From Free To Premium With Ease: YouSendIt Cofounder Ranjith Kumaran (Part 3)

SM: I understand there were three cofounders. Did any of you take a salary role in the beginning of the company?

RK: The other guys were still consulting at their previous jobs. I was out raising seed capital to keep the company going because my former company had just been purchased. I was able to generate enough interest from seed investors to enable me to make the decision to plunge forward.

SM: Did your investors find you, or did you find them?

RK: We met them through TiE. I had never been to a TiE event, but they liked it right away. I just happened to bump into them there and a couple of weeks later we had their interest. We closed the seed capital term sheet three months after I quit my job.

SM: How much did you raise?

RK: We raised $50,000, which was just enough to feed the service more servers and bandwidth. It was a seed to close a $250,000 round, all with the same investor.

SM: That should have been enough to build the entire company.

RK: If we wanted to keep it at a point where we just paid ourselves a salary and feed the company servers and bandwidth it would have been enough. It was not enough to try the other business models we had thought about. Our original business plan addressed both the ad based model and the subscription model. We knew that three of us with ad revenue would not turn the corner. It was good to a point of paying servers and bandwidth.

SM: Your thesis was largely a subscription model?

RK: That is what we wanted to test. We raised our funding in September 2005, and in February 2006 we signed up our first paying customer. With the money we raised we built a development team, moved the platform from Windows to Linux, built a payment system, and launched two very simple tiers. We had our first paying customer four minutes after we launched the service. It became very clear that the subscription model economics were much better.

SM: What was the free-to-premium value proposition?

RK: It was very simple. We wanted to get rid of the ads, allow users to have more storage, and get more users. We had a $5 a month and $20 a month tier. The thinking was to price cheaply and get as many subscribers as possible, but we also wanted to have some additional value propositions which is what we offered with the $20 tier. Those premium services were things like password protection and recipient delivery validation.

We were able to test if our service was a commodity at the $5 level, or if value proposition would allow us to have premium offerings. Both went well out of the gate, with more $5 subscribers. We felt we were leaving money on the table so within a year we doubled the prices to a $10 tier and sales kept increasing. We did grandfather those who had come in under the $5 tier.

This segment is part 3 in the series : From Free To Premium With Ease: YouSendIt Cofounder Ranjith Kumaran
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