3 Levers of Early Stage Survival
Pricing is key to navigating the pre-profit periods of a start-up. The name "valley of death" refers to “the high probability that a startup firm will die off before a steady stream of revenues is established”. During this period, the initial costs tend to be high while the earnings or revenues are low. Therefore, it’s absolutely essential that entrepreneurs manage “valley of death” in order to survive and achieve positive cash flows.
A generally overlooked area, when in survival mode, is pricing which is one of the most important decisions that you can ever make. While developing your minimally viable product – MVP, and driving early adoption may look as your highest priority, professional investors want a proven business model before they invest. A good business model is one that clearly demonstrates how you will acquire revenue as well as profitable growth. Thus, entrepreneurs not only must set up their cost structure to manage their bottom line effectively, but also they must price their offerings right in order to drive profitable growth.
The three levers of business survival for an early stage company are
Building the product you they can sell
Understanding and managing your cost and profit structures
Getting your pricing drive adoption, monetization, mobilization all at once.
Building what you can sell
One of the biggest misunderstandings in the start-up world is “once you have a product, then you set a price for it.” In fact, real eye for a good business opportunity is to be able to find an unfilled or unknown need and to be able to determine how users or customers will acquire the solution for it. Acquiring a solution for users and customers requires them to act in accordance with your monetization model; such as purchasing, downloading, signing up for your product or service etc., whether your model is paid or unpaid.
In the case of a paid model, product owners must focus on building just the features and attributes that will fulfill the requirements of your conversion paths where users act in their self-interest and make segmented choices. Paying customers convert only when the benefit they receive from a solution surpasses the price that they will pay for it.
Paying customers convert only when the benefit they receive from a solution surpasses the price that they will pay for it.
Paying customers convert only when the benefit they receive from a solution surpasses the price that they will pay for it.
Understanding your cost and profit structures
Translating the benefit-value continuum into the product features and functionality is harder said than done. Most start-ups over-engineer solutions that make their own product vision “complete.” But savvy product management requires omitting the features that drive the costs more than adding value for paying customers. Bringing the pricing process as early as possible into the development cycle will help determine what to build and what to omit according to what you can indeed sell first to early-adopters and later to paying customers.
Getting your pricing work for you
Getting pricing right means identifying the pricing structure, pricing model, and pricing window, that drives acquisition, monetization, and profit growth - all at once. That is what it takes to make it in the market. You have to start with a well-designed willingness-to-pay research and let your insights inform your pricing structure, model, and respective pricing windows. Here are a few techniques to consider:
Customer and non-customer interviews
Design of experiments
Competitive market mapping
Scenario testing
Choice-based conjoint analysis
Full market simulations.
A Large Audience Isn’t Enough
In case of unpaid models, it’s important to formulate how you will monetize the network effects of your solution. This is where fundamentals of pricing come in handy, as you determine the “value” of each of the actions of engagement, even when your offering is free. It’s essential to understand what the “value” of an engagement is as early as possible in the development process and prioritize your roadmap to weigh heavier those features that drive conversion and avoid over-engineering.
Ready to begin your own pricing innovation?
