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Simplicity and Freemium Models "Crush It"

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"How is 'not giving a crap about your customer' giving you good Return on Investment?" shouts Gary Vaynerchuk, the over-the-top host of WineLibrary.tv. He's talking about whether Social Media has good ROI, and the crowd is applauding for him. Gary has famously made Conan O'Brian eat dirt on TV to understand the soil notes in wine, and shared drinks on his show with Wayne Gretzky and Jim Cramer. Vaynerchuk 'brings the thunder' to his thousands of online video fans every week.

His famous energy was in full force at Internet Week New York's stage yesterday for a discussion of new business models, and he was as outspoken as usual. Vaynerchuck had solid business trends advice for discussion with his audience. (The entire presentation is available as a video.) His 2008 book, Gary Vaynerchuk's 101 Wines: Guaranteed to Inspire, Delight, and Bring Thunder to Your World is still number 17 on Amazon's wine collecting list, and Crush It! Why NOW Is the Time to Cash In on Your Passion) was an Inc. recommendation for Best Books for Business Owners in 2009.

Gary's not just an Internet guy. The author, speaker, and investor was raised in retail, and grew his family wine store from a $4 million dollar a year operation to $45 million a year in 5 years.  When we spoke yesterday after his appearance, he emphasized the fact that his experience online and as an angel investor and social media advisor to companies is solidly based on his retail and business experience.

Vaynerchuk's advice to companies thinking about starting up today includes three key ideas. First he covered the 'freemium' business model and the 'App Store' small payment model. Freemium is when a customer can try a basic version of a product or service for free, but additional services, capacity or functionality (premium) require a subscription or payment. Customers get hooked, many stay for free, but the paying customers pay for the whole service. (Inc. writer Jason Fried's 37 Signals products were one of Gary's examples.) The app store model shows that customers are fine with paying a small price for some small functionality, as we see in the Apple and other mobile application stores. The things they love, they share with their friends. Call it the new 'frugality.' People are buying new things more often at a lower cost, so Vaynerchuk advised businesses to think about how they can use these models. He suggested creating some things to sell at small prices, and premium up sells to generate regular income streams. 'If I started my WineLibrary.Tv show today, I'd do 2 shows a week for free, and charge for the others.'

His second piece of advice was to think about simplicity and limiting choice, like GrouponGiltGroup and Woot.com. These businesses are known for offering different, limited products or deals every day until they run out. Gary decided to test this in his retail store. Where he once had an alcove near the front with 10 bargain wines, he now has only one wine on display. How has lack of choice affected this high traffic area of the store? 'We're crushing it – we're selling these bottles at a staggering rate, one that trumps residual loss of not selling many products in that space.' This lead to the launch of CinderallaWine.com, which sells only one type of wine for a few hours, each day. It's both a deal, and a limitation of choice. 'People are overwhelmed these days, so limiting options is very successful. Simple decisions are exploding in value.'

Finally, he's excited about location-based mobile services like FourSquare and GoWalla. 'Anyone in marketing who doesn't understand that this lets consumers have the ability to be rewarded at the point of purchase or for going to a specific location is missing out.' You can use these services to reward people and move them to locations. 'Expiring inventory like seats at a concert, food going bad, inventory in marketing that brands sponsor, how much is that number on a daily basis? The number is F***ing huge with enormous value and the best platform to move it is geolocation based mobile platforms.' When friends don't understand why they'd use these 'check-in services' he asks 'Don't you want a free beer for going to a restaurant?'

Finally, I had a chance to ask Vaynerchuk the investor what he looks for in new business pitches. 'The person, first and foremost, and how they explain the way the business will make money. 95% of people can't answer that simple question. The idea is a close second.' What's he looking at for investment these days? 'Apps and freemium based businesses, of course, and also Tea. Tea is going to be big in this country. We're eating more Asian style. Similar to wine culture, people collect tea, learn about it, sample it, compare it. There's also a health factor – people are discovering how good tea is for them and that matches with the general health trend. I'm going to China and India to learn more about it.'

Given his energy and drive, it's likely Vaynerchuk will 'crush it' with tea the way he has with wine. How do these business trends impact your business? Let us know in the comments below.

Last updated: Jun 9, 2010




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