Start-ups: Dare to price this way?

While there are innumerable inputs that one can give an entrepreneur on how to price a product or service, the one piece of advice that never shows up is: asking customers how much they would pay! Sounds strange to you as a start-up? Are you wondering if it will look crazy? Do you think they will under quote and cheat you? If you are saying any of these to yourself upon answering the question, please wash your face and re-think again.

Everyone wants to practice value pricing. But the trouble is we are not sure about what ‘value’ means. Hence it gets really difficult to identify the right price. But won’t it be easy to show case your product to chosen users and seek inputs on what exactly is their benefits or perceived value? Won’t it better if you hear from the horse’s mouth, what the potential benefit is, in tangible terms? Are they saving money as you assumed or it is that they are actually saving effort? Are they buying because it is faster and more stylish or are they purchasing because it is lighter and has longer battery life? Hearing from the user about what they value can provide valuable insights to pricing product and services.

You will be surprised at how gracious customers are. While some are mean and want to break you down by negotiating hard, most people are fair and want you to continue providing the service at fair price. They understand that their vendors cannot survive without making money, and hitting them hard is not good for them too.

Asking customers what the price should be is a daring practice. May be we need to ask them about their benefits, perceptions, etc.,. rather than price directly. But in any case, they are the best people to give us indications of what the product or service should cost to them. In fact the rational that they give for pricing should be treated with great care as it will give a start-up enough information to price at the optimum level.

This practice is worth exploring simply because, most start-ups under price themselves and stay stuck at that level. They simply cannot rise out the lower gross margins with which they start. Using all other strategies does not work, once we are perceived wrong by our customers. Pricing has a tremendous effect on perception.

Try experiments in pricing and use them as potential tools for creation of buzz! How often have you found a company asking you to decide how much you want to pay?

Think about it!

Business Opportunities are Outcomes!

Any entrepreneurship course teaches opportunity identification and evaluation. While evaluation seems right to do so that risk of failure is reduced, searching for opportunities seems to always end up superficially. During the last few sessions I have been attempting to go the root of opportunity identification. This has resulted in exposing number of deeper challenges as well as lots more of opportunities too. In entrepreneurship, especially at the beginning – the more is always merrier!

So what leads to opportunities? What is the source of opportunities? What creates opportunities? The answer is the simple word – ‘change’. If there is no change, everything is as usual, and then there won’t be need for anything more than what exists! But sadly that is not true and is not going to be true at all. Let me repeat the cliché ‘Change is the only constant’ – how I wish we get to the depths of that simple statement. It gets scary and also ironically makes one who reaches the depth experience ‘freedom’ of a certain kind.

Whenever anyone wants to explore opportunities, find them; the best way is to search for fundamental changes; changes at all levels: demographic, social, cultural, industry, market, behavior, actions, etc and there is no dearth to where change can happen. If you can learn to watch for changes, you have acquired one of the most entrepreneurial skills. But it is easier said than done!

As one learns the skill to listen and discover changes, all potential repercussions become possible opportunities. Once we are able to see many of these repercussions, we may be able to select a few of them as potentially commercial opportunities worth solving. Finding them requires a methodical approach to evaluate opportunities. While there are frameworks to evaluate opportunities, the approach to looking up for changes to locate opportunities is still nascent.  Hence the need to look at this challenge is in my opinion an important aspect of entrepreneurship research!

Happy Thinking!

Finance for Entrepreneurs: The Three Financial Statements

Whenever discussions come up with regards to finance in a start-up, there is no reference to any financial statement. Decisions are always based on opinions / perceptions. But during my research on small businesses in India, I have found all successful small business owners closely monitor their financials. In fact most of their decisions are based on numbers / facts. This has kept them in business over long periods of time, some spanning multiple generations. So what are these financial statements that these small business owners use in decisions that entrepreneurs miss?

Let me share with you an analogy first from the real world. We as individuals are born and grow up. There is nothing new about it. As we grow up, we go to school, college, work, etc and live life doing something that we enjoy (or at least in the hope) doing. There are three things that seem to capture the essence of life – being alive, being healthy and performing. In any aspect of life, be it personal or professional, all people want to know these three things. This is because they form the basis (or at least at a worldly level we assume that it forms the basis) for success and happiness. While philosophically it may be untrue, at the worldly level it is widely agreed.

Note: If you are interested in philosophy, read my weekly posts on ‘Vedanta’ here: https://rajshankar.wordpress.com/category/vedanta-and-me/

How do we know we are alive? How do we know we are healthy? How do we know we are performing? These become the questions that need an answer. If you are breathing today, you are alive! If you are having a bunch of health metrics within prescribed range, then you are healthy! If you are able to do your job above the average or to your own expectations, then you are performing! If you are a person who wants to live a successful live, you will constantly track all three.

In a similar fashion, every venture is born and turns into an organization as it grows. During the course of the journey, it also needs to be monitored for the same set of three parameters, namely: Is it alive? Is it healthy? Is it performing?

In order to understand the above three aspects in every organization, three statements are often generated and tracked. Let us go in the same order:

• To know if an organization is alive or is facing any fundamental challenges of life, one refers to a ‘Cash Flow Statement’. As you can see, a cash flow statement should be tracked all the time. It is like breathing and cash is like oxygen. Just as how we keep breathing in and out all the time one needs to always keep a tab on whether the organization has enough cash to stay alive.
• To know if the enterprise is healthy or unhealthy, we refer to a ‘Balance Sheet’. Since health is can always be known at a point in time, it is discovered at a point in time. We can know how healthy we are now or a year ago. So the health of an organization is always assessed at a point in time. Hence balance sheets are generally created on any particular date.
• To check if an enterprise is performing, one refers to a ‘Profit/Loss Statement’ or an ‘Income Statement’. Performance is always measured between two points in time. Someone would want to know your performance in graduation or matriculation; in a similar manner, one would want to assess how the enterprise performed in a particular year or period of time. Hence ‘Income’ or ‘Profit/Loss’ statements are always drawn between two dates.

If you have got the essence of what the three statements are and why they are needed, then you are ready to begin going through each of them in greater detail, which we will start next Friday!

Who thinks you’re different?

Is that an important question to answer? Absolutely! Most entrepreneurs think they are different, their products are different, their solutions are different, their services are different and everything about their business is different. In fact, if you listen to them you will wonder how they even think so. Quite obviously many of them will seem extremely similar to what’s available or just a slightly modified version of the existing option. This leads us to the question – “Who thinks you are different?”

Does the potential customer think so?

If the customer doesn’t think you are different or unique or original – then it doesn’t really matter what the entrepreneur thinks! It is essential that the entrepreneur understands this and seeks out the potential client audience every time he / she thinks they have something unique, to validate the uniqueness. If the potential audience you speak to does not seem to express this opinion, then it doesn’t matter what, the entrepreneur needs to go back to the drawing board.

Re-think the product! Re-think the service! Re-think the value! Re-think the solution! Re-think the communication! Re-think the delivery! Re-think the relationship! Re-think the price!

Fundamentally re-think! And again go back to the audience – ask them once more! Continue this approach till the potential client group whose problem / challenge you are trying to address tell you that you or your offering is different. Once you make this happen, you have the great opportunity to be a successful enterprise.

“Who thinks you’re different?” It matters – and it’s a significant aspect of business that needs repeated validation.

Think about it!