Pricing For Your First 10 Customers

A few months ago – before COVID-19 and travel was still something we did – I was in New York City in a conference room of a major financial institution with investors and their portfolio companies. 

Unlike what you imagine in the traditional Wall Street boardroom of suits, we had tech startup founders in sneakers, hoodies (yes still wearing those), and jeans. The purpose of the meeting was to work with these founders through a series of targeted workshops to build their growth plans and bring in experts across different fields to help. 

I was there to talk about pricing and monetization. 

One of the investor partners asked a great question, “How would you do pricing for your first 10 customers?”. 

This was a great question because for many founders, pricing is a white sheet of paper. So much time was spent on the product and finding potential customers that when the time came to share prices there is confusion. 

So what was my response? 

 

Pricing Strategy For Your First 10 Customers

Price for learning versus setting. 

If you haven’t worked on your pricing before launching or prospect meetings, the reality is your pricing is going to lack direction or foundation. 

Your first customers are about helping you to learn about the dimensions of your pricing rather than to strictly set prices.

Most early-stage companies we speak to do not know what really drives value for their customers (they don’t have any). They also don’t know what drives willingness-to-pay (haven’t done any pricing work).

In the absence of these inputs, the early customers should be used to learn what value drivers resonate with clients – what do they care about and want to continue to talk to your company about.  

It’s important to clarify that a value driver IS NOT a feature. In the words of Peter Drucker, “No one buys features, they buy the benefits these features derive”. 

When we run workshops with founders, we run a value-driver exercise. In those exercises, founders generally come up with 3 or 4 value drivers – why a prospective customer would want to buy their product. It was rare for founders to come up with more. This continues to surprise us. At the same time if they have not spent the time working on pricing it is also not shocking. 

This is why these first customers are to test hypotheses on what drives value, the relative value of each, and what potential prices can look like. 

It is important to know that these value drivers are how you justify and defend your pricing. The less confidence you have in this, the more difficult it is to defend your pricing. 

 

Price based on clear objectives

While many launch products or go into the first customer meetings with a desire to “know” their prices, what becomes apparent is how unclear we are about what we’re trying to achieve with our pricing. 

You might be thinking, “That’s silly. The goal is to close the sale.” 

Anyone who’s done sales well knows there is such a thing as a bad sale. Blanket goals can be dangerous.  Think twice for anyone advising you to take any deal – the net value of that deal can cost you more at the end than the trophy traction win. 

In actuality, these first customers – as appreciative as you are for their leap of faith they have in you – is not what makes or breaks your business. 

Those first few customers can be about building goals: 

  • A clear sales pitch to get to value and pricing. 
  • It can indeed be about acquiring a new customer irrespective of who they are and how they perceive your product and value. 
  • More specifically it can be about segmenting customers. testing the hypothesis that these customers are the right customers for the product and prices presented, and there are 1,000 more if that is true. 
  • Sell against the right packages that are defendable based on clear value drivers. 
  • Secure the highest revenue / average order value. 
  • Price to the longest customer commitment (e.g. 3 months, 1 year, 3 years)
  • …

Knowing what you are trying to achieve in these first few customers is vital because it will set the tone for the next set of customers you engage, what you offer them, how you price them, and how you defend your value (read = price). 

 

Price for outsized value 

One of the common mistakes we see with early-stage companies is to under-price… by a lot. 

 

“The No.1 theme with our companies when they are struggling is they are not charging enough for their product.”

Marc Andreessen, Co-Founder Andreessen-Horowitz

 

Part of the reason young companies underprice is they have not done any pricing work, so there is little confidence and defendability for the prices they present to customers. 

While it’s understandable that the early prices are lower than they should be (or could be), the real danger is that this often is not corrected. That is potentially revenue and profit on the table for no other reason than we did not put in the work. 

When pricing for the early customers, look to price for outsized value, which means purposely pricing at the upper bounds of what you were going to present. 

Why? 

For one, you created this product because it uniquely solves a problem or needs in this world. It is by definition different. It should be worth more. 

Second, there is a good chance you used competitors prices as a reference and priced around those products. Assuming your customers actually use those competitors as a reference, by pricing near competitors takes away potential differentiation you can create. If differentiation is the strategy, this is a lost opportunity that will require effort to correct in the future. 

Finally, changing prices is easier at the early stages before your brand, reputation, and value proposition is established. Your price presentation is your big stage moment to say this is what the product is worth and why. 

All startup founders pitching investors do this all the time. 

It is a lot harder to increase prices than to drop prices. Price changes require discipline. Price changes also require collecting and analyzing your data. Even then, it is hard to do. We speak from experience. 

The prices you give your first 10 (or 100) customers will most likely not be your pricing in the future for your next 10,000 customers. 

 

Price for relationships rather than revenue 

Your initial set of customers are taking a leap of faith in you and your product. That’s a valuable relationship and potential evangelist for your product and brand. 

That is worth something, and something more than revenue for any early-stage company.

That can mean pricing your product at $0, or free for a period of time. 

Like personal and professional relationships, not all are the same. So if you’re pricing for relationships then it’s important to identify the difference between each segment. 

If you are pricing for relationships, then ensure you set up fences. Customers who do not fall into this special early customer relationship bucket should not get the same offer. When the two mixes it can muddy the value on offer. Think of these early offers like your “VIP cards” – they should be special. 

 

Price for the future  

While the focus of this approach is on the initial set of customers, there must be a clear focus on the future of your pricing. 

What you offer today should not be what is offered in the future. These first customers should be an opportunity to learn and refine. 

This should also be a stark reminder to work on your pricing in greater depth. 

Many founders we speak to have won their initial set of customers with pricing “that worked”. But what “works” eventually led to more questions: How to price different customer segments? How to price new products or upgrades to existing customers?

Inevitably the lack of knowledge and confidence that should come from data-driven decisions, leads to revenue and profit left on the table. 

Founders need to be prepared – and must get started early and often. 

 

Final Thoughts

Winning your first customers is scary and nerve-wracking. You want and need those customers. This is important for the validation for your product and company. You want this also for the revenue. 

This feeling is very emotionally-charged, and making pricing decisions in this mindset can lose great opportunities to learn today and build for the future. 

One of the biggest missed opportunities when pricing for early customers is what was not learned. Too many founders walk away not learning what to do with pricing – strategically and tactically – for future customers. 

When trying to accelerate revenue traction, this lost learning and structured approach forces founders to work harder for similar – and sometimes subpar – outcomes. 

The implications stretch into fundraising.

Revenue traction is an important part of raising capital, and follow-on rounds. Looking at the “survival rate” of companies going to later rounds of fundraising:

One of the challenges in moving on is the business model – where pricing plays a critical role – that makes the company increasingly unsustainable. 

Use the opportunity with your first customers to test your core assumptions. Who are your target customers? What (really) drives value in your product and offer? Most importantly, how does value influence willingness to pay? This can pay huge dividends in the long run. 

How did you approach pricing for your first 10 customers? What did you do differently than what we recommend? Let us know what you think!

 

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How Smart Startups Are Outsourcing Pricing

TL:DR

  • Pricing is strategically important, which is why the CEO is the decision-maker for more than 3 of 4 companies in a study we conducted.
  • Those CEOs also know pricing is not a core competency or skill set their company possesses, making revenue benefits from pricing difficult to achieve. 
  • CEOs do not have the time to learn and level-up on pricing’s many approaches and nuances. 
  • Rather than attempting to tackle pricing internally on their own (or worse yet, do nothing at all), outsourcing pricing can generate a much higher impact for companies even at the earlier stages. 

 

CEOs know pricing is important. Strategically important. It is why for more than 3 of 4 companies, the CEO is the pricing decision-making for their companies. 

Yet most CEOs oftentimes have limited to no experience in pricing. From pricing strategy to building pricing models and setting, to testing and management, very few CEOs are actually trained to build and manage the pricing that fuels the business model. 

In fact, when we examined the world’s top business schools, less than 2% of the required curriculum had even an element around pricing. Usually, pricing fits into a single module within a marketing or microeconomics course. 1 to 3 hours to learn how your company will position its products, win customers, and help the company win a sale. 

This is very little preparation for a key function of running a business – determining the price that will sell a product and make the company revenue. 

Unless you have a pricing expert on the founding team, outsourcing the pricing work can be an alternative approach to managing to price. This can enable companies even at the earlier stages to effectively use pricing to accelerate revenue traction, build the price management structure to take forward, and most importantly defend the value created by your company’s innovations. 

In addition to direct revenue and profit benefits, there are additional benefits to outsourcing the pricing work: 

  • Save months (or years) in lost revenue (e.g. money left on the table) from each hard-won customer. 
  • Save in the costs of hiring pricing professionals to bring in-house.
  • Bring a diverse outside perspective coming from the work they do with different clients, industries, and situations.  
  • Eliminates the need to onboard and ramp up before benefits from pricing can be realized.
  • Access the latest thinking not only in pricing but successful go-to-market ideas across industries and geographies. 

 

Don’t Go It Alone (Really, Don’t)

Unless there is an expert on the leadership team, do not try to hack your way through these four areas of pricing (or worse yet, do nothing at all): 

 

1. Strategy

Founders want – understandably – the price level. Should the price be $9.99? $10.50? $9,999?

The rush to get a price without a pricing strategy can miss out on vital opportunities. Not only does a strategy help to define the right pricing models to help your startup to achieve desired goals, but will also help create better decisions on what price levels should (and should not) be applied and when. 

Creating a pricing strategy is more than a mission statement for the future, but a data-driven process that looks across the business – business strategy, marketing, and sales – to define the path forward to win the right customers that help achieve the right objectives for the company. 

 

2. Pricing models 

Every founder has Googled [insert their industry or product category] and “pricing model”. That is certainly one way of figuring out how the company will price. But this approach misses the complexity of not only identifying but building the right price model for the products customers are offered. 

Designing a value-based pricing model is a structured process. The process evaluates many elements including customer segments and buyer personas, value metrics, promotions and discounts, and testing. Few small teams can afford their own professional to manage all of this work, and even fewer teams have extra time to reallocate to do this necessary work. 

Too often companies will adopt the “standard” pricing model but can find themselves either forcing a circle into a square peg or losing customers because the pricing model does not sufficiently help to differentiate it from its competitors.  

 

3. Price setting 

Optimizing the price is where all companies want to get to, but the path to getting there is more complicated. Pricing is a lot like cooking – two chefs can be creating the same dish but the ingredients they use, the cooking methods used, and the ultimate product created can vary in appearance and taste resulting in very different outcomes and reactions. 

For companies there are decisions to be made on the inputs to use then there are the tools and methodologies used to build price recommendations. Then there are the additional strategic and tactical considerations that a company’s leadership team must take into consideration when making their decision. Perhaps the most important step to realizing the benefits of pricing is in the execution and how best to take the pricing to the market. 

 

4. Internal price management workflow

For many companies, pricing is a “set it and forget it” activity. It was hard enough to try and figure out pricing the first time, so why go through it again. 

But as many teams discover the work of pricing never really ends. The lack of a pricing management workflow not only increases the time the team must dedicate to responding to new pricing events. Without a clear process to start can result in hacking their way to suboptimal price decisions that leave money on the table or lower conversion because the pricing does not align with their customer’s willingness to pay. 

Some examples of pricing events throughout the year include: 

  • From a competition standpoint, key competitors can change their pricing or offer discounts. 
  • The company can be working on new features that make the product “better”, and need to price this into its offer. 
  • The company is developing and launching a new product and must determine the pricing for the new product AND figure out how the new product’s pricing will fit with the existing product lineup. 
  • The company’s revenue and profit expectations change and opportunities must be identified. 
  • …



Final Thoughts

Every startup has to price, but the reality is very few actually work on pricing. The main challenge is they can not cover all the bases along with the resources and experience they have. 

In order to compete and accelerate growth, companies have to take a proactive smart approach to price. Not doing so is costly not only to the bottom line but to the ultimate success of the company (poor pricing is cited as a top 5 reason for startup failure). Outsourcing pricing is a great opportunity to figure out what the monetary value is (pricing) and how best to take this market. The alternative is leaving money on the table (and company growth) and confusing customers on the value proposition. 

Do you outsource different functional areas in your company? How can outsourced pricing help your company grow? Let us know what you think!

 

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Our New Pricing Survey Report: A Look At How Entrepreneurs And Startups Approach Pricing

HelloAdvisr Pricing Study Report Fall 2019

“How do entrepreneurs and startups approach pricing?”  

With the recent debate on startup growth and sustainability, the topic of pricing and business models is current and relevant. 

Business models and their viability are under increased scrutiny, and how businesses choose to price will directly feed those business models and the growth assumptions they’re driving. Even outside the headline grabbing companies, we know pricing and business models are direct contributors to success and failure. 

So how do entrepreneurs and startups approach this work? It is a question we are always asking, but could not find more structured insight on how entrepreneurs and startups approach pricing. To help broaden the this discussion around pricing, we decided to create our own and build a wider-context to the work of pricing by entrepreneurs and startups at all stages of growth. 

We looked at pricing on five different areas:  

  • Objectives; 
  • Pricing ownership within the company;
  • Process and systems;
  • Value exchange; and 
  • Role of competition.

Through our report, we want to help entrepreneurs to better understand what other companies are doing when it comes to pricing. More importantly, we want encourage entrepreneurs to take a critical look at how and why of pricing and inspire discussion on ways pricing can be improved in their businesses to support long-term success. 

So download your free copy of our report, and you’ll see how others approach pricing, and advice on ways to improve and capture more value through your pricing.   

 

Return of the P-Word

The headlines have been rough for growth startups in recent months (insert link about WeWork). 

It has been particularly challenging for growth startups and their investors looking to take their company public. For what were once the darlings of the investment, tech and media worlds, suddenly the music has started to slow, if not stopped (see Postmates). 

In some ways we’ve now reached a peak when you have a twitter battle between a prominent investor and a professor on the merits of these companies’ existence and prospects of survival. It turned ugly (or entertaining depending on your seats) when they started to make wagers online to show “skin in the game”.  

No, this post isn’t a takedown of VCs, WeWork, or any other VC-backed growth company. 

What is rising from these debates is something more subtle and important – a discussion about how businesses are grown and their pathway to profitability or the “P-word”. (Sorry, I know many were expecting me to say pricing, but we’ll get to that) 

Let’s go over how we got here and what to consider when thinking about the profitability question for your business. 

 

How Did We Get Here? 

A big part of the current debate has been around the strength of high-growth companies as a business. The concerns raised ranges from corporate governance, culture, business model and, yes, profitability (or any hope for profitability).

Many of these companies such as WeWork has through capital by investors with a “grow at all costs” strategy. Through this strategy many business fundamentals have fallen by the wayside. Greater scrutiny of how companies have developed as a commercial enterprise, beneath the veneer of technology, innovation or disruption – has been a deeper look into how, if ever, their business model will enable the company to ever make a profit. 

For anyone following how these high-growth startups that did make the leap in the public markets by IPOing has not fared as well as they did in the private markets led by venture capitalists. The price the public market is willing to pay has differed considerably to the private markets. The exception appearing to be those companies with lower profiles but are profitable. 

Despite all the bad rap many VCs and investors have been getting as of late, not all use the same strategies. Many are equal-parts about innovation, growth and basic business fundamentals. 

 

Why is Profitability Important? 

Profitability or at least the pathway to profitability asks some fundamental questions about the company. It looks at how the company is run, and will be run into the future. It’s not just about managing costs, but how equipped (and aware) the company is to capture and defend revenue growth opportunities. 

Pathway to profitability of course looks at price. Many of these companies operate in highly competitive markets with new competitors emerging. To combat this competitive environment, many entrepreneurs engage in unsound business practices such as price cuts and discounts to acquire customers. This possible because investors are willing to subsidize them and this strategy. Unfortunately, the reality is this is not a sustainable strategy to keep customers.

Evaluating the pathway to profitability raises fundamental questions about any business, and whether the business model actually works. It is is incredibly insightful into not only the current state but also where the company will go. That’s why the question around profitability is so helpful when evaluating a business and its leadership. 

 

Ways To Consider The Profitability Question Properly

Consideration #1: Remember, it is your choice, as the founder/entrepreneur, on how you want your business to grow. 

There are tradeoffs for any decision you make as a business leader. Being aware of how you want your business to grow will define the commercial strategy you pursue. This will define what pathway, if any, to profitability your company will or will not have. 

Those founders such as Katrina Lake of StitchFix, Eric Yuan of Zoom, Ethan Brown of Beyond Meat created innovative, high value companies that are profitable. 

For those who believe you can not achieve unicorn scale and be profitable look at the incumbent in WeWork’s market – IWG. It’s possible, but it takes leadership to steer the ship in that direction. 

If you are raising capital, this why the best investors always recommend founders to do as much due diligence on the investors they are seeking funding from. Everyone has their own definition of growth and success so understanding and making an informed decision is critical. 

All this requires asking yourself the hard questions. This is both empowering and frightening at the same time. Many entrepreneurs are stuck in a chicken or the egg game, where they need capital to launch or grow, but may want to grow more slow and steady. 

 

Consideration # 2: You need to build the right business model for a pathway to profitability.

There is no cutting corners on the building the right business model. It takes research and rigor to determine what model will best position your company for growth and profitability. 

One of the most common realization companies face early and often is most customers don’t want to buy their product.  This is usually a product of the data they are collecting, but more importantly the data they are not collecting. 

To make better decisions on the business model, this means collecting the right information about the right customers. You need to know what elements of your product is delivering the most value that customers are willing to pay for. You need to know what is not working in your business model, and what to build (or not) build to achieve the optimal value exchange (you give them your product, and they pay you for it). 

When you are not looking at the right customers, they are making you focus on the wrong things. So when you do invest in marketing or branding, you are making a decision on two unrelated things; which can be a costly exercise. 

 

Consideration # 3: Pricing matters.

When most founders think about profitability they look at two big metrics – revenue and cost. Except when they think about that revenue figure they only see one side – volume. 

It is often taken for granted that revenue is made up of volume AND price. This means there are two powerful levers companies can use to influence revenue and therefore your pathway to profitability. 

In a survey we conducted of more than 100 startups from pre-seed to growth stage (Series C and later), only 31% were highly confident their prices reflected their customer’s willingness to pay for their product. In the same survey, more than 45% stated they were unsure whether their customers are willing to pay more for their product. 

This is a lost opportunity for companies looking to build or accelerate their pathway to profitability. But it still remains one critical thing they can do today to change course. 

 

Consideration # 4: It’s harder (and more expensive) to create profitability using a model not designed for it.

The challenge to pivoting towards a profitability mindset is both structural and psychological. The structural challenge is that the team and the way of growing has increasingly been engrained in the way of working. Targets and incentives have been designed around this. 

When the goal has been to grow month-on-month 100%, but due to a shift in the business model or go-to-market strategy, growth “slows” to 70%. Is that bad? How does the team and stakeholders react? 

That’s when the psychological forces kick-in. As founder and CEO of Bird – the unicorn scooter startup – Travis VanderZanden says, “I’m an ex-growth guy, and sometimes it’s painful for me”. 

Profitability is slower and at times, feels like more work. It’s easier to find ways to fill all the seats in a restaurant, until you realize you made no profit and have no money to pay your suppliers and staff. In the long run, the work to install earlier components for profitability will pay off. 

 

Consideration # 5: Creating (and achieving) a pathway to profitability creates a buffer to any economic downturn.

It goes without saying that when your company makes money – profit – it will put you in an enviable position in the event the economy goes south and what was more plentiful capital starts to get harder to come by. 

More important, as an entrepreneur, you have the confidence in knowing you have a business model that can self-produce resources (read: money) needed to weather more difficult economic climate. 

 

Final Thoughts

I recognize that these views may be a less popular perspective. It asks hard questions about the company and the foundation on which it is built (or being built). 

Many of these questions have not been answered or attempted to be answered. 

But more and more companies are facing the reality that no profits or no reasonable pathway to profitability is a difficult proposition to sell. This is true for startups that have raised billions, as it does to the new startup looking for its first customers and investors. 

There is increasing scrutiny to not only the innovation and product you are creating, but scrutiny of ultimately what you are trying to build: a for-profit commercial company. 

Profitability does not mean stifling innovation and disruption. Profitability means living another day to disrupt through innovation. 

It can be a hard pill to swallow, even for the most innovative and well-capitalized companies such as Dyson. Famous for their vacuums and fans technologies, Dyson has been working on a fully-electric automobile and allocated more than $2 billion for development and production. Yet after building a team of more than 500 employees, Dyson has abandoned the plan because it was not ‘commercially viable’. No one would argue Dyson is not an innovator or disruptor. 

While not all components of the business is developed and mature, it does mean the entrepreneur is ultimately responsible for knowing (or getting to the point sooner rather than later) how to build a commercially successful business. 

As history has shown, pathway to profitability is one thing that rarely gets turned around in a good way – or without enormous pain – when the foundational pieces are not developed and managed. 

 

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Meet Event Hub: Reimagining Live Event Management

(Photo: Jamie Nassar, Co-founder and COO; Michael Bleau, Co-founder and CEO)

Last month HelloAdvisr ran a giveaway to help a startup showcase their company at TechDay Los Angeles – the largest one-day startup event in Los Angeles. 

One of our winners is Event Hub, a live event management platform looking to offer event organizers with a smarter and more powerful way to manage and execute events.  Event Hub was also a past participant of the Techstars Anywhere accelerator program. We had a chance to hear from Michael Bleau, Co-founder and CEO of Event Hub to share a glimpse into this amazing company and team! 

 

Let’s start from the beginning. How did it all start? What was the inspiration for your startup?

My co-founder Jamie Nassar and I spent several years managing brand sponsorships at live events all over the country, from marathon expos to food and beverage festivals, music festivals to parades, and everything in-between. We also spent three years as the organizer for a large charity festival. The combined experiences from both sides of the event organizer and sponsor relationship led us to realize a huge market need for a platform that could solve two major challenges. Event Hub offers a smarter way for sponsors, exhibitors, and vendors to match with the right event opportunities, and provides event organizers with a toolset built from the ground up to streamline the applications, payments, paperwork, and communication that make up an event’s relationship with their non-attendee participants.

 

What are you most proud of as a company? What sets you apart?

We are extremely proud and excited about being the first of our kind, while providing immense value to our loyal and fast-growing customer base. We set ourselves apart by homing in on the sponsorship challenge for organizers of consumer events, versus other event software companies that either serve niche verticals or focus primarily on attendee ticketing. We have built a platform capable of realizing the multi-billion-dollar opportunity that is the consumer event software industry, with software that makes event operations exponentially more efficient, giving organizers more bandwidth to close new sponsorship deals that our marketplace helps to create. Even more exciting is that we already have the data proving our model works, as our marketplace is successfully creating a network effect and driving increased sponsorship revenue across our customers’ events.

 

What are you trying to achieve at this year’s TechDay LA?

As a recent graduate of Techstars Anywhere 2019, the Event Hub team is excited to put our learnings into practice and rapidly scale up our operations. Growing our network within the Los Angeles startup community by meeting the right potential future investors and top local talent is paramount to achieving our ambition to quickly grow into a live event industry powerhouse.

 

What’s next for your company?

We are closing in fast on our 100th customer organization. Our customers, such as the Conqur Endurance Group (Los Angeles Marathon), California Wine Festival and Jive Live Entertainment in-town, combine to produce more than 300 events across the US and Canada, while our marketplace is populated by more than 10,000 sponsors, exhibitors and vendors. We are also hard at work on solidifying key partnerships with select established industry players, and event production companies with national portfolios that we hope to announce in the near future.

 

Last question! From the lessons learned and successes won, what is one piece of advice you can share with aspiring founders and entrepreneurs about building a startup?

I would say that as you get excited about bringing your idea to life, your focus and communication will be major keys to success. As a dreamer betting on themselves against the odds, you need to be able to focus on the one or two things that you should be prioritizing most, versus all of the directions you could go in. Once you understand what to focus on, communicating that plan to your team will be critical for execution.

 

Hungry For More?

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If you or your team is interested in learning more about rethinking how your company can grow, visit our blog for a range of articles from pricing to sales effectiveness or contact us to schedule a chat: contact@helloadvisr.com

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Meet Meowtel: The Sitter Trusted By Cat Lovers

(Photo: Sonya Petcavich, Founder and CEO)

Last month HelloAdvisr ran a giveaway to help a startup showcase their company at TechDay Los Angeles – the largest one-day startup event in Los Angeles. 

One of our winners is Meowtel, the #1 cat-sitting platform in the U.S.  Meotwel is a recent graduate of Jason Calacanis’s LAUNCH Program, and we are excited to hear from Sonya Petcavich, founder and CEO, to learn more about this amazing company and team! 

 

Let’s start from the beginning. How did it all start? What was the inspiration for your startup?

My childhood cat, Miss Lily. She was frequently left alone when I worked in a corporate sales role and when she passed in her older age, I felt a lot of remorse for the lack of quality care I provided to her. Cats have been historically very underserved so I wanted to change that.

 

What are you most proud of as a company? What sets you apart?

Our crazy cat-centricity. Spreadsheets of cat puns. Sharing cat client stories within our sitter community. It’s everyone’s passion for felines that keeps us tightly knit together.

 

What are you trying to achieve at this year’s TechDay LA?

Continue to build awareness in our largest market and to meet investors who understand the cat problem.

 

What’s next for your company?

Closing our seed round, scaling like crazy, and taking over the cat world.

 

Last question! From the lessons learned and successes won, what is one piece of advice you can share with aspiring founders and entrepreneurs about building a startup?

Be patient – it’s a long journey. As long as you give each day your best effort, do your best to normalize the high highs and low lows so you can end up winning this marathon.

Hungry For More?

Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company and hustle.

If you or your team is interested in learning more about rethinking how your company can grow, visit our blog for a range of articles from pricing to sales effectiveness or contact us to schedule a chat: contact@helloadvisr.com

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Accelerating LA’s Next Gen Of Startups: Bixel Exchange EIR Program

The Los Angeles startup community has been on a boom with the launch of many home-grown startups in a wide range of industries from consumer products (The Honest Company, Dollar Shave Club) to social media (Snap) to software and platform companies (Cornerstone OnDemand, TrueCar). The growth of the LA startup community and now LA as a strategic growth market for leading accelerators such as Techstars LA (HelloAdvisr CEO is a startup adviser) and 500 Startups as well as the rise of investment in local entrepreneurs, seeing a rise of more than 60% in VC investment in 2017. In addition to homegrown entrepreneur and startups, there has also been a rise of organizations helping to build and support the startup ecosystem, and one of the key organizations leading the charge is the Bixel Exchange.

Bixel Exchange is Los Angeles’ Center for Innovation and Technology and host at the Los Angeles Area Chamber of Commerce. Bixel Exchange’s mission is not only to empower entrepreneurs but to help translate entrepreneurial activities to a more prosperous and inclusive Los Angeles.

Through their Startup LAunch program, Bixel Exchange launched an Executive-In-Residence (EIR) pilot program. The startup accelerator program selected six high potential startups with seven tech executives in a 10-week intensive program for hands-on, customized mentoring covering a range of topics including investment and pitch preparation, go-to-market strategy, and customer acquisition and sales.

Bixel Demo Day 2017 Group Pic 1

The pilot program culminated with a demo day showcasing the program startups and bringing together investors, community-builders, and entrepreneurs to share the incredible progress made by each startup.

As part of this program launch, HelloAdvisr Founder and CEO, Ed Lee was honored to be invited to be an inaugural EIR advisor. Ed shared his expertise in pricing, monetization, go-to-market to the teams and program.

We are excited to continue to be on the growth journey of the current startups in the current cohort as well as the growth of the program and mission of Bixel Exchange!

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More About Bixel Exchange

Bixel Exchange focuses on the rapidly evolving segments of the high-tech ecosystem, including adtech, clean tech, digital media, gaming, mobile and social media. Bixel Exchange serves entrepreneurs by working with accelerators, incubators co-working spaces, venture capitalists, angel investors and private equity firms, universities, research institutions, innovation labs and government. To get to know Bixel Exchange better, check out its programs, events and partners.

How to Prevent Your Growth from Going Flat

You’ve come up with a great idea and built an awesome product or service. You’ve won customers, some who actually pay you in more than fandom and gratitude (read: money). Best of all, you’re getting customers excited in volumes you never expected.

Great job! So what’s next?

Don’t let growth go flat

Building a company is an interplay of both the short- and long-game. While the burst of speed may feels great, it’s vital to keep a critical eye on what is fueling this growth.

9 of 10 startups fail (vs. 6 in 10 restaurants) and it’s not because these companies don’t know how to get out of the gate quickly. According to some VCs, failure is built into to their investment assumptions by expecting approximately 1/3 of companies invested will effectively not create a material return. Put another way, a company’s backer is expecting failure.

Look a bit deeper into the causes of failure, and 3 of the top 5 cited reasons are core go-to-market capabilities: pricing, proper market assessment and research and preparedness for competition. These are all things companies can proactively improve on, but it requires focus and planning.

It’s in these moments entrepreneurs need to scrutinize their growth to assess and learn, fill gaps and iterate as quickly as possible. This means asking whether the right type of growth is beng achieved including:

  • Is the growth sustainable?
  • How much of our growth is due to my pricing?
  • Are customers buying into the value proposition?
  • What questions should we be asking customers for our commercial decisions?

Preparing the company strategically and tactically is a critical action companies can take to defend against stale growth and here are two areas company leaders can focus on immediately.

Be relentless about your value proposition  

In an interesting conversation with the chief of staff of a public figure here in LA, we began talking about the productivity tools his team used and the companies behind these tools. He began sharing his experience using a particular SaaS product for their digital marketing and CRM from a fast growing VC-backed startup.

What began as just a simple product overview became a indictment on the product (and company’s) value proposition. He simply didn’t see the value why his office was spending more than 3-times more per month versus comparable products. He did not see the value and was instructing this team to begin transitioning out of the product and cancel their subscription.

At minimum, this startup didn’t sufficiently communicate their value proposition relative to price. Bigger picture this raises the question of when their pricing was last reviewed, sales account management and how this will impact related customers. Now the startup is on the brink of not only losing a customer and the recurring revenue, but also the bad word of mouth review, which is equally bad.

As an entrepreneur, delivering value and benefits must be in the DNA of the product and a critical component to the company’s success. Do your customers understand the proposition to the point they open their wallets and not only pay, but will potentially pay MORE (versus alternatives)?  Can you help show customers the value if it isn’t clear already?

One simple exercise is to start is matching the benefits your company believes it delivers to customers and compare against the benefits customers (paying and not) believe they receive. More often than not there is a mismatch. But this is an important learning to reshape the marketing and sales pitch as well as the offer and pricing presented. It’s vital to understand if you’ve actually sold your value proposition – the ‘why’ you’re better than other products or services – or if what you actually sold is a one-time deal or promotion.

Identify capability gaps to monetization and pricing

I once had a entrepreneur who reach out to me for growth advise for her platform startup. When I asked her how I can help, she said simply ‘I need to know what I don’t know’.

It’s this type of gap analysis many entrepreneurs and startups don’t do especially when it comes to pricing and monetization. This is even more true when things appear to be going well, but I’d argue this is precisely the time to look at current processes, skills and tools.

For startups and SMBs, resources are limited so any given individual or team is often responsible for multiple functions. In the early days, rationing resources is critical, but much like how marketing or sales experience is vital to growth, so are developing skills to monetize and price.

If you’re not yet monetizing…figure it out. This doesn’t mean put a price tag on everything, but it does mean honestly determining whether you’ve created enough shared value where both the company and customers are able to benefit.

It also means identifying where value is created for customers (read: why they love your product) and ultimately assessing whether there is a price they are willing to pay.

There may be a friction point too high to monetize or may be inopportune to attempt to monetize now. That’s ok. The bigger concern for leaders should be not understanding that this fricition existed at all.

But beware, because waiting too long to monetize – if this is the what is ultimately what your company plans to do – can also create future challenges. As customers use your product and understand your company, they build ‘institutional memory’; a level of expectation of what your company will deliver.

Pivoting away from this institutional memory creates new expectations and interpretations of value. So companies need to figure out what process is needed to to execute – marketing, sales, PR/communication, customer service – and what capabilities need to be developed or acquired.

Pricing is one of those activities that requires all corners of the company so leaving this to ‘the person who does pricing’ leaves open risk of delays, incomplete rollouts and worse, unhappy and confused customers.

If you are monetizing… is this where you need to be and is it sustainable? Your customers now have a point of reference of what is the price for the benefits they get from your product. Is this develop and structure of pricing enough for your company strategically? Financially?

Pivoting from what was ‘good enough’ pricing or a monetization strategy sufficient to go-to-market must be thoughtful and planned. Doing otherwise can not only hurt growth, but also upset the crticial trust equity your company has built with customers.

Customers don’t like change if it mean it’ll cost them more and the value-added benefits aren’t clear. Larger companies can (but sometimes barely) weather the ‘pivot storm’, but for startups and SMBs, this can truly be costly.

The best market making companies like Amazon and Starbucks get ahead of the curve and not only build capability, but install it into their culture very early on. Postponing can create an opportunity cost to growth. Even the nimblest of companies move slower when they gain scale with more opinions and stakeholders to every decision.

Your monetization model should always be evolving, but how well it evolves will depend on your company’s ability to develop the required capabilities to execute.

 

Final thoughts

All the effort to get your company and product to where it is now must be applauded, but this is the beginning.

There are no short-cuts to thrilling customers and winning your market.  You will have to constantly strengthen all facets of your business.  What you’re working towards is a strong(er) FUTURE position and focusing on what’s driving your growth is critical to ensuring the growth you’ve achieve doesn’t go flat.

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.

3 Pricing Misconceptions Entrepreneurs Need to Avoid

As consumers we’re constantly surrounded by pricing. Pricing when grocery shopping. Promotional signs in the store window. The latest email offer. With all the prices we see, it’s natural to build a comfort level with pricing and the purchase decision process. After all, we’re asked to compare offers, make tradeoffs and assess whether the price is ‘worth it’. Then why do entrepreneurs struggle with pricing?

We attribute this disconnect to misconceptions of how prices are set and managed. What we see time and again, is this perception that pricing from the entrepreneur’s consumer experience can be translated over to the commercial side of their business. The unintended consequence is the product’s value is under-marketed and -sold, and ultimately monetization and growth opportunities are missed.

Here are 3 common pricing misconceptions we come across working with entrepreneurs and companies.

 

Pricing is a benchmarking exercise

This is one of the most common misconceptions of pricing. There is a perception that prices are set and managed by benchmarking; if you know what others are charging then you know what to charge.

The problem is the thinking is counterintuitive. If your company is selling something – a product or service – that is ‘disruptive’ or better than the rest, then why do you allow the competitors you’re ‘better’ than to set how much you monetize?

In a conversation with one startup founder building a consumer service platform who explained they ‘mastered’ pricing because their company was ab/le to automate the benchmarking exercise with his primary competitors. There were three questions raised by this method:

  • Are the benchmarks ‘correct’? It was assumed the competitors he was benchmarking actually had the ‘right’ price compared his service. What he collected was what he believed were ‘market’ prices, but customers were still unfamiliar with the product, so much about the customer, offer and lifetime value is unknown.
  • Are the company goals the same as benchmarks? The goals he was trying to achieve differed from what the other, more established, competitors were aiming to do. He wanted to be premium versus competition and wasn’t interested in capturing a disproportionate segment of the market. This contrasted greatly with his market share-minded competitors.
  • Are the company’s products the same as benchmarks? He listed no fewer than 8 reasons why he believed, and states his customers agree, his service was superior to competition. Why then would he price his service or base his entire monetization model exactly the same as these ‘competitors’?

It would be a shame for so much value created in such a cool product be lost this early on, simply because the founder was going to follow what his competitors.

 

Pricing is just a number

Entrepreneurs often view pricing through their consumer experience and perception. The number paid for a cup of coffee, streaming video service or gym membership. Many companies and brands have been very good at giving a sense of price stability and predictability, so when a price change goes wrong, customers let the company hear it.

The problem, and where the misconception lies, is the belief that the objective of pricing is to solely get to a number and then ‘set it, and forget it’. The reality is pricing is more fluid than most entrepreneurs (and consumers) believe. The very best companies are actively managing prices as the value of the product changes.

One example is how Apple prices older generations of its iPhone or iPad. When they launch a new model, they recognize the value for their older generations are lower (also lowering demand) therefore lowers the price. In addition to older products, Apple is also differentiating newer models from a price perception perspective. They are ensuring the value gap with their newer products is sufficient and understandable for consumers.

What is key is matching consumer value to the prices set. This goes beyond just identifying a static number, but understanding both prospective and current customers on what drives their willingness to pay for your product (or not).

 

Pricing is easy

There is a beautiful imperfection to pricing that’s both rational and irrational. This doesn’t mean its ok to get pricing wrong. It certainly doesn’t mean pricing is easy.

One of the reasons why some companies are world-class, industry-defining or [insert your own description of awesomeness] is because these companies understand, among other things, pricing is not easy, but it’s important and to do it well it comes with work.

To be fair, for growing companies, nothing is easy. So much is learn as you go, including pricing. What is vital is recognize how much more complicated pricing becomes as the company grows. Not just the more technical components of setting prices, but also the execution and maintenance elements:

  • Is the Marketing team clear about how they will communicate the product and changes in price? Benefits and value?
  • Is Sales equipped to have difficult conversations to argue for higher/lower prices when speaking with prospective (and current customers)?
  • Is a consistent message in place if customer service receive inquiries about pricing?
  • Who on the team will monitoring pricing?
  • …

Like all things important to the company, pricing is not easy with many moving parts. The larger the company grows the bigger the challenge. Building not only the infrastructure to set prices, but components needed to monitor and maintain prices is not easy, but essential to win.

 

Final thoughts

Pricing carries with it many misconceptions that start from our lives as consumers. Yet continuing on this path can be harmful to the value entrepreneurs are building each day in their company and product.

Short-term, monetization opportunities can be lost, revenue growth not fully realized and development of necessary management processes are slowed. Longer-term, coming back from pricing mistakes and corrections carries both a financial and growth liability as well as a reputational and brand cost with customers and the market.

Being proactive is key and starts with the business leaders of the company to recognize gaps, and develop not only the technical component, but the processes and culture to actively manage pricing as a key competitive tool.

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.

What Makes LA a Dynamic Tech & Startup Hub

HelloAdvisr CEO Shares His Thoughts on What Makes LA a Dynamic Tech and Startup Hub

HelloAdvisr Founder and CEO, Ed Lee, recently shared his thoughts on startups and tech in Los Angeles in his latest blog post,  “What I Learned About Startups and Tech in LA”.

In his latest post, he explores the rich qualities that make LA a great location for startups and innovation-driven companies. He highlights four areas that makes Los Angeles a unique tech and startup hub.

One of the key topics introduced is the discussion the ‘company-builders’ vs. ‘business-builder’ dichotomy. Here Ed talks about his experience not only with startups but with large established companies and challenges delaying revenue model innovation.

Want to learn more about LA startups? Do you have questions about pricing and revenue innovation? We’d love to hear your comments and questions.

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