To make money as a startup, you need large margins above the marginal cost. You have to cover not only the development costs, but also the many iterations of development, marketing, and branding it will take to find the winning combination. The established competition doesn’t have this problem—they have a product and brand, they’ve already paid off the development costs, so they are happy to charge at marginal cost + a small profit. You on the other hand need to charge a high premium for your service, at least while starting out.
Guess who is really sensitive about costs, and will always pick the cheaper option? Poor people. Poor people will not pay more money to try your product. And because your costs are higher (until you reach scale), you can’t afford to charge less money.
Startup entrepreneur here.
To make money as a startup, you need large margins above the marginal cost. You have to cover not only the development costs, but also the many iterations of development, marketing, and branding it will take to find the winning combination. The established competition doesn’t have this problem—they have a product and brand, they’ve already paid off the development costs, so they are happy to charge at marginal cost + a small profit. You on the other hand need to charge a high premium for your service, at least while starting out.
Guess who is really sensitive about costs, and will always pick the cheaper option? Poor people. Poor people will not pay more money to try your product. And because your costs are higher (until you reach scale), you can’t afford to charge less money.
It’s a nice idea. It just doesn’t work.