A Startup Guy

One of the best pieces of advice I ever got before launching a business was, “Be sure you have something to sell.” Makes sense. And yet so many Internet entrepreneurs ignore this simple advice.

I think part of the problem is that our point-of-view has been distorted. We often see things through the lens of successful companies like Google or, worse yet, Twitter. Google made money from search – LOTS of it. Twitter still has no discernable business model. And yet they’re rolling in cash. So lots of startups take the stance that they’ll just launch and figure out a business model later. Or figure they’ll get rich from selling ads like Google.

Here’s the truth of the matter. Once you launch, you’re going to be insanely busy. If you can’t figure out a business model in the calm of business planning, you’re not likely going to have time to figure one out in the midst of startup chaos. You need to have a plan on how you’re going to separate your users from their cash. That plan may (probably will) change somewhat after you launch. But you need something to start with.

Even Google couldn’t survive on search. They had to institute selling ads to make money. They are now, essentially, an ad company that uses search and information organization to draw in attention for those ads.

For many startups, the “punt” answer is to sell advertising. Take it from someone who learned the hard way. There is lots of money in online advertising, and most of it already goes to just a handful of companies. You must have thousands, if not millions, of visitors to even begin to make this business model worthwhile. Google succeeded at this because they were first and got it right. A handful of others have picked up enough of the leftover scraps to make it worth their while. You’re too late! It’s already a mature business that is not growing much any more. If this is your business model, STOP NOW! Revise your model to actually have something to sell.

Invest the time now to create something people want to buy. It will make your crazy startup life a little easier later.

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Setting a price for your products or services can be a real challenge for entrepreneurs. What’s a good price that will attract customers, but still deliver an attractive profit for the business?

In past decades it wasn’t quite as much of a struggle. Businesses would frequently just use simple formulas. Cost plus x% for profit margin gives you a price. Want to be the cheapest? Just price your product x% lower than your competitors (without taking a loss). Formulas can still be extremely helpful, but we have a myriad of additional options, features, prices, sizes, colors, flavors and even peer pressures to consider that weren’t as much of a factor in the past.

This is the challenge I’m facing right now. I’ve got a product I designed a year ago and put on the shelf, ironically enough, because of pricing issues. My profit margins appeared to be just pennies if I was going to price my product competitively. However, it’s such a fun product that I’m revisitng the business model again. Has anything changed? Yes, me! I’ve come to realize that I’m offering something different, so I don’t necessarily have to reflect the pricing structure of the big, established brands. In fact, not doing so will help to differentiate my product even further.

Another option would be to find a way to bundle my new product with some other product(s) that are inexpensive for me to buy, but carry a higher perceived value. We used to do this all the time at another company I worked for. We could package our products with cassettes or CDs that we bought for less than $1, but carried a list price of $9.99 & $14.99. Suddenly, our $20 product was worth $40 or $50 as a package, but our cost was only a couple dollars more than the single product alone.

So, with a couple more hurdles to leap, it looks like I may be able to finally roll out this fun product. So, what’s my pricing strategy going to be? I’ll be using both of the above strategies – x% markup initially and find items to bundle to improve value and profitability. Wish me luck!

One more thought, I’d rather price a bit to high initially than too low. Why? It’s harder to increase your pricing without a good reason for your customers – especially if your product is fairly new (see iPhone). Permanent price reductions (not temporary discounts) are always welcome by customers.

Do you have a set pricing strategy? Feel free to add a comment and share it with us.