you can literally no longer provide what you had wanted to. If you do need to change a long-standing expectation for more than just convenience or the desire to pull in a few extra dollars, bring customers into the process and get them to help fashion a resolution. People are far more understanding (and less vengeful) if they feel like you're addressing their concerns.

Update on 8/30: Joyent just announced that it will extend its lifetime service offer to customers who had originally paid for it. A predictable move just late enough to make people suspicious going forward.

Last updated: Aug 29, 2012

ERIK SHERMAN's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.
@ErikSherman




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