This is a guest post by Jennifer Rullmann. Jen is a developer-turned-entrepreneur based in the Washington, D.C. area. Her company makes Convey, software that plugs friendly, cost-saving user guides into your application with very little effort. She blogs about creating delightful companies and software at Software Smitten.
Every startup begins life with infinite choices, and there never seems to be enough information when we need to make a decision . To deal with this we pick up a compass to help make sense of things. Some compasses are big – like Lean Startup – and others are smaller, like Customer Lifetime Value.
I use many compasses in my startup, but the first and most important of these is happiness. We all start companies in a quest for control over our own happiness. We want to control our income to open more doors in life, or control over building the product just right, or control for when and where we work. Ultimately, we want to be happy, so happiness should be the central idea that the rest of the business revolves around. Let’s discuss a few examples of business decisions where happiness can be your compass.
Writer’s note: I wrote about this topic previously, explaining why I had designed my business in the way that I did. This post is meant to be a more generic exploration – it’s not necessary to read my previous attempt at articulating the concept.
B2B vs B2C
Selling to businesses is fundamentally different from selling to consumers. An enlightening exercise is to think about pricing: how much are consumers willing to spend on an intangible software product? Typically, not much. Lower pricing means that you need a lot more customers to build that million-dollar business while simultaneously lowering the amount you can spend acquiring an individual customer. Scalable marketing becomes paramount. Bootstrapping becomes harder.
Here are some contrived examples of how this decision may impact your day-to-day life:
- After convincing a lead to purchase your product, your lead has to convince her boss
- You’re trying to get on TechCrunch
- You’re trying to get on LifeHacker
- Your leads visit your website multiple times over a period of months before deciding whether to purchase
- Your leads glance at your app page for a few seconds while waiting for the movie to start before deciding whether to purchase
- You go to a lot of industry events and conferences
- Your business depends on your customers telling all their friends about you
- You spend a lot of time cold-calling leads
Further reading on this topic:
- How B2B Product Marketing is Different from B2B
- How Sales Complexity Impacts your Startup’s Viability
- The New Breed of B2B Buyer (there is also a part two and three)
- The Self-Service Limit in B2B Sales (my favorite section of part three)
- Meet the New Enterprise Customer, He’s a Lot Like the Old Enterprise Customer
A lot of startups seem to stumble into a sales model. They often copy the strategy of a highly visible success story, blindly following their hero’s strategy without understanding why it works. Others build a product and then guess what their customers would be willing to pay for it. Handing off this decision to chance is a mistake, because your average selling price has a huge impact on your business.
Joel York says it best in his excellent blog post Three SaaS Sales Models:
This grid compares your average selling price to the cost of acquiring (CAC) and servicing (TCS) a customer. It illustrates how pricing impacts the rest of your business. For example, if you price your start-up low, then it is absolutely essential that you utilize cheap marketing tactics to keep your customer acquisition low, and that you engineer your product so that new customers are onboarded automatically, with no expensive manual work.
Here are some contrived examples of the impact pricing has:
- You spend a lot of time trying to attract cheap traffic through inbound marketing tactics (blog posts, podcasts, etc)
- You spend a lot of time talking directly to customers, understanding their problems and providing comprehensive solutions
- Most of your customers come from adwords
- Most of your customers come from cold-calling and emailing
- Your mailbox is flooded with support requests from your ‘free tier’ customers
- You spend months on a single sale
Further reading on this topic:
- Three SaaS Sales Models
- SaaS Customer Lifetime Value Drives SaaS Company Value
- Which is Better: Many Customers at Low Price-Point or Few at High Price?
- How to Price Software Without Just Rolling the Dice
In their hugely influential book ‘The Descipline of Market Leaders’, Michael Treacy and Fred Wiersema argue that all market leaders, regardless of their industry, can be classified into one of these three categories: Operational Excellence, Innovation, and Customer Intimacy. Basically, you can offer a product at the lowest overall price to the customer, a string of innovative products, or world-class support. Many markets have room for leaders in each of these categories, so if you’re in one of these markets, the choice is up to you. Each requires tuning the operations and culture of the company in a different way.
Some contrived examples of the impact market positioning has on your company:
- You spend most of your time talking to customers in person or on the phone, understanding their problem and offering tailored solutions
- You hire the best programmers, give them expensive laptops and free lunches
- You develop a frugal, do-more-with-less attitude at your company
- You get mentioned in a lot of ‘amazing customer support’ blog posts
- Your amazing product is being copied by your competitors – but you’re not worried because you’re about to release an even better product
- Your low prices are resetting customer expectations and putting your competition out of business
Further reading on this topic:
- The Discipline of Market Leaders
- Circuit City Goes Bust: Zappos Flies High — Why?
- The Anatomy of Operational Excellence
- Big Macs vs. The Naked Chef
- Ben and Jerry’s vs. Amazon
Each of these three decisions – B2B vs B2C, pricing strategy, and market positioning, help you to narrow down the myriad of choices available to your company. They are tools, effective in helping you spend your brain power where it matters.
Choices made in one of these decisions can impact the others – for example, if you are a customer intimacy company, then you probably can’t afford to offer lower prices than your competition. Pick the decision that you feel strongly about and let it narrow down your choices from there.
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