Friday, August 9, 2013

Hey Entrepreneurs: Don't Forget That The Market Sets Your Price

Every now and again, I get to hear an entrepreneur's "Here's How I Made It" story.  If life had a TiVo button that let you skip through the fine details, each story could be summed up very quickly as such:

(1) We were crazy kids with an idea...and everyone said it would never work!
(2) We were living off Ramen noodles and Timmy's credit cards...one of the co-founders bolted for Goldman with 1/3 of our equity...so make sure you vest!  
(3) We miraculously got funding in the 11th hour (from an investor or an early client)
(4) Next thing we knew, we were being profiled in BusinessWeek
(5) Now I'm back to tell you that it's all about your values and your corporate culture
(6) Looking back, we charged too little for our service/product at first.  

Item #6 makes me think of an Onion headline I just saw, "Winning Powerball numbers seem so obvious in retrospect."  

Well, duh.

Onion headlines are designed to make us laugh, whereas "Here's How I Made It" stories are meant to inspire.  When I hear the guy who just rang the bell at the NASDAQ throw out item #6, though, I laugh.  

If someone calls me and says, "I would like you to do [this] for our organization," I think I should do it for an agreed-upon price unless there's a clearly more lucrative alternative for that specific point in time.  

The "agreed-upon price" might not be what I fantasize about on spreadsheets, but it's the here-and-now answer.  

If the call ever comes in from State Street, GE, or Gillette, the conversation would probably go in a very different direction.  And as much as I might fantasize about those calls, that's not who I just heard from. 

Who I DID hear from, though, is someone who works for the town where many of the execs of the aforementioned firms live.  

Terms were offered, and the answer was an unequivocal, "Yes."  

Not because I'm undervaluing my time or my skills, but because I'm self-aware enough to know that it was the right answer to the question being answered.  

So if I ever get invited back to the give the MBA glory talk someday, I'm not going anywhere near #6.  I'm going to say, "For some products and services, you need to light the fire and then constrain it geographically. Inside that area, you need to nurture it and let others add new kindling and throw the easy combustibles on top for you.  Sometimes, the way you do that is by scarfing a slice of Humble Pie that's nearly the size of the plate in front of you.  From there, just focus on your month-to-month revenue growth, tiny as it might be at the time."  

And should you ever find yourself in need of further inspiration:


3 comments:

kad barma said...

Just a thought: Markets are funny, in that not everybody in one will respond to the same price, even though the overall market does set one for us all. The observation is that when you have the only mousetrap, even relatively speaking, if you can only sell to a few, why not sell to those willing to pay top dollar, and will do so happily?

I once sold a house in Stow that was extremely unique. (Lots of land, protected from contiguous development, etc.) The "market sets the price" real estate agents all wanted me to list closer to the price of similarly-sized houses, which I'm sure would have been successful. Instead, I went for the agent who said that there would be buyers out there for the unique qualities, and though we would have to work hard and be patient to find them, we could get a much higher price than similarly-sized houses get elsewhere. We endured a fair number of "that's too much" tire-kickers. But we got our asking price, and an extremely happy buyer.

Knowing your value and not giving it away is important in low-supply situations. It also can help to set the market later, and give you plenty of opportunity to goose demand with special deals and price cuts later, when you have the capacity to profit by them.

kad barma said...

Which is also to say, this is not about gouging. It's about knowing your value, and connecting to people who value it the same way. ESPECIALLY when you're starting out and have fewer customers. Lots of people think cutting prices is the only response to a slow start, but I'd say in most of these cases, it's not the price that's too high, but the communication of value that's too low. I think #6's are a reflection of that.

Sell value, not price.

The New Englander said...

Kad,

Thanks for adding the price/value distinction into this.

In my case, I've been spending time fishing in a pond in which a) the fish are plentiful, but b) they are rainbow trout.

I agree with what you're saying, and I like your point about the house in Stow, esp. when it can be applied to "high-payoff targets."

The internal pivot I need to make is to start thinking about whales, or at least marlins.

Fishing for rainbow trout satisfies my need to "do something" but might not be the wisest overall course.

Still, w/a nod to Mr. Rumsfeld, I have a ton of "known unknowns" and "unknown unknowns" swirling around right now. There's a serendipity factor that kicks in, and it's hard to know where that kick is always going to go...