A few months ago, I was lucky to be a witness of the rise and fall of a local coffee-subscription service. The concept was pretty simple: You pay a monthly fee of some 50 DKK (~8 USD) and receive a cup of coffee a day from your local barista.
The target consumer would be a hard-working 20-something person walking to their workplace in central Aarhus every day. Then, during their daily commute, they would be able to pick up their usual morning-coffee. All in all, helping them save a little money since they would buy a cup a day anyway and this option would be cheaper. The app would be supporting the barista by stabilizing their income stream in the form of subscriptions. At least this seemed like a concept that would make sense.
However, the business side turned out to be fallible.
Firstly, let’s look at what worked:
More users = more growth!
My introduction to this service came from a friend of mine. Someday, late summer, my classmate walked in with a latte in his hand and a complacent smile on his face. “Dude, check out this coffee. I got it for free.” This sparked my interest of course, so I asked him about this. He told me about the app, and an invite-a-friend-feature which gave a free week of membership to both you and the person you invited. Classic user-acquisition strategy for an online-platform, I thought.
The usual caveat of a ‘free trial’ is that it really isn’t free. You always give something in return, whether that be your credit card information or phone number. Basically, something to keep a hold of you once the trial ends, or to turn you into a sales lead.
-Coffee pal wasn’t like that.
Registering was as simple as giving an email. No credit card. The whole app was completely non-binding. Once I discovered that fact, I had to check it out. A guy invited me - I invited another guy, and within minutes I had 14 days worth of coffee. After a few days, hundreds of high school students had heard of the app and we were all restless to get a nice hot, free coffee.
Upon reading this, it should feel wrong to you. If you haven’t noticed the problem yet, let me explain:
Who cares about economics?
Lets look at this scenario at a simple level:
I registered myself, giving away:
- An email address, some 0’s and 1’s (more or less free)
- Coffee, a real physical product
- Nothing stopping me from creating multiple users, expanding my coffee-consumption to infinite levels!
- Well, nothing except from ethics
A guy even went as far as to register with so many fake emails, that he could get free coffee every day for a year. A year! Imagine the guy on the other end paying for it all!
We’ve all probably heard it before: Grow your business first, then later, money will come. And let’s be honest. giving away free stuff works really well for growth.
But unfortunately, eventually, someone is going to pay for something. In this story it ended about a week later, when we entered a local cafe, asking for a free coffee with our app as usual. Though this time, we were told that the cafe had left the membership and would like us to stop coming around asking for free coffee.
Money, Money, Money
The lesson to learn from this story is very simple, and also very boring:
Think about revenue. It’s important.
It can be tempting ignore business thoughts and focus on scaling, but the business model is really the core of the business. Screw it up and you’ll be right back where you began. Or worse, you’ll be like the creator of this app: completely broke (and probably in debt).