A Freemium Life

What is the right price to put on your work?

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What is the right price to put on your work? Often, the right price is zero. Michelle Goodman in the New York Times, When to work for nothing:

When you agree to work free, you reinforce people’s misguided ideas that the self-employed are independently wealthy hobbyists. Don’t degrade your profession by letting a cheap client take advantage of you.

While it’s important to get a fair price for your time, it’s entirely up to you to determine your own fair price. In many situations free may be the fair price for you, and don’t let anyone attempt to convince you otherwise.

Whenever we talk about free services or pro-bono work, it’s valuable to revist the idea of the “freemium” business model. Lately I’ve realized I operate my life on the freemium model, and I love it. But can the freemium model work for products and services with high marginal costs? Can it really work for me?

Freemium is not the same as free

Freemium is a business model which works by offering basic services for free, while charging a premium for advanced or special features.

The freemium model flips the normal equation: instead of selling the vast majority of what you produce (and giving away a small amount to promote and incent sales), the idea is to give away the vast majority of what you produce and instead make a profit by selling a much smaller amount.

Let’s be clear: freemium is not the same as free. The cost to deliver the free versions of the product can be thought of as business development or marketing expenses; spending on customer experience supplements (or replaces) advertising.

While there is an active debate about whether the freemium model works, the fact is that the freemium model is not new; what has changed is that the range of products and services that can be delivered at zero marginal cost has increased drastically.

A Freemium Life: How do we balance giving away our time with making a living?

Simple: giving away our time is a way to make a living.

What I do has a high marginal cost; dedication, time, passion and intellectual energy all carry a high marginal cost. And especially in today’s world of early-stage startups, time is more valuable than money.

But even if I do not directly trade my time for money, I earn a lot in return for giving away my time. If you’re spending your time on doing things that make you better, work no longer consumes you; it creates you. We owe it to ourselves to spend our time on our passions, but more importantly we owe it to everyone we care about: only by fully engaging ourselves can we truly give back to others.

Would you rather:

“Social capital” might be the key next-gen asset.

Moreso, giving away my time and connecting with people still creates something real: relationships and reputation have values. We all implicitly know this, but we’re reaching a point where we might be able to explicitly value our relationships… for better or worse.

Umair Haque, How To Be a 21st Century Capitalist

Next-generation businesses are built on next-generation assets. Yesterday’s businesses were built on cash, factories, and IP – financial, physical, and intellectual capital. Next-generation businesses are built, instead, on human, social, natural, and cultural capital – to name just a few.

Here’s one of the commandments of next-generation business: capitalize something.

What happens if you “capitalize” your relationship and reputation networks? Can you become a “Pareto node”? John Hagel, Pareto Power and Leveraged Growth:

Effectively engaging with Pareto nodes requires a form of collaboration marketing. Collaboration marketing emphasizes the need to attract others, creating a motivation for them to seek you out wherever you are, rather than trying to reach out, intercept them and get their attention. Of course, in order to do that you need to develop a deep understanding and appreciation for what motivates the other party. It forces you to get out of the “what’s in it for me?” mindset.

The best way to attract others is by offering assistance to them, by being more helpful to them than anyone else. Once again, this requires a deep understanding of the unmet needs of the other party.

“Capitalizing social relationships” is an ideal with very practical applications

How can this apply to venture capital and entrepreneurship? In response to my post What is the next platform for new businesses?, Ethan Bauley outlines how the “the network is the platform” for Y Combinator:

So what do we do with this knowledge? A quick and obvious example of a node that exploits these trends is Y Combinator. YC is 1) launching a large volume of new companies; every new company brings along relationships that other YC companies can access 2) emphasizing collaboration among their portfolio companies, so that their social capital is exposed to other people that can use it, and 3) exposing their principal’s network to portfolio companies (of course all financiers do this, but because of the sheer volume of companies YC is dealing with, Paul Graham et al drive even more value for their pre-existing network).

Social capital has always been an important part of business, but what’s changing is our ability to monitor, measure and value relationships and the varied degrees of value they create.

What happens when we start trying to measure, value and “sell” social capital?

But what does “social capital” really mean? Better yet, what happens when we try to practically apply the concept to our lives and our businesses?

What happens when we develop an “accounting system for social capital”? How does our social structure change? How does explicit measuring and valuation change our behavior?

Similarly, what happens when we create a social communication system based on asymmetric intimacy? What happens when we create systems to publicly display our status? By creating systems that allow us to publicly display, measure and compare some facet of ourselves, we implicitly create societal competition over that artifact.

How will we compete over “social capital”? Will we realize it is not a zero-sum game?

What happens when our methods, standards and codes of conduct for business development, promotion and selling change?

How will the “shadow system” of social and business relationships change as our social ties become increasingly transparent? Are the days of back room deals coming to a close?

Our current online social networks are just a start, a limited application of our maze of relationships and connections. The real cultural and business impacts are still to come.

And only by participating now will you play a role in setting and leveraging those trends. Start now.

[1] There has been a pretty active debate lately among professional photographers about “working for free”. John Harrington and Chase Jarvis have provided two of the more interesting viewpoints on this pretty hot issue in the photography industry…

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