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My first business was an accident.
When I was in college in the late 90s, I built a membership website for a student organization. It looked a lot like Facebook, but predated Mark Zuckerberg's efforts by several years. I released it as an open source product – and it became a huge hit. It was so successful that, even though it was free, people started offering to pay me for it, asking for customizations and features that they could use for their sites.
There is much debate as to whether it should give away your product for free. In the Startups sub on Reddit, opinions are mixed. “In general, 'free' might sound like a good thing, but you always lower the perceived quality of something if you give something away for free.” writes a user.
I don't agree. I think giving away your product, at least in a limited capacity, is one of the best things you can do for your business. Here's why.
Related: 5 ways your business can benefit from offering a free product or service
Non-customers can try it
People love free stuff. Behavioral economist and author of the book PIrrationally Reducible: The Hidden Forces That Shape Our Decisions Dan Ariely demonstrated this in a popular experiment in which he offered a Lindt truffle for one cent and a free Hershey kiss. Although the truffle was clearly the superior chocolate, most people chose the Hershey Kiss. This experiment makes an important point: Free is the lowest barrier to entry.
There are several methods of attracting customers by offering your product for free, which usually involves letting them taste what you've made before they commit to paying. One option is a free trial, which involves making the product available for a limited time or a certain number of uses before payment is required. Another is “freemium” model, which gives users access to a free basic version, with the option to upgrade to a paid version that offers more features.
Creating a “try before you buy” experience is one of the best ways to net new customers. However, converting free users to paid ones is not always easy – how Harvard Business Review endnoteS“when customers are anchored for free, it can be hard to move them away.” The authors' research found that one strategy is to offer multiple versions of a product or service. With two options, customers can stick to the free versions. But with different options, they will often choose the middle “compromise”, feeling like they are deciding on a reasonable middle ground.
However, depending on how you're structuring your offers, the reality is that you only need a small fraction of conversions to be successful. My company, Jotform, has 200,000 customers who pay for our products on a monthly or annual basis – that's just one percent of the 20 million people who have signed up in the last 17 years. Even so, it is enough that we have reached 100 million monthly active users for free.
Related: How to make big money while selling your products for free
This builds trust in your product
After the massive success of the open source product I released in college, I decided to take the same approach with Jotform. For the first year of its existence, our online form builders were completely free.
The benefits of this system were twofold. The first was that it gave Jotform the opportunity to develop a user base without spending a dime on marketing. The second was that I was able to gather feedback and improve what needed to be fixed. I wholeheartedly agree with speaker and author Brian Tracy, who has write about the tremendous value of testing products with customers, advising entrepreneurs to “go to a potential customer with your sample or prototype and ask if they would buy it … Then ask them how much they would pay for it product.If people criticize your new product idea, ask them why the product could be modified to make it more appealing.
Trust me, the first iteration of our product wasn't perfect, and I'm glad I had the opportunity to address those early issues before releasing a paid version next year. By the time we released the first premium form builder in 2007, I felt confident that it was worth the fee we were asking people to pay. Customers could also see that we had made tweaks and adjustments based on their input, which added to Jotform's legitimacy.
Our initial premium version cost $9, which was low enough that we still did consulting work and custom modifications to the software we sold. It went slowly, after bootstrapping it often is. But the important thing was that with each iteration, our numbers steadily increased.
There is a lot of debate about the potential dangers of giving away your product for free. For me, it's all part of my low-risk approach entrepreneurship. Offering your product without asking for anything in return not only builds a customer base, but gives you the opportunity to get feedback and make adjustments before the stakes get too high.