I have seen a lot of startups over the years. I often get asked to look over their pricing strategy, and nine out of ten times it is rarely a strategy. Usually it is a single price or something similar to the market leader in the industry.
And that’s ok! Having an idea of how others in the market price is a good start.
The problem is, it’s not a strategy.
Startups often focus on getting to the “magic number” rather than on the key questions they should be asking or the context the pricing strategy should operate in for the startup.
In the startup world, the goal is focus. Startups that have grown successfully, did so because they quickly removed ambiguity of where they are going early and often. They had a strategy or at least the makings of one.
If you can put in the effort to understand the problem at hand, then why are you “failing fast” by trying to do 200 things with your startup? It’s ok not to know what will work. Learning is part of the process. That starts by creating a plan that generate hypotheses you can test and iterate on. This is the food feeding your strategy blueprint.
Take Slack as an example. Founded in 2009, Slack took a focused 7 year journey to achieving product-market-fit. While the platform had use cases that went far beyond technology-based companies including large enterprises and SMBs, the leadership focused squarely on tech startups. The early Slack team was incredible focused. They focused squarely on their core customer rings that included tech startups in key startup ecosystems where team sizes were small. They wanted to grow with their customers who were not only willing to adopt the new platform but were also willing-to-pay because they connected with the value offered and delivered.
One exercise we do early-on with our clients is an evaluation of the existing strategy.
Look at your own current strategy, and ask yourself:
- Does it help us transform our startup?
- Can we do it well?
- Will it enhance our acquisition strategy (and the unit economics)?
- Does it scale?
- Is it defendable with the resources and talent we have?
- Do customers question whether it is “worth it”?
- Longer term, if we stay on this path, does the strategy create value debt for our startup?
This should give you a starting point of your strategy’s strengths, weaknesses and gaps. This should also create a long-list of questions that require further research and fact/information-finding. As we often say to our clients, the discovery process never ends, just the simplicity of the approach.
This also gives you a chance to build creative ideas – or strategic choices – and build around this to quickly test and eliminate options. It is important to not only get outcomes, but understand why it didn’t work. If learning is not part of the process, you will blame the pricing. It’s not the pricing, it’s your approach.
If you’d like help thinking through your pricing strategy, contact us. If you have a pricing strategy that works – fantastic! Keep it going and look for ways to enhance it and evolve it as your startup continues to grow.
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