Make Money off Your By-Products

Editor’s note: This article is a summary of Jason Fried’s talk at our event The Future of Web Apps. You can also listen to the audio or watch the video of the talk, which is below the article.

I think the future of web apps is more about business models then it is about technology or design. It’s not that those things aren’t important, but I feel that we’ve figured out a lot of that already. I believe the area where we need a lot of work is on the business side of things.

I want to start out by talking about the lumber industry. When saw mills were first created, they didn’t use their waste products such as sawdust. However, after a period of time, they realized they could package this waste into products and sell them at a profit. Things like mulch for gardens, fuel pellets and kindling turned out to be big business.

The lesson we can learn from the lumber industry is this: Whenever you make something, you create valuable by-products that you can sell.

So what by-products are we creating in the web industry?

Wisdom, Experience and Information

We didn’t even realize we were writing a book when we wrote Getting Real. All the material came from ideas we were blogging about that were the result of simply doing business. Just like cutting wood produces sawdust, for us, building software and a company produced information and experience.

We just started blogging about the experience and information we gained and it was only after a year that we realized we had created valuable content we could sell. We launched a book, a conference and a workshop off the back of this information, and in just a few years, it generated over $1,000,000 in revenue for us. Another example of this is Ruby on Rails, which came out of building Basecamp.

The crazy thing is that we were creating all this valuable ‘wastage’ on the side, without even knowing it.

Design Screencasts

I think a great opportunity for designers to generate revenue off of ‘waste products’ is to record their screen while they design. Whenever they’re in Photoshop, just hit the record button, and at the end, package up the video and sell it to other designers. That, I’m telling you, is a by-product that is worth money.

Looking to @garyvee

Gary Vaynerchuk is great example of packaging and selling by-products of your business. As the owner of a shop that sells wine, he has to do a certain amount of wine tasting to expand his palate.

He just decided to turn the camera onto himself as he did this tasting and the product, WineLibrary.tv has rocketed him to fame and success.

“Whatever you’re doing, you’re creating valuable by-products that you could be selling.”

Learning from Chefs

I think successful chefs do a great job of harnessing by-products and generating revenue off of them. They write cook books, host cooking TV programs and create their own line of cookware.

What they figured out is that instead of keeping these things to themselves, they should share as much as they possibly can.

Chefs with large business empires share more and more as they grow. Most business are the exact opposite of this. Instead of sharing more and more as they grow, they become increasingly closed and secretive. They’re robbing themselves of the value of their own by-products – all because they’re afraid of the competition.

Free is the Future of Failure

The next subject I’d like to talk about is the idea of “Free”. I’m not a big fan of free. It’s the wrong direction for this industry.

I think that Chris Anderson’s new book Free: The Future of a Radical Price contains bad advice. I think we should be focusing on how we can charge for our products, not give them away for free.

“Free isn’t the future of business, it’s the future of failure.”

Why is our industry so obsessed with free? The food industry charges for meals, hotels charge for their rooms and cab drivers charge for giving you a ride. People are used to paying for things they find valuable, and every time we release something for free, we’re hurting ourselves.

“The bulk of our paying customers, started out on a paying plan.”

I’ve noticed that quite a few of the web apps that have gone under are the ones that weren’t charging for their product. Of course this isn’t always the case, and charging for your product doesn’t mean you’ll survive, but there seems to be a correlation with web apps that have gone out of business and those that are giving away things for free.

As it becomes more common for web apps to go out of business, it causes a lack of trust in new applications. People are afraid to commit to a web app that may be gone tomorrow.

I Want Sandy is a great example of this. A lot of folks trusted them with their data and then they were bought by Twitter and shut down. If they charged for the product, they probably wouldn’t have shut down as they have revenue to support the business and an obligation to customers.

“When your users aren’t paying for the product, you don’t have an obligation to them. I think that’s bad.”

I’ve noticed that even Google, a company with billions of dollars in cash, has begun to pull back on their free products. If one of the most valuable companies in the world, with some of the brightest minds in the industry, has decided that some things aren’t worth giving away for free, then I’m not sure how smaller companies are going to make that model work.

Failure Isn’t Cool

One of the things that has really been bothering me lately is how it’s become cool to fail. In a lot of entrepreneurial circles there has been talk about “failing early and failing often.” It’s as if everyone thinks that failure is a good thing – a way to get better at business. What is that?

Can you imagine someone walking up to a farmer and say “You should fail often. I hope your crops die every year”? It just doesn’t make any sense.

“No. We should be focusing on succeeding early and succeeding often.”

Another quote that’s thrown around a lot is “Nine out of ten business fail.” That may be true, but what the hell does that have to do with you? Just because someone else doesn’t know how to market or price their products, or how to lead their team, doesn’t mean you should focus on failure. Don’t be intimidated by all this talk about failure.

Learn from Your Successes

I think we should all make a concerted effort to not focus on learning from failure, but instead, learning from our successes.

When you learn from your mistakes, all your learn is what not to do next time. What is this? A process of elimination where you’ve got to get a million things wrong, until there’s nothing else that can go wrong before you know what to do right? That’s what it means when you learn from your mistakes.

I’d rather learn from the things that I’m doing right, and do those again.

In Summary …

Here’s a quick list of the things we’ve covered today:

  1. Look for your by-products. Identify what you’re already creating that you can sell.
  2. Stop focusing on failure and identify what is working.
  3. Please start charging for your products.

Listen or Watch

You can listen to the audio of the talk, or subscribe to the podcast.

Like this article?

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Photo credit: flickr.com/photos/seanosh

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Comments

18 comments on “Make Money off Your By-Products

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  4. Great article, but I fail to understand how Gary Vaynerchuk made it so big online. He’s a complete douche.

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  8. Lately i have been realizing we (designers) make lot of by-products during our work. one of them is already giving us back is Blogging about how we solved such ui problem, why is standard so important etc.

    its not easy for me to say that free apps are not the future, as we are seeing how greatly they are attracting clients all over the world. Also these apps are really not “free” they just tease user by giving free membership which actually encourage user to go pro/paid to get real benefit from application.

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  13. Great article and talk! My business partner and I have been talking/arguing about this for a while now. Free! is not a business model. Glad someone confirmed our suspicions.

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  15. very interesting and thought provoking stuff … fully appreciate the by-products idea but is free the road to failure? – I’m not convinced – but perhpas I just need to do some more systems thinking about it….

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