The leading cause of startup death is a low-ball price

A startup cannot defeat the entrenched market leader by low balling the incumbent’s thriftiest clients.

This may be a strategy that anticipates converting those new clients over time to profitability. Maybe. Big gamble that may not endure economic boom and busts.

Low-balled clients are always in pursuit of the cheapest vendor.

It is my experience that a new entrant cannot win a war of attrition because the market leaders are profitable. They have all the levers that can end your fall campaign violently by using pricing, marketing and sales brute force.

Startups are cheap to launch into space but it’s expensive to maintain an orbit. Getting a second chance at ‘right pricing’ is rare, like a fighter losing the first fight and begging for a rematch.

Forget the pricing schema that you plotted with bluster and optimism. Scrap it and start on a blank white board and work price backwards.

The ‘lifetime value’ of a client only works when the client is retained ‘for a lifetime’.

Raise your prices by 20% immediately and staff for client intimacy. It is the Achilles heel of the market leaders.

YCombinator guides its companies to build clones of the market leaders, then flood the market with imitation products.

They price themselves the way they see the topography of their world. They rely on the generosity of their clients, “how much do you think we’re worth?”

Each prospect has someone whose job description includes vendor management. They want to be recognized from up high as someone who ‘can negotiate well’. It is a treasured part of their identity. That same person is a stoppable force that wants to meet an unmovable object. They will respect it and not do continued battle they will instead look for a resolution, the value not on a spreadsheet.

It is your job to give them what they want. We need to raise our price, our goal is 300%.

Higher price implies ‘better’. When evaluating vendors they will see a difference in price as ‘why does this vendor charge more‘. 

People drive expensive cars because they want to be seen, if only by themselves, as someone of distinction. A company also desires this recognition. They want their internal clients, what we call employees, to perceive their employer as caring, offering them the best, making an outsized commitment to them. They want employees to brag to their peers ‘my company is better than yours’. That is a part of the employee’s identity. I choose my employer. It is this way with external clients. ‘We aligned with this vendor because we value all those benefitting from our decision’.

You are fixated on what the competitors do:

• What they price
• What is the industry norm
• What unique service do they provide

You assume that they are right, that they are smart.  That merely by their continued existence their strategy and tactics should be replicated. That you’re pitch is ‘same but cheaper’ and ‘ours is more beautiful’.

You have become trapped within the narcissism of small differences

The process of raising prices by 300% begins within you. Why did you spend more in the past. In a choice, why did you pick the higher priced. Why did you buy the Peloton bike and not its lower priced, and equally reliable substitute. Consider why people pay more:

• People pay more for intimacy
• Vanity is personal. It is also corporate
• People pay more for impeccable and thoroughly professional presentations
• People pay more to relieve themselves of all the burdens of selection and purchasing and implementation

The End?