Episode #0113 - Pricing advice for start-ups

In today’s episode, we want to explore the world of startups and I supposed at Taylor Wells we got asked or approach by quite a few startup businesses and the early stages of development with questions about pricing advice and pricing strategy and how start-ups should price. And I suppose we just really want to explore some of those ideas today and maybe just discuss some ideas.

TIME-STAMPED NOTES:

[00:00] Introduction

[03:00] What’s our advice on issues regarding pricing for start-ups?

[12:19] How can we advice start-ups in discovering value in pricing?

[16:57] Would you advice implementing various pricing strategies for start-ups?

[22:01] Pricing Advice For Start-ups: Don’t lose data. Keep learning, testing, and trialling.

Pricing Advice for Start-ups to Kick-start Their Growth

Especially quite recently. We’ve had a number of questions and inquiries from startups. And we’re talking about startups, people that are literally coming up with new business ideas. And often, it’s the first time that they’ve done that and they’re trying to launch either a new product.

Now, this could be ranging from, you know, an FMCG good product or you know even a Saas type product and you know, they come with legitimate concerns often they’ve heard the podcast and there’s thought, you know what, I never really considered any other approach to pricing, other than thinking about costs and putting a markup on the cost to give me that margin that I need to cover my costs and get revenue in through the door.

And I never really thought about value-based pricing but it really did change my viewpoint, not just on the price point, but also it gave me a new perspective on what I’m trying to do in the market, my business model, how I’m going to generate revenue, what the sources of value are that are going to help me do that and cover my cost, how I’m going to work with suppliers who my target customers are.

All these new and very important ideas came almost flooding in people’s heads after thinking about value-based pricing and, you know, we just going to explore today, you know, a little bit more about pricing for startups and a few techniques just to help people make those first few steps because it doesn’t have to be a difficult journey or long drawn-out journey, you can start pricing immediately, even though sometimes you think “God I’ve got so much else to do. I’m just going to get money through the door”, type of approach.

It’s clearly, you know, we’re not gonna go into cost-plus pricing on this podcast, but clearly for a start-up, it’s even more exacerbated.

You know, if you make one item, you know they’re your cost base is going to be higher than if you make a thousand. So, you know, as you grow in scale, do you intend to reduce prices? So, that makes no sense.

But clearly a start-up even number of issues that will make pricing more difficult: A) there is no right price for your product. At the beginning, you don’t know what a value provides to your customers you might have an idea, you might have you know obviously you’ve got your pitch deck and you’ve got your ballpark figure and your idea, your elevator pitch let’s say, you know and you thought about why you’re getting into the business and where you fit in the niche. But realistically what’s that old saying?

Everyone’s got a plan until they’re partially on the nose. I think Mike Tyson said and you know until you go out there and made customers and really get into the market you don’t really know, you look at statistics, how many companies, how many start-ups pivot?

How many really hit a niche and really make money it’s limited obviously we don’t want to put people off from starting up but you know those things have to be borne in mind and when you’re looking at pricing, that is the issue.

They are, you don’t have enough information at the beginning, there’s no saying that trying to get some customers, trying to get out there with some customers. Realistically, I don’t think the price of the beginning, we’ll get into this a bit later, but just winning customers is very important. Because then, you can explore value, it’s a value discovery process.

Almost look at it as a subsidized value discovery process where a customer is almost paying you, it may be too much, or it maybe too little, but hopefully they’re paying you and then you can explore and learn about your own business. So that’s the first thing I’d say, clearly, It’s very important to get customers on board. The second thing I say, unless you have funding and we’ll talk about, you know, series A or a large amount of funding, it is highly unlikely to have a pricing manager.

Let’s be honest. Most startups at the beginning have very limited revenue, and a good pricing manager’s salary probably will be quite expensive. So, you’re going to be doing an ad hoc, you’ll be doing it in-house. Probably the startup. The founder would be doing the pricing and so, you know how much attention you can really give the pricing at the beginning is limited.

I totally disagree with the point that, you know, people often come into the business with a really good plan.

In my experience even consulting with major corporates, medium-sized businesses, even you know, blue chip companies, often the surprising point is they don’t even have a plan when it comes to pricing or even their business strategy.

What they’ve actually got is a very flimsy outline of what they kind of want to do. Often the key question of, Why are we selling this product? How do our customers value this product? How do they perceive and value us? What are important in the eyes of our customers? How good are we at delivering what customers value? Are things that are hot, not addressed in, I would say, 98% of business strategies, even though that’s the most important questions you should be asking.

So, I would say, most startups don’t have a plan either to be fair. And really, there’s a little bit of hope and a prayer that this product, this new business is going to solve a gap in the market without actually, as Aidan said, approaching customers and seeing, you know, giving it that, you know, testing our assumptions.

Pricing Advice For Start-ups: Testing out, let’s call it a hypothesis about what we think we’ve got and how valuable that is, in the eyes of our customers.

Because essentially, if you’re going to get investment from private equity, seed investors, they’ll be asking that. I mean, because it’s the central aspect of a business, a new business model and operation system or it should be.

And if you haven’t got clear answers on that, you’re not going to get the funding and that brings me back to what I was saying before. You know, a lot of startups have come to us and even with you talking about value-based pricing, it made us think about value.

And it made us think that there was that major Gap in our business thinking, and our strategy, which has, in turn, delayed other things, not just pricing, but even you know, how we go and approach, our customers, our pitch, what do we say to them? You know, what is that compelling message?

All of these things, you know, were sort of underbaked and then have been preventing people from launching. So like Aidan was saying, let’s go back to basics.

Let’s ask and turn these questions into hypotheses and start going back and thinking about who our target market is.

Can we think about the personas of these customers, that would want to buy the products we’re trying to sell? How are we going to communicate that offer to them? How are we going to make it easy for them to buy from us? Now, these are the questions, like you’re not going to have the answers and don’t fear not having all of the answers.

When you approach your customers, the key here is to have some hypotheses in mind about what you’re doing, and what the value of the offer is, right? When you go in to speak with a customer. But then ask the questions and then listen. Listen, very very carefully to what they’re saying to you. What you will find, is that some customers that you’re talking to are really not your target market.

Even though you thought they were whereas other people really are potentially changing your viewpoint on your initial business model and plan and then iterating from there. This is the fundamental aspect of value-based pricing and as Aidan mentioned we call it a value discovery process, but really it’s essential. It’s an activity that leads to profitable revenue growth and it’s one that’s often ignored and skipped but it’s the central aspect of any pricing model and of any business strategy.

Pricing Advice For Start-ups: Let’s be honest at the beginning.

For anyone who’s ever started a business, every single interaction with a customer, feels like life and death. You know, you stressed about them.

You dig into too much, you know, all those are those interactions statistically valid, you know, is it over time when you scale up your business, you know, will that apply across a larger number of customers? Those questions have to be decided. I suppose at the beginning you have to have a ballpark figure.

As to what value you’re providing, you know, are you aiming to be the cheapest in the market and undercut traditional operators because of your cost of operation, you know, is that your model? If that is the case, likely, then you probably will be cheaper if you’re cutting costs; if you’re value-added or you’re cutting costs? If you’re value-added that you’re offering, we’re more features and benefits, you know, then you probably can be charged more than o