Financial incentives are only useful insofar as they help people fulfill their physical and emotional needs.
Great marketers and entrepreneurs are able to circumvent the financial bridge and help people with these deep seeded human needs directly.
Tag: tactics
How to price your product
Pricing is a difficult thing to get right in the marketing mix. Often we get all other 3 P’s (product, place promotion) right and that wrong…. and instead of revisiting it, we mess with the product.
There is no hard and fast answer on how to price a product in a startup or a web service, especially as it pertains to pricing models. But there are two simple pieces of advice I can give.
1. If there is an established pricing method which is accepted and liked in the market, go with it.
2. If consumers generally despise how things are priced in the category you are entering, change the model, and let everyone know about it.
In the first example the ethos is this: It’s hard enough gaining cut through with our product without adding unnecessary complexity to the decision making process. Especially when you have a new and untested offer.
In the second example the ethos is this: The pricing model becomes the main feature. It’s the reason for the switch to you, other parts of the marketing mix will then require far less innovation to gain the cut through a startup needs.
Decision intertia
I was having an interesting discussion with a colleague Cris Pearson (founder of Skitch & Comic Life) about pricing models on the web – as soon I’ll be changing the rentoid model.
I asked his some advice and his response was so simple it is till ringing in my ears.He said;
The more choices you give consumers, the less likely they are to do any anything.
He then went on to say ‘choose a price’ not multiple options, to avoid decision inertia. The question for startups is – what complexity barriers have we created which stop our people from buying from us?
Timing vs Time in
The timing versus time in argument is a long standing one in investment circles. And it gos a little bit like this:
People who are for ‘timing’ the market proclaim that smart investors should time their entry and exit for their investments. And that investors should exit when markets are too hot, for example when price earnings ratios are well above the long term average. And enter at the opposite end of the spectrum. Resulting in higher profits.
People are are for ‘time in’ the market proclaim that smart investors should stay in the market at all times. That when you enter or exit the market does not matter so long as the investment has been in market long enough. Which will result in a long term result of profitability due to the period of time in the market, allowing market averages to endure.
Both parties happen to be correct.
What neither side bothers to discuss is most important factor in either strategy. Probability. The probability of success of either the two different investment strategies. It turns out that it’s a pretty simple proposition related to risk and probability.
Timing the market – Can have very high returns (losses) but a much lower probability of success.
Time in the market – Has average returns (rarely losses) and a very high probability of success.
Numerous studies have proven the above to be fact.
How does this pertain top startups? Well it reminds me a lot of the internet and entrepreneurs attitude towards it. Most entrepreneurs believe that the only way to succeed is to win big. To sell out our startup to some digital behemoth. Our business brains have been hijacked by the Techcrunch stories and the large novelty checks presented to the likes of My Space, Facebook, Digg, Flickr and friends …
These are a little bit like investments where the market has been timed. It’s a low probability event. Sure there’s a lot more to it than a passive investment vehicle, but the probability of it happening is so to us, is so low that it’s not worth considering.
What we ought do instead is focus on the high probability events. In an entrepreneurial sense success is a very long term proposition. So our goal should be to remain in the entrepreneurial game as long as possible. As we do this we inevitability move up the learning curve and increase our chance of winning at some time in the future. Winning may not mean a cheque in the millions, but it might mean earning 5 times what we could in wages, as well as having a lot more fun doing it.
So how do we stay in the game?
Keep our costs low. Know how to bootstrap. Enjoy the simple things in life. Know that the having is in the doing, not in the owning of stuff.
Startup Blog says: Use probability to your advantage
the 5% rule
5% of our customers wont pay on time
5% of our customers wont pay at all
5% of our employees wont deliver what they are paid to
5% of our employees will steal and or damage company property
5% of business partners will break contracts and even worse, not keep their word
5% the people we meet will be genuinly dishonest and painful to deal with
It’s the 5% rule. In fact quite often business discussion are too often focused on the 5% of times the business model will break down and we will get cheated in some way. The amount of strategy, board room and agency discussions I’ve had about the 5% of people who make business models and ideas imperfect are countless. The point for startups, no less any business, is to accept the fact that all models have gaps. And more often than not these gaps the doing of the 5% rule.
The problems with trying to remove the 5% is that we build gates and protections which often stuff up the 95% which is working. We create unnecessary friction. What we are better off doing is thinking about the problem like water evaporation. It’s going to happening, no matter what we try. But we must remember that the very large majority of people are good.
My advice is simple. Know that it exists, and forge ahead anyway.
The deception of history
Reading about Craigs list the other day I started thinking about business history and strategy. As entrepreneurs we often get fooled by the deception of history. And it’s easy to see why. All the business books and articles we read on success are based on what someone or some company we respect did. The problem with this is that the world lives in a state of flux, and what worked then, most certainly wont work now. This is where the Craig’s list example comes to the fore.
Would a 3 color page of hyperlinks which looks like the internet did in 1994 work today? Highly unlikely. Craigslist works now, because it worked well then. It had things working in it’s favour like the ‘in crowd’ in the Bay area spreading the word. That it was first to market with an on-line classified. Now these legacy issues become a strategic proposition which is worth maintaining. What it doesn’t mean is that it’s a strategic template worth copying for Startup X. It’s also less likely we’ll get the support needed from the web community or the investors needed.
The same can be said for pretty much any startup with an interesting history.
A social networking site which is set up for alumni of an Ivy League University probably wouldn’t work.
A trading website where auctions are used to develop the perfect market place probably wouldn’t work.
An on-line retailer which aims to sell every book available in the world probably wouldn’t work.
As entrepreneurs, what we are better off understanding is the insights into why things worked, and try and leverage human behavior in developing a strategic direction to launch our business.
Collective Intelligence
You are in a room full of people.
You are speaking to them on stage and have their full attention.
You tell them to pretend all the people in the world are in this room
You ask the people who believe they have ‘above average intelligence’ to raise their hand.
All the people in the entire room raise their hand.
The fact is, exactly half will be above and half will be below… we all assume we are the smart guys, the good guys, the people make things better…. we all believe we are adding positively to the collective intelligence.
But collective intelligence has a slight nuance. It only works when we let people with specialist knowledge fill in our own knowledge gaps and or take the lead in areas of expertise. If instead, we take the average viewpoint of the collective audience we usually end up with a pile of crap. Collective intelligence can only occur when we segregate and allocate information requirements, not when we aggregate. The latest proof of this is Youtube.com
Once upon a time youtube was a reliable source of cool and important videos. Circa 2005 the most viewed, most discussed for the day, week or month was an intelligent reflection what mattered. Now it’s a mish-mash of over produced pop songs, inane comedians, and soft porn. A sad failure of the digital ‘Wisdom of crowds’. Youtube is still incredibly valuable, it just takes a little more digging these days.
The point for entrepreneurs is this: The crowd is not always right. Taking all advice from the crowd on how to iterate your product, service or website could result in a very average product. Intelligent design is usually the work of intelligent people.
