This case study presents a story of a start-up company and found, which was created under the premise of opposing corrupt and unfair practices of companies that make a living by charging exorbitant fees from angel investors and start-up entrepreneurs alike. However, after a period of expansive growth, the company found itself at a standstill, as expanding the business further required additional funding. Deep-pocket investors, on the other hand, were not willing to commit to a business model that did not put revenue generation first. The purpose of this paper is to investigate the issues surrounding AndFound, highlight their strategic options, and determining which course of action would be the most suitable for the company.
AndFound’s Main Problems
The company faces several problems from both the inside and the outside. Its outside problems were summarized at the end of the conversation between Reza and VV. A product cannot be the best in the market and freely available at the same time. The threat of competitors offering a significantly better product at an affordable price is real, especially considering that serious investors tend to view free platforms with a degree of suspicion. As it stands, AndFound’s operating finances come from advertisements and various donations from its users. This is a business model of a non-profit organization. Shifting from a non-profit to a for-profit organization is a difficult process. Lastly, the founders of AndFound are in disagreement regarding the company’s monetization strategy. Until the course of action is decided upon, the company would move nowhere.
Some of the options presented in this case study include introducing small-time monthly payments, taxing a portion of the users, and leaving the system as it is while looking for big investors to help the company grow, following the examples of Facebook and Youtube. Each of these approaches has several strengths and weaknesses.
Introducing monthly payments of 3 dollars a month, with a 100,000-strong user base, would generate 3 million dollars of revenue within a year. The strength of this model is in guaranteed stable revenue flow. However, there is a threat of users leaving en-masse due to the introduction of a payment system in a previously free environment.
The second option is also geared at generating revenue, only by taxing a portion of the users rather than the entire community. This model is arguably less risky regarding the community, as half of it would not be affected by the tax. However, it would generate a rift between the startup entrepreneurs and angel investors, as the latter would be treated as non-essential to the business (hence taxable), which is profoundly wrong.
The third option takes inspiration from Youtube and Facebook, who provided free service until they grew large enough to thrive on ad revenue alone. While this option has examples of success, it does not take into account the possibility of failure. For every successful startup, 99 startups went bankrupt. The option of remaining a free site has a large margin for failure.
What to Do?
There are several ways of dealing with the issues presented in the case study. One of the business models that was not covered in the list of suggestions is the freemium model. This model provides basic services free of charge, and advanced services for a fee. To introduce such a model, and found would need to conduct a vast and all-encompassing survey of the existing user base. They would find out what services the customers need and what services they are willing to pay for. The introduction of a freemium model suggests expanding the existing services and significantly improving them to justify a worthwhile premium model while maintaining a useful free service.