Many founders started their companies because they saw a problem in the market and took the initiative to create something that would solve it.
They envisioned their solution helping communities and society – big impact at scale.
To achieve this, here is how the thinking tend to go with founders and early startup teams:
- The product is for everyone (big mistake). (Use this instead to figure out who your product is really for.)
- To capture the largest market possible, the product must be accessible.
- To make the product accessible, price will undoubtedly be an important factor.
- Charge too “too high” or anything at all is going to scare off would-be customers, and therefore is no longer accessible.
- Conclusion – either don’t charge or charge even lower.
Is this something you’ve considered?
Now to be fair, this can work in certain situations. What I more often see is the anticipated benefits of being more “accessible” do not materialize.
Costly pitfalls of accessibility
Instead, some costly pitfalls emerge. Here are three:
- Acquisition costs increase: Even at free, users don’t understand or find value in the offer (e.g. pricing package, product, communication)
- Smaller bump in demand: While the basic principles of supply and demand hold true for price changes, I often see startups over-estimating the price sensitivity of their market. In other words, the perception is if the price is a lot lower then there will be a relative bump in demand. This rarely happens without external influence – namely a substantial increase in acquisition spending or some moment of virality.
- Revenue opportunity cost: By focusing on “accessible”, what is lost is discovering what drives actual willingness to pay. That means you may be getting only a fraction of what customers were actually willing to pay. I find startups are getting less than 65% of what their customers are willing to pay, and this is for startups that are actually charging for their product or service.
Unfortunately the unsexy stuff like unit economics, profitability, and cash flow still play a role in whether this dynamic is plausible, let alone attainable.
How to assess if you’re too accessible
- Identify gaps in your strategy: This starts by stress-testing the assumptions you have about your customer, what drives value for them, and their willingness to pay. What insights have you collected that validates this strategy?
- Identify wastes in your go-to-market approach: Here you want to see how your go-to-market resources are being used and the results they drive. For example, are you seeing low conversion on site visitors or trial users? In other cases, are you seeing high churn from your customers? The goal of this exercise is to determine how much waste is created, and offer an initial view of the financial impact of continuing with an accessibility strategy.
- Think experimentation even not for scale: You should be looking for experiments to determine not only the validity of increasing accessibility through price, but also different ways pricing can be shipped (via offers, packages, discounts) that create financial opportunities.
The bottom line is this decision is an important one, and should not be made hastily. Fear of rejection is real, but should not be the basis to shy away from defending your (pricing) value. Patience is critical, but a thoughtful approach will pay dividends as the numerous success stories demonstrate.
Did you know?
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