Why Your Freemium Strategy Might be Hurting Your Sales

Having a free product tier is a time-proven way for startups to get a foot in the door by giving potential customers a low-risk way of evaluating your product.

However, there are times when it's easier and much more profitable to simply make the sale.

Yu Taniguchi s CEO of Vesper and creator of TableSolution.TableSolution is a SaaS product similar to OpenTable. It helps restaurant owners manage their reservations and better understand their customers.

You might not have heard of them yet, but you will. Today they have thousands of paying customers including some of the world's largest hotel chains, they are profitable, and they are expanding globally.

Yu and I talk aboutTableSolution's business model, of course, but you Yu also has some great advice and some counterintuitive insights about selling to mid-sized companies, expanding into new verticals and recruiting great staff.

It’s a fascinating discussion, and I think you’ll enjoy it.

Show Notes

Two ways to differentiate your startup in a crowded industry How Freemium can hurt your B2B sales How restaurants are using bid data to learn more about you How Tokyo restaurants secretly raise prices together The advantages of having a multi-lingual product from day one How to keep customer churn low in a competitive marketplace Is it more profitable to go deep or to go wide? How is selling to enterprise different from selling to startups and smaller firms

Links from the Founder

Check out TableSolution Follow TableSolution on Facebook Friend Yu on Facebook Vesper's TableCheck site

[shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for listening.

Startup investing follows trends and following these trends is an easy way to raise money. Two years ago in Tokyo, everyone was starting food delivery businesses. A year ago, it was AI-related companies, and now, of course, at coffee shops around the world, founders are trying to figure out how to graft a cryptocurrency onto an existing business model and launch an ICO.

Of course, after you raise the money, you got to grow the business, and that's always hard, but it's even harder when you are competing against 100 other funded startups with the same business model, no. Long-term, the companies that went out are either those who are doing something no one has thought of before or those doing something so boring that everyone has thought of it but they are doing it in a way that puts them out in front.

Today, I'd like to introduce you to one of those companies.

Yu Taniguchi is CEO of Vesper, the creator of Table Solution. It's a SaaS service similar to OpenTable in that it helps restaurant owners manage their reservations better and better understand their customers.

You might not have heard of them yet but you will. They have thousands of paying customers, including some global chains, they are profitable, and they are beginning to expand globally. The business model itself is interesting and you also have some great advice and some counter-intuitive insights about selling to mid-sized companies and the dubious value of the freemium model in general.

But you know, Yu tells that story much better than I can, so let's get right to the interview.

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[Interview]

Tim: So I'm sitting here with Yu Taniguchi, the founder and CEO of Vesper, makers of Table Solution in the online restaurant management platform. So thanks for sitting down with me.

Yu: Thank you.

Tim: Table Solution is in a super competitive space so let's talk a bit about what it is.

Yu: Super competitive, a lot of people think that Table Solution's competitors are companies such as GuroNavi, Tebelog, OpenTable. That's totally different, actually. The current situation is that restaurants accept reservations from various sources such as phone reservations, reservations from Tebelog, they have to manage all these reservations. It's usually done by a notebook, paper and pencil, so our competitors, direct competitors are paper and pencil. In that regard, OpenTable is actually our competitor. They not only provide media for the consumers but also, they provide reservation and customer management system which would be used by the restaurants.

Tim: Right, so your model is similar to that, right? I mean, you are providing a customer CRM solution or reservation solution, a general table and guest management solution for restaurants, right?

Yu: Yes, so the difference between OpenTable's business model and our business model is OpenTable charges cover fees which means that every time a customer makes reservations using OpenTable website, the restaurants have to pay a fee to OpenTable whereas we charge nothing, so the restaurants would usually link to our reservation page from their website, from their Facebook page, from their Instagram account instead of linking it to OpenTable.

Tim: Right, and you charge a flat monthly fee of like, 12,000 to 30,000 Yen depending on the size, right?

Yu: 12,000 to 20,000.

Tim: And you don't have like a free tier, right? All your customers are paying customers?

Yu: Yes, exactly, yes.

Tim: I really like that business model. There's a certainty to it and I'm interested in your opinion on this because I think in B2B sales, it's just as hard to get a customer to switch to a free product as it is to get them to switch to a product that costs 10,000 Yen a month, I mean, because they have to invest - it's not the 10,000 Yen a month - I mean, they've got to retrain staff, they have got to spend a lot of their time. Has that happened in your experience or did you experiment with like a free tier in the beginning?

Yu: That's a good question, actually. We did think of various scenarios such as charging advertisement fees to companies who want to approach the restaurants and provide our solution completely free to the restaurants, but instead, every time they log in, they have to see an advertisement. Well, our conclusion was that we interviewed 300 restaurants prior to releasing our product and they all said they would be willing to pay roughly $100 a month if their operations become smooth, if their operations become automated, so we decided that it's better to start charging the restaurants rather than going for a freemium model which usually, the conversion rate is really low. Well, to be honest, we didn't have so much cash in our bank account, so we wanted to charge the customers.

Tim: Revenue is nice.

Yu: Yes.

Tim: You are also offering CRM solutions to the restaurant. Is it mostly simply retaining and organizing information about the guests or do you offer services, like connections to social media, more marketing-focused features as well?

Yu: Right now, we are still providing a very fundamental CRM which is, you can see how many times the guests have visited your restaurants or your chains or what their allergies are, what their likes and dislikes are, etc., or customers who have spent more than x amount of money in their history. In the future, we do plan to enhance the CRM feature and we want to help the restaurants' marketing or even suggest a better marketing resource distribution. The restaurants currently don't know how much the customer's spending, how many times they are repeating, what their lifetime value is.

Tim: Right, a couple of years ago, during the Groupon phenomenon, it took restaurants a while to realize that the customers they were bringing in weren't providing long-term value.

Yu: Well, exactly, yes. I mean, Groupon model is not working.

Tim: No, no, but it took them a while to figure it out.

Yu: It's a steep discount. It's a bargain hunter's - more than just gathering the bargain hunters, I wanted to help the restaurants convert the customers into repeat customers. Of course, it's a very good way to advertise restaurants. Prior to that, it was almost impossible for restaurants to advertise on any other media, but on the internet, it's free and you can access millions of consumers. So that was innovative, and also, the other thing that shocked me was that people were paying upfront for restaurants for dinners. This never happened prior to Groupon.

Tim: On kind of the Groupon and daily deals business model, do you think that it can be saved or is it just fundamentally flawed?

Yu: It can be enhanced. You can access the consumers, this is a very beneficial thing for the restaurants, but what's lacking, what's completely missing is that there is no technology to convert these customers into repeat customers, so the system is completely for users who are looking for steep discounts, so if you could change this value proposition.

Tim: So capture information about the user, reach out to them directly in the future, things like that, rather than just relying on other next steep discount?

Yu: If you say the Groupon business model is based on the premises that value proposition be a steep discount, in that sense, it's completely not working.

Tim: Okay, tell me about your customers. So how many restaurants are you guys serving now?

Yu: We serve 2,000 restaurants right now including global hotel chains like Hilton, InterContinental, Hyatt, also Michelin 3-star Sushis and Michelin 2-star French restaurants.

Tim: So with 2,000-plus customers, are they all using Table Solution for their table management and guest management, or have you also integrated with existing systems?

Yu: Yes, all the restaurants are using our service as restaurant and table management system, and sometimes, we do integrate with other existing systems that restaurants are using, such as POS, Point of Sales system, but not too deeply because we are essentially,