Pricing for Value… not Price

You have spend nights, tears and money to develop a fantastic new Product. Excited, now getting ready to launch it to the market, but there is a big unknown: PRICE! Establishing the right pricing is one of the most critical step for your Venture. Unfortunately, many innovative Startups fail to capture their true value potential because of inadequate pricing.

Avoid common Pricing pitfalls

  • Lowest bid wins it all

    Confronted with uncertainty, many Entrepreneurs are looking for ways to undercut the “market”. It is a common misconception that a low price will increase the likelyhood of success. In reality offering the right Value is key to sustainable success.

  • Do not blindly follow the pricing herd

    There is a large wave of solutions which are being priced through a monthly subscription fee model. While this brings many advantages, your customer group might be used to a very different model e.g. one-time fixed price.

  • Free “Proof of Concept”

    Winning a first customer is a challenge for most new Ventures. Getting a track record has often priority to first revenues. However, offering a Free solution does not demonstrate if you provide true customer value, or confirm Readiness to Pay.

  • Project consulting temptation

    Selling a new solution often requires some pre and post sales consulting. While these consulting revenues help pay the bills, they are not scalable, non-recurring, postpone price discovery and distract valuable resources away from building a great product.

Maximise customer perceived value

Being aware of the pitfalls, implementing Value based pricing for startups is primarly about customer perception.

  1. Anchoring value through a high price point

    It is key to position the Value point for your product as high as possible. This provides an “anchor” for any future reference of value. It also pushes you to offer true benefits. Second it is very difficult to “work your way up” from a low price point.

  2. Match customer value points

    Remember that customer perceived value extends way beyond pricing. This augmented value includes reputation, brand, leadtime or quality. It is an opportunity to revise your Product delivery, Make vs Buy to best match key customer value.

  3. Maximise value from product Features

    Acknowledging that each customer within the defined segment will have different needs, you should take the opportunity to establish a feature-based pricing model. This will further guide your product roadmap towards the most valued features.

  4. Simple pricing to optimise readiness to pay

    From day one, your pricing should support customer readiness to pay. A subscription, % or unit based pricing can enhance the stickiness of your product and bind customers over a longer period of time. Sometimes pricing simplicity can increase customer value.

Implement a successful Value Based Pricing

  1. Define your target customer

    Pricing is a reflection of perceived customer value and hence highly depends upon your target customer base. One helpful framework for this is to use a user Persona.

  2. Assess market value

    Survey and evaluate the customer perceived value for each persona and the product being offered. This includes evaluating the pain points, product features, and eventually readiness to pay.

  3. Validate customer benefits

    Understand how you create value for each customer. It is important to quantify specific process-level benefits derived from cost reduction, higher efficiency or increased quality .

  4. Setting the Price

    Your price will be reflect additional value creation, price of competing solutions or products and value capture strategy e.g. Premium pricing. You might include feature-based or subscription based pricing as appropriate.

  5. Lean Pricing method

    Continuously gather specific pricing feedback and market intelligence to narrow down which features ‘ideal customer profiles’ will value the most. This will also allow to fine tune the value capture and pricing, particularly important in rapidly evolving Software markets.

A Quick Guide to Value-Based Pricing, Harvard Business Review

What is Value-Based Pricing?

I like to use this definition: “Value-based pricing is the method of setting a price by which a company calculates and tries to earn the differentiated worth of its product for a particular customer segment when compared to its competitor.” Read along

In essence, shifting to a Value-based pricing model will not only maximize profits but more importantly foster an on-going understanding of your customer value proposition. For some it might come as a surprise on what customers truly value, focusing on product features you didn’t know were important .

We are curious to hear back from you and your specific experience as you implement this value-based pricing for your business!

Smart fundraising for Tech Startups

We receive many investment requests from Technology Startups, Impact investing to even ICO’s. Some have great businesses to share; others underestimate the trap of fundraising for Tech Startups Seed or Series A financing.

We talk with Balz Roth, a professional Business Angel, investor and board member for SMEs and technology startups. Various successful exits of technology startups to companies like Intel (Lemoptix), Monolithic Power Systems (Sensima) and Everyware (Safe Swiss Cloud). Balz is also a Venture Partner at Go Beyond, an international business Angel Network.

This podcast provides hands-on, practical insights and tools towards a successful Fundraising for Tech Startups:

  • Do I really need 3rd party money to achieve my goals?
  • Which Investors are most likely to be a good fit for my Business and development stage?
  • Key steps towards a great first Investor meeting and the first Term Sheet
  • Critical ways how to take the relationship further and get through Closing

He draws from his broad investment,Venture Capital and Entrepreneurship experience to provide exciting insights, practical examples and answer live questions.

A good Fundraising for Tech Startups takes following aspects into account:

  • Typical company profile for a 3rd party equity investment
  • Achievements and track record for Seed vs. Series A
  • When is a good time to talk valuation?
  • When do convertible loans make sense?
  • Product vs. Licensing business model Timing
  • Risk & Return expectations

Further key items to bear in mind include:

  • How much Bootstrapping is good for business?
  • Customer-driven funding
  • Non-dilutive sources and grants
  • Business Angels vs. VC sweet spots?
  • How / when to engage with a Strategic investor? Sources of funding
Customer Cash to Finance Your Start-Up, Harvard Business Review

Airbnb is one of the most celebrated start-ups of the past decade, and its creation story is well-known: In 2007 two design school graduates dusted off some air mattresses and rented out space in their San Francisco apartment to conference attendees who couldn’t find hotel rooms, netting $1,000. A year later they made national headlines by helping people find lodging during the Democratic National Convention in Denver. By 2012 Airbnb had raised $120 million in venture funding and was valued at more than $1 billion. But familiar as this story may be, an often-overlooked fact is essential to understanding the company’s success: The business model is structured so that advance customer cash helps finance growth, making Airbnb less dependent than many other start-ups on early outside funding. Read along here.

Check-out also our detailed posts on Fundraising and Commercial Growth:

Investment Teaser Startup guide for Venture Capital

How to put together a great Investment presentation for your Startup!

We receive many investment requests. Some from B2B Technology Startups, others for Impact investing. Some with great businesses to share while others underestimating the trap of Seed or Series A financing.

Indeed, Fundraising can be a substantial distraction from getting your business off the ground. Check out also experience from a Business Angel.

Hence, we put together this Investment Teaser Startup Guide to increase your Equity Fundraising success.

Why spend time on your Teaser?

Your “Teaser” is the first document to share with an Investor. Hence, it should be concise and cover key business aspects. It can be packaged in a traditional PowerPoint, a 2-pager or sometimes a Video.

A Teaser is a great way for a new business to have its stuff together, paraphrasing Marc Andreessen in his Essay – It’s time to Build.

It includes market, products, value proposition, business model and funding needs. This forces your team to put down on paper its Venture snapshot.

Wait ! Can you be a Customer-funded business?

First, remember that most companies created each year do NOT get any Venture Capital funding. Second, John Mullins customer-funding strategy can be extremely successful for many Ventures. Are you one of these?

Else, download your copy of our Investment Teaser Startup guide below.

Investment Teaser startup guide

The Power of your Investment Teaser

Dig deeper ? some great perspectives and insights

We have seen a lot of guidance produced on Fundraising for Startups. From our experience, we recommend the following reads:

Entrepreneur | Your Startup Can Thrive Without VC
Guy Kawasaki | The Only 10 slides you need in your pitch
John Mullins| The Customer-funded Business
Gust | Accelerator Report 2016
Pitchbook | Venture Capital Europe Report