Big Customers? Who Needs 'Em!
At 37signals, the software company I co-founded, we like to keep one particular figure in mind:$150 a month.
What's so special about $150? That's the most that any single customer can pay for Basecamp, our Web-based project-management and collaboration app. It doesn't matter if you're a company of 100,000 or a sole proprietor working at your kitchen table--$150 a month is our top pricing tier. And that's not $150 a month per person. It's $150 a month. Every Basecamp account includes unlimited users.
This, of course, is unusual in our industry. Many of our competitors, and nearly every company that sells enterprise software, charge per user (or per seat, in industry parlance).
We prefer not to call people seats. What's more, we've never much liked the idea of charging a participation tax, a phrase we coined to represent what it feels like when a software company charges you more money for each additional user. Participation taxes discourage usage across a company. That's the opposite of what we like to see.
And that's not the only way $150 makes us different. Lots of business owners spend their lives trying to land the whale--the single, massive, brand-name account that will fatten the top line and bestow instant credibility. But big customers make me nervous. After all, he who pays you the most has the most control over you. And we don't want any one customer to control us. What's more, it's not fair to your other customers if you're putting most of your energy into pleasing the big spenders. And unfortunately, that's what happens when payments are so lopsided that one major client can represent the revenue of scores of smaller ones.
Basecamp has tens of thousands of paid customers and millions of individual users. A large user base helps shield us from things we can't control. You can spend years catering to a major corporation, for example, only to see your contact there move on. Some new guy comes in with his own set of favorites, and you're out. It happens all the time. But when you book the same amount of revenue by serving hundreds or even thousands of customers, it doesn't much matter if one individual changes his mind.
The risk of relying on a handful of customers is not just financial. Your product also is at risk when you're at the mercy of a few big spenders. When any one customer pays you significantly more than the others, your product inevitably ends up catering mostly to that customer's specific needs. In other words, when GE becomes your customer, you become a consultant for GE.
Some businesses try to get around this by offering different versions of the same product. In the simplest terms, that might mean one version for the big spenders, another for the small ones. But even that is too complex for me. Why? From sales to marketing to support to development, you've now got twice as many things to worry about. Plus, doing two things well is way more than twice as difficult as doing one thing well. It's also more expensive and time-consuming.
But doesn't the simple strategy we've chosen at 37signals leave money on the table? Why turn down someone who wants to pay you thousands of dollars a month? Good questions. We're probably leaving money on the table. But we're also leaving complexity on the table. And complexity is like a leak in your roof. It starts small. But over time, it does real damage. And once that damage has begun, it's hard to stop. Best not to let it in in the first place.