SubBase’s $5M Lesson: Why Your Free Users Aren’t Your Real Customers

SubBase’s $5M Lesson: Why Your Free Users Aren’t Your Real Customers

In a recent episode of Category Visionaries, Eric Helitzer, CEO and Founder of SubBase, a construction materials management platform that’s raised $5 million, admitted something most founders won’t say out loud: “That was really my fault. That was probably one of the biggest mistakes I made.”

The mistake? Giving away software for free for an entire year.

The cost? Not just $200,000 or $500,000 in lost revenue. The real cost was twelve months of false signals, misidentified customers, and building for people who would never pay. Free users told Eric they loved the product. They used it regularly. They gave positive feedback. And none of it mattered.

Because they weren’t his real customers.

The False Positive Trap

Eric launched SubBase with confidence. He’d spent 15 years in construction management, seen the inefficiencies firsthand, and built internal software that worked. He knew he was solving a real problem. But knowing you’re solving a problem and knowing who will pay to solve it are completely different challenges.

“We were giving the software away for free because, and we didn’t know how much value we’re providing yet,” Eric explains. “We were trying to build fast, and to be honest with you, we gave it away for free for way too long.”

The trap Eric fell into is common in B2B: confusing usage with demand. Free users will use good software. They’ll praise it. They’ll give you feedback that feels like validation. But they’re not validating your business—they’re just enjoying free stuff.

When Eric finally started charging after a year, reality crashed in. “We got into a pigeonhole where we didn’t understand who the real ICP was and we’re getting false positives. People would say they’d use it, they wouldn’t pay for it.”

Think about what that means. An entire year of building relationships, gathering feedback, iterating on features, and shaping the product roadmap—all influenced by people who were never going to become customers.

The Signal Hidden in Payment

The companies that did pay revealed something critical: they were different from the free users. Not slightly different. Fundamentally different.

The paying customers called when features didn’t work. They had urgent questions. They needed the software to actually function because they were depending on it to run their operations. The free users? Eric barely heard from them. They weren’t invested because they had nothing invested.

“Then once we started to turn on payment, that’s when we knew who was our real true ICP or who really cared for this,” Eric says. “Because, you know, we started getting phone calls when things didn’t happen or things were not working as it should, and the people that may gave us the phone calls weren’t paying for it, which were the ones that were seeing the value.”

This is the insight that costs founders years: payment isn’t just about revenue. It’s about signal. When someone pays, they’re telling you they have a problem urgent enough to solve with budget. When someone uses your software for free, they’re telling you nothing.

What Free Really Costs You

Lost revenue is the obvious cost of free tiers. If SubBase had charged $5,000 per customer from month one, and landed 20 customers in that first year, that’s $100,000 minimum in lost ARR. More importantly, it’s $100,000 in runway extension or hiring capacity or marketing budget.

But the hidden costs matter more:

You optimize for the wrong customer. Every feature request from a free user pulls your roadmap toward people who won’t pay. Every piece of feedback shapes your product for an audience that doesn’t matter. You’re building for ghosts.

You waste sales capacity on unqualified leads. Eric’s team spent time demoing to companies that would never convert. Time giving detailed walkthroughs. Time answering questions. Time following up. All for people who liked the idea of the software but didn’t have the problem badly enough to pay for the solution.

You delay learning your real ICP. For a year, Eric thought he understood his customer. He was wrong. That year of false confidence meant a year of not pursuing the right companies, not refining the right messaging, not building the right features.

You lose leverage in pricing discovery. When you finally flip the switch to paid, you have no idea what to charge. You’re starting from zero. If you’d been charging from month three, you’d have nine months of pricing experiments and data by now.

The Pricing Experiment That Revealed Value

Once Eric started charging, he had to figure out what SubBase was worth. Without competitors to benchmark against and without historical data, he experimented. “We actually started testing pricing by sending out contracts to see, hey, is this worth it? Is it worth this amount of dollars?”

The response time told the story. “For the most part, when people signed fast, we knew that obviously it was worthwhile. But we also second guessed ourselves to understand, are we underpricing ourselves?”

Fast signing meant he was leaving money on the table. Slow signing or negotiation meant he was in the right range—or too high. This trial-and-error approach only works if you’re actually charging. Free users can’t give you this signal.

But even with paid customers, clarity took time. “It was very much a question mark half the time until we got into a flux where we can actually show the value and really be able to show what the ROI was when they came into sub base. And that took over a year for us to figure out.”

Notice that timeline: over a year. Add that to the year spent giving software away for free, and you’re two years in before you truly understand your value proposition. That’s two years of runway burned before you can scale efficiently.

The Rule for B2B Founders

Eric’s advice is unequivocal: “You need to start charging much sooner because that’s when you’re really going to find out if you a, are solving a problem, but b figure out who your right ICP would be.”

This isn’t about being greedy or maximizing revenue from day one. It’s about information. Payment is the most honest feedback mechanism in B2B. Everything else—user interviews, feature requests, positive emails, usage metrics—can mislead you. Money doesn’t lie.

The founders who figure this out early have an enormous advantage. They’re building for the right customers, iterating on features that drive retention and expansion, and discovering their value proposition while competitors are still figuring out how to monetize their free user base.

When Free Makes Sense (Rarely)

There are legitimate reasons to offer free tiers in B2B. Bottoms-up adoption in large enterprises. Developer tools that need widespread usage to create network effects. Products where the free tier users create value for paying users.

But SubBase wasn’t any of those. It was vertical SaaS solving operational problems for mid-market construction companies. The free tier created no network effects. Free users didn’t influence paid users’ buying decisions. The product solved a specific, urgent problem for a specific customer segment.

In cases like this—which describes most B2B software—free is just friction. It delays learning, burns runway on the wrong customers, and creates operational complexity when you eventually need to convert people who’ve been using your software for free.

The Right Timeline

If Eric could do it over, what would he change? Charge within the first three months. Not after product-market fit. Not after achieving perfect feature completeness. Within the first 90 days of having something that works.

That doesn’t mean charging every single user from day one. It means identifying the companies with the urgent problem, the budget to solve it, and the pain that makes them willing to pay for an imperfect solution. Then charging them. And using their feedback—the feedback from people with skin in the game—to build the product.

The free users will still tell you they love it. They’ll still use it enthusiastically. They’ll still give you feedback. But you’ll know, with absolute certainty, that none of it matters unless they’re willing to pay.

The Founder Tax on Waiting

Every month you wait to charge is a month you’re optimizing for the wrong signal. It’s a month you’re building features for people who won’t become customers. It’s a month you’re refining messaging for an audience that doesn’t exist.

Eric paid that tax for twelve months. It cost him more than revenue. It cost him clarity, focus, and time—the most valuable resource any founder has.

The lesson isn’t complicated: charge early, charge often, and let payment reveal who your real customers are. Everything else is just noise dressed up as validation.

Your free users aren’t lying to you. They’re just not your customers. And the sooner you learn that difference, the sooner you can build a real business.