Figuring out how much to charge for a new product or service is absolutely one of the hardest things to figure out.
Charge too much and you may miss the market.
Charge too little and you might leave money on the table.
There is no one answer to the pricing question for startups. That is why I absolutely love the insights shared by Chris Dixon in a blog post he titled Pricing to the Demand Curve.
In this post Dixon gives us a quick lesson in economics 101. He states:
the goal of pricing is to capture as much area under the demand curve as possible. In practice, the best way to do this is to find proxies for willingness-to-pay that are easy to observe and that customers will accept.
Dixon’s post is well worth the time spent understanding how the details apply to your situation.
These days, its cute to announce that you are launching a startup. It’s almost like a 12 year old girl and her little brother starting a lemonade stand to guilt trip their neighbors into giving them 50 cents on a hot summer day.
Ohhh, how cute… Another startup launching a photo sharing app, a check-in app, a group chatting app, a daily deal app…
No matter what your startup is, there is somebody out there doing the same thing right now.
More people are starting businesses today than in any other moment in modern history.
What you need to differentiate yourself is a Big Hairy Audacious Goal that no one else could imagine, and none of your competitors could ever achieve.
If you haven’t studied the idea of setting a Big Hairy Audacious Goal, then you should read this quick summary on Wikipedia.
In short, I propose that startups going after an idea in a crowded market use the idea of a Big Hairy Audacious Goal to discover their Unique Selling Proposition.
In order to do this, your Big Hairy Audacious Goal cannot be something generic like getting to 100 million users. Who cares….
It must be something that is not only big, but something that uniquely defines why the existence of your startup will change the world as we know it.
Once you combine your Unique Selling Proposition with your Big Hairy Audacious Goal, then come up with a step by step process to go after it.
Set a goal to change the world, create a plan to do it, then do it.
It has become extremely sexy (and annoying) for entrepreneurs to throw out the buzzwords from the Lean Startup movement when talking to other entrepreneurs and investors about their venture.
For one, 80% of the people who use these words have never read any of the foundation books that cover the topic. For two, 99% of people don’t know what the hell Lean Startup really means.
The most abused term in the Lean Startup buzzword briefcase is Pivot.
I found a great blog post from the Godfather of the Lean Startup movement Steve Blank named Vision versus Hallucination – Founders and Pivots that provides awesome insight into Pivot abuse.
A pivot is a substantive change to one or more of components to your business model. You’re using “Pivot” as an excuse to skip the hard stuff – keeping focused on your initial vision and business model and integrating what you’ve heard if and only if you think it’s a substantive improvement to your current business model. There is no possible way you can garner enough information to pivot based on one customers feedback or even 20. You need to make sure it’s a better direction than the one you are already heading in.
So next time you even think about using the word PIVOT in a conversation about your business. STOP. Go read then reread this post from my man Steve Blank then reconsider whether or not you are really doing a pivot.
Aren’t we in the business model generation? Whenever an entrepreneur brings up their new venture, there’s always some smartass in the room who wants to question your business model.
Next time this happens, tell that spreadsheet jockey to hold his horses. The business model is not the first thing on your things to do list when you start your new venture.
Fred Wilson does a great job breaking this down in a post he wrote in his blog titled: Product > Strategy > Business Model
Based on the title, you can see Wilson suggest that business model discussions should come only after the product and strategy are completed. He states:
We have also had many portfolio companies build revenue models that did not line up well with the strategic direction. And in some cases, the companies really did not have a well articulated strategic direction at all. That led to a lot of wasted energy building a team and a customer base that ultimately was not of value to the business. We have seen teams walk away from parts of their business because of such mistakes.
If you don’t have a strategy yet, but have already decided on who and what you are going to charge for you product, then I suggest you go read both Fred Wilson’s post on this topic, as well as go read a follow up post from Mark Suster riffing on what Wilson shared in his post.
Think chess, monopoly, spades, poker. Entrepreneurship is a strategy game no different than any other strategy game.
Every strategy game has 4 components: rules, tricks, best practices, and NO NOs.
Do you know these 4 components of entrepreneurship?
A great starting point comes in a blog post written by my man Charlie O’Donnell on his blog This is Going to be Big.
One of the 10 strategies Charlie shares is:
4) Don’t look at the leaderboard: Other people will be dramatically more successful than you–to the extent whether they’ve discovered a cheat or are playing a different game altogether. Don’t worry too much and focus on your own game.
Go check out his post titled What Playing Dots Can Teach You About Startups to get all his brilliant insights.
Mentors, mentors, mentors. Everyone is telling you that you must have a mentor if you want to be successful.
Now you have one and, Nothing. Has. Changed.
He or she is not helping you fast track anything…
As a matter of fact, your mentor has more questions than answers. WTF!
Last night I came across a few very good recommendations from the CEO and founder of Cheezburger Inc., Ben Huh. He did a post on the Wall Street Journal’s Accelerators blog on the topic.
Huh States the following:
There are three things to know about having a great mentor relationship:
1) They won’t give you the answers.
2) They’re just another data point.
3) Ask deeper questions.
Huh then goes on a little deeper into each of his three points above. If you need to get more from your mentors, then you should go read this post on the WSJ blog right now.
The concept of a pivot is hugely popular in the Silicon Valley startup community. So much so that it has begun to permeate the entire fabric of entrepreneurship around the world.
At it’s core, a pivot is a change in your business model, market, or solution in order to increase the chance that your business will take-off. For example, one type of pivot is that you could keep your market and solution the same, but change your business model.
Another type of pivot is that your business model and solution stays the same, but you change the market you are going after.
You can figure out the different scenarios you could create around these three pivot points. But in addition to these scenarios, there are also several more nuanced forms of a pivot. One of which is the zoom in pivot.
A zoom in pivot is when you take a single feature of your product and then make that feature your entire business.
Andrew chen does a great job elaborating on this idea of zoom in pivot on a blog post he titled Does your product suck? Stop adding new features and “zoom in” instead.
Chen states the main reason to use a zoom in pivot is if you experience the following scenario:
after a new product is launched, there’s a Trough of Sorrow where features are often added to try to spark traction. After a few months of this, and a few shifts in direction, it’s easy to get a Frankenstein product that tries to do too much.
Chen goes on to give a pretty good overview of how to launch and test the feature you are going to zoom in on. Check it the full post on his blog.
Focus is a major theme any savvy mentor will school a new entrepreneur on. The ability to focus is so critical, it typically decides the winners and losers in every industry. The reason for this is two-fold:
- If you are a jack of all trades but a master of none, then no one will know why to choose your business over a competitor. This is a recipe for mediocrity
- If your focus is wrong, the entire market could pass you by
The secret is that #2 is less risk that #1. It is better to focus and potentially miss the market than to have a mediocre business that goes sideways.
Why? Because focus is a necessary ingredient for hitting a homerun.
I found an excellent post covering this topic on the Openview Leadership Lab blog titled Get Disruptive: A Bold Strategy for Taking Down Your Big Competitors. The key takeaway for that blog post is the following:
What happens when you take a magnifying glass and focus the sun’s energy on a single small spot on the ground? The spot burns.
The same fundamental principal applies to the way companies leverage their internal focus, talents, and resources.
The Openview Lab’s post goes on to provide 4 tips to help “ensure you’re aiming your magnifying glass at the right target.”
Please read the full post here to help you digest this critical concept.
One of the hardest things you must do as an entrepreneur is recruiting people onto your team. Not only is this process time consuming, but most new entrepreneurs are not that experienced with identifying the Lakers from the Fakers.
What’s more, you may identify a super smart individual with ton’s of talent, but they might still be the wrong fit for your venture based on your current stage. By stage, I am referring to the three stages of a business identified in a Forbes article I was reading this morning: starting, transforming, and sustaining.
This Forbes article is titled The Key to Turning an Entrepreneurial Venture into a Real Business. The key takeaway from the article is that there is a
need to have different people at different stages: starters to prove the technology, transformers to take the technology to market, and sustainers to manage the business on an ongoing basis.
So the secret sauce for you is that you must be able to recruit the right people to help you with the business during each stage of your business. The right people for the starting stage are likely not the right people for the transforming stage.
To get more details and real world case study that brings to life this principle check out the Forbes article here.
This is a very intriguing question. Intriguing in the sense that most small business owners would call themselves entrepreneurs, but not all entrepreneurs would call themselves small business owners. Not even if their revenue is small enough to qualify as a small business in the traditional sense.
Seth Godin touches on this topic on his blog in a post titled So, what’s wrong with small business? Godin states
The distinction I’ve always made is that an entrepreneur is trying to make money while she sleeps, and does it with someone else’s money! That she builds a business bigger than herself, that scales for a long time, that is about processes and markets. A small businessperson, on the other hand, is largely a freelancer with support, someone who understands the natural size of her business and wants to enjoy the craft of doing it every day.
I think it’s critical that you know what type of business you are building. As this will drive many of the trade-offs you must make in your business model.