At the beginning of this month, I read another book on personal finances and decided that same day to put some of the advice to practical use. Some of the stuff might make you laugh (using envelopes to control my expenses), but before I get into that in one of my future posts, I’d like to say how much I feel the personal finances impact your business and especially your startup!
I see personal finances as a set of habits. Do you:
– Measure something or not
– Plan something or not
– Stick to your goals and decisions or not.
Going broke, or being without money is a habitual pattern, nothing more. Unfortunately, I will also have to skip the importance of habits, will power, goal setting in life and personal finances for some other time, because that’s too broad of a topic.
Maybe you know someone who is really lazy, undisciplined with more than a few bad habits (smoking, alcohol, drugs) and still very successful under some definitions. Let’s say he has a great business, a lot of money, a great wife, a great body, whatever. He is winning in a certain field. Here’s the problem with that, when it’s going great, people think it’s going to be great forever. When it’s going bad, people also think it’s going to be bad forever. But that’s not how it goes. Every recession, depression, and war had an end. Ever economic boom, the revolutionary product had either an end or a major slow down. A lot of people are so successful in certain fields, but so remarkably unhappy in other parts of their life they go so far that they commit suicide. Remember Curt Cobain? You don’t have to go so far, I am sure you know Robin Williams. All the money and success in the world didn’t mean anything that day when he decided to commit suicide. Then again, if you ask 99% of the people what is their biggest problem, they’ll say, money (so it’s a personal finance problem, a set of habits). Money is not a problem. I’ll say that again, money is never a problem. The problem is you. To paraphrase George Carlin: “The money is fine. The people are fu**ed …”.
Those same people spend more than they earn. I am sure you heard this in the movie Fight Club,: “Buy stuff they don’t need, to impress people they don’t like”. So what happens when someone starts a company? Well, in the beginning, it’s just them (or perhaps one or two partners), and their habits and their personal finances have a major influence! Their ability to do budget planning. Skills to do personal finances. It’s the management that decides to buy a new chair, instead of investing in the product. It’s the management decided to buy a new car, instead of investing in research. It’s the management decided to go to a conference instead of doing a real lead generation.
When a startup is failing it takes some guts to admit that it’s the management problem. In startups, there are so few people that you have no one to point to, then yourself. But many people don’t. They point their fingers at the market, the problem they are solving, the money they don’t have, the people that surround them, and so on. It even gets worse. You don’t only “transfer” your habits to your startup, but since you are personally spending more than you are making, you have to suck out the money out of your startup! In return, more than cripples the startup that maybe had a chance if you didn’t have to buy cigarettes, travel, party, party, party. Who’s going to pay for all that? The fledgling business!
Amazing how so many people start “changing the world” and try to solve a huge problem in the world, and they don’t even know where their personal money is going! I know, I was certainly guilty of this. Right now, I am just mad at myself for being so stupid in the past. But just a little bit, because I know that it’s not important what happened to you, it’s important what you decide! You have to make a decision that from this day you will change your habits, which will have a strong impact on your personal finances, and ultimately on your startup! Yes, dear reader, I admitted my mistakes, I sucked it up, and now changing my habits.
Start small, start anywhere!
Skip one coffee per day. Skip one candy bar per week. Skip one dinner in a restaurant. Skip here, and skip there.
Make one more phone call. Do one more interview. Make one more sale. Send one more newsletter. A little bit here, and a little bit there.
Repeat each month, and add just one more. Just one.
Make it a golden rule to spend less than you earn! No matter what! If you make this your habit, so will your startup. Ultimately, that means that you and your startup are making more each month, which means that all you now need is time to pass. If there’s one thing you can be certain of, is that time will pass. Ten years from now, you will still be here. There’s a good chance that 50 years from now, you will still be here! The medical / biomedical, technological, psychological advances will surely improve people’s lives, and increase longevity. So start now!
Don’t be that guy or gal who has to suck the money out of startup, and because of that, pay more taxes. What happens next is that they complain about high taxes, and how the government is the problem. Taking the money out of a business in order to buy junk? Not really. Hey, if you want to buy expensive toys, you better be ready to cough up some dough. I heard the new iPhone 6+ is out, with a nice smartwatch.
Don’t fail. Don’t spend, more than you make. We need more people like you. We need people who build startups, who fight, who create instead of consuming. Will you be that person?
Fear of public speaking… I think you don’t really know what it is, until you have face it. When I first stood in front of a room of 15 people I trembled. But now I can confidently say, that I am OK with speaking in front of 50-100 people. Over that I still get some adrenaline, but I think that’s normal and that it will never go away.
I applied at HackFWD in Berlin so that I could pitch WhoAPI. We met David Bizer in Zagreb during the Startup Srijeda couple of weeks earlier, and he told us that it might be a good idea to apply. I had no idea what I was getting myself into! All I knew was that we had a chance of getting an investment, and that was all that mattered to me at that point. Then one day, I got an email from Mikko Järvenpää, and my heart started pounding!
Congratulations! Having reviewed a large number of applications, we would really like to see you pitch your idea to HackFwd and an audience of tech experts, VCs and press in our Build event in Berlin on Saturday 17.9.
So basically I had to 2 weeks to prepare. What is a pitch? How do I summarize our company in 5 minutes? Or later even in 3 minutes? Most of all, how do I beat the fear of public speaking, and not FREAK OUT when I stand in front of 100 people?!
Lets go back to today, after going through a lot of public speaking in three years, I am here to give you these 3 easy tricks that helped me beat fear of public speaking.
1. “Borrow the spotlight”. At the end of almost every lecture or presentation, there will be an opportunity to ask questions from the audience. Besides trying to learn something from the speaker, you have the opportunity to “borrow the spotlight”. It’s like grabbing the MIC from Eminem for a minute, so that you could feel the audience.
– Don’t ask really short or really long questions,
– Don’t make it a monolog/statement
– When you are doing this for the first time look straight at the speaker it will help you. Next time, try to look around the audience to “feel” the eyes staring at you, so that you can prove to yourself you will survive this experience
– Extra points for sitting in the first row, and then turn so that you can see the entire audience and the speaker
– Enjoy the adrenaline rush, and relief after you successfully delivered the question, be proud of yourself
According to most studies people’s number one fear is public speaking.
Bonus coming out of “borrowing the spotlight” is that after the talk you can approach the speaker and further expand on the question you asked him. Even if that is Richard Branson or Guy Kawasaki, this approach will work. Even if you want to take pictures with that person, exchange business cards, whatever… And all those are valuable tools in networking with powerful individuals that are not easy to get acquainted with.
2. Practice. There is nothing that can replace practice, and there is nothing that works better than practice! So look for any possibility of public speaking! Even if it has to be a lame place like birthday parties, picnics, sporting events, whatever. Hopefully you will have at least one acquaintance with some experience with this, and he can help you setup a small event where you can speak for 15-60 minutes. Like with everything else it’s better that you start small and short, and then work your way up.
Steve Jobs makes a presentation look effortless, but that polish comes after hours and hours of grueling practice.
I know it’s not much of an advice – “practice”, but it is comforting that you will get better after a while. The fear won’t be the same after you do it 10 times, like when you did it the first time. Also, once you speak in front of 300 people, speaking in front of 50 is a piece of cake. Not to mention pitching in a room in front of 2-3 executives or VC’s.
3. Look forward to something after your speaking. When I first started pitching and lecturing, I forgot about everything else! This made me file like LIFE itself after the pitch doesn’t exist. It’s this pitch, and it’s right now, and nothing else matters. Wrong! When you are first starting out, it’s correct that you should definitely go extra mile to prepare yourself. You simply can’t be overprepared for your first three public speaking experiences.
If you are in a state of absolute certainty, you will deliver a great pitch.
But on that day set yourself up for a nice surprise after you speak. For example, promise yourself that you will have pizza, or a cake, or something else that you usually enjoy indulging in. It has to be something you will really look forward to! Don’t eat chocolate the entire day before, and then “lie to yourself” how exciting it will be to have chocolate again today after you pitch… It really has to be so powerful, different and it has to break your pattern so that it can compete at least in some way to your public speaking. Looking forward to something nice, puts you in a positive and playful state.
I hope this tricks help you as much as they helped me in becoming a great public speaker.
If you liked this blog post, perhaps you would like:
to subscribe to my newsletter
or consider buying my ebook “26 Fundraising Questions for Startups”
This is a story about how I pitched one of the most prominent VC’s in SiliconValley, and therefore perhaps in the world, and how that got us into one of the top 3 accelerators in the World. In my opinion, the top 3 being Y combinator, TechStars, and 500 startups. There could be a big post and a debate of the criteria of these two statements, but I barely have time for this post, so I will leave this for you reader, in the comment section.
How did GOAP end up in Croatia anyway? Well Matija from Farmeron who is #500strong, was rooting for Croatia, but Poland was also a contender. So they decided to have a tweetoff between the two countries. We were all tweeting how Croatia has cool startups, and how Nikola Tesla was born here. At some point Croatian president Josipovic jumped on his Facebook page and invited McClure to come here. How epic is that? I’ve told this story a dozen of times to startups around the world, and every single time people said our president is soooo cool. You hear that Croatians? People from outside Croatia think our president is cool.
It’s been 6 months since I started to take cold showers. I’ve read about it in two books, including Timothy Ferriss’s “Four hour body”. Since I thought there was absolutely no way for me to take cold showers, I asked myself how bad do I really want it. So I gave it a shot. On a side note, don’t do what the smartest or wealthiest person tells you to do, do what works for you best!
However, that morning I decided I’d go for a hot shower. I said to myself I am going to be a winner today. I felt goose bumps just by visualizing my victory. I kissed my girlfriend who was ill and couldn’t go, and I was on my way. I was pumping myself up, listening to Social Network soundtrack because I know this worked in the past. Man, I was never wired that much. I never felt so ready in my entire life.
4 weeks earlier
I was talking with my Croatian investor about this Dave McClure character. I mean, who does he think he is with his “sh*t/fu*k” language, publicly saying how other VC’s are crap. I am not working with this guy even if he wanted to invest. I watched some presentations, read a few articles – last time I judged a person like that.
After all the pitches, Matija Kopic from Farmeron came running, and told me that Dave McClure is interested in WhoAPI and that he wants to sit down. Holly cow! I got goose bumps just by writing this! After having lunch with Dave I changed my opinion about him a 100%, 180 degrees. I met a guy who is totally humble, extremely smart and insanely connected!
About 30 minutes later my world was turned upside down. Every 5 minutes I got more news, and I was running back and forward between Edi my partner, and Mihovil my investor. I found out we actually won the event, and that we had to decide on the spot if we want to take Dave’s investment and go to 500 startups. Terms were emailed, and that was that. It felt like flying a jet at Mach 5. I couldn’t believe what was happening and I had one of those out of body experiences like it was happening to someone else.
“And the winner of the GOAP eastern Europe Zagreb is WhoAPI!” said Ivan Brezak Brkan. He also said something about me being one of the biggest hustlers he knows, but everything else was sort of blurry. Some of my friends jumped out of surprise and joy, some screamed while Edi and me were getting up to walk to the podium for another out of body experience. Everybody was clapping and cheering. I don’t think I was ever more proud in my entire life. Silly things came through my mind, so I also felt relived towards some startups in the crowd because I was mentoring them a month ago. (I wrote about it here.) I felt so relived because they saw I wasn’t giving them crap advice about pitching and startups. I showed them that it’s not science fiction, and that you could actually get funding in Croatia from an American investor. Something that was a far fetched dream a year ago, after a string of events, became a reality.
I can’t emphasize enough what a major role CRANE and Farmeron had in this! People like Sasa Cvetojevic, Mihovil Barancic, Ivo Spigel and Matija Kopic are in many ways the driving force of the entire startup scene in Croatia. I am sure I forgot someone, especially those dedicated workers who beleive in the vision that startups can flourish in Croatia!
For what was to follow, Dave McClure took the mic. He said how great the entire event was, how pitches and startups were awesome. Also, he announced that they 500 startups have decided to invest in WhoAPI. Again the crowd erupted.
You work so hard, for so long, for that few minutes that somehow repay every single second. Stuff I went through with both of my parents unemployed, and perhaps with no place to live if I didn’t have great friends like Nevio Vesic. There are no words that can explain what was going through my mind.
Week after that I think we had around 2-3 interviews per day, and every notable media in Croatia covered our story. At one point I started to turn them down because they were taking to much time. Since the president invited Dave McClure, they visited him at “his white house”. At some point my investor was explaining to the president how WhoAPI is pronounced, and after that Dave talked with the president. Pinch me, pinch me, pinch me.
As soon as we landed in San Francisco it was all over. No one was calling us, no one here thought we were spectacular. You are in Silicon Valley baby! It was back to the trenches. You gotta love the trenches.
I don’t think that we got all this based on one pitch, but I think it played an important role. So if anyone wants me to explain the pitch please let me know.
[EDIT 22nd, August, 2014] If you liked this blog post, perhaps you will like the ebook]
Guy is currently on vacation. I tried sending him an interview request, and a responder replied. Plus I also saw on Google+ another person asking for the interview. So that wont work. I will try to get to the person that got the investment from Guy so I can reach him, but that means more research. Every step. Hustle! Research! Hustle! Work smart – work hard. Hustle!
What do you need to know about Guy Kawasaki?
He loves rottweilers. How do I know? Well, I’ve read 3 of his books (The art of the start, Enchantment: The Art of Changing Hearts, Minds, and Actions and What the Plus!: Google+ for the Rest of Us, watched several presentations, follow him on 4 major social networks and have his picture in my room (to remind me every morning not to be a bozo). So yes, Guy has a bloodhound/Rottweiler, I am sorry I can’t remember his name, and I am not sure Google will help you with this one.
Now you also know why Guy loves to talk about selling dog food online. Pets.com, epets.com, dogfoodonline.com and many others. There’s no need for me spending time about their patent pending, curve jumping, paradigm-shifting, service with revolutionary SEO strategies. But you should know that Guy survived online dog food, and the .com bust. He also likes to say you need to eat your own dog food. Let me explain what he means by that.
My startup delivers information about domain names. We still haven’t launched, the system isn’t ready. I am using the faulty prototype, and with it I have signed our first client. Our client isn’t actually using WhoAPI, I am using it, and the first client is the end user. The client isn’t technically aware of full possibilities of our project, but he is aware of the benefits and wants to use them. I have a rottweiler. I eat my own dog food and it’s not even cooked yet.
He loves ice hockey. I am not really sure where one can play ice hockey in San Francisco or Hawaii (where Guy is Born), but if you want Guy’s attention, ice hockey is the right path. I am not sure what’s his favorite team, but I am not here to speak about hockey either. I have two great hockey analogies for you. First one was used both by the late Steve Jobs, and Guy Kawasaki and of course the legendary hockey player Wayne Gretzky. He said:”I skate to where the puck is going to be, not where it has been.“. Wow, now that’s profound. Use this in your business, and especially in the technology. Never do what everyone else is doing, see the future, and see where the industry and the markets are going. Invent!
There were people that were cutting and delivering ice, then there were companies that were producing and shipping ice cubes, then there are people like Einstein who invented refrigeration (Szilard-Einstein refrigeration patent) and companies who built refrigerators, and you will have companies in biotech that will make food that doesn’t need freezing. That’s curve jumping, skating where the puck is going to be.
The other hockey analogy I learned from Guy Kawasaki is that of an ice resurfacer. In his presentation Guy uses the term “Zamboni” which is the most popular brand. What the ice resurfacer does it removes all the lines, and irregularities from the ice. It creates an intact ice, perfection. Similar to first snow, where no one set foot. This is the same as a new company. It’s not ruined by the logo your aunt made. It’s not ruined by nagging customers who want a discount, or by a lousy service you provide. Guy says that at that point (fresh ice, new company) is also difficult to set priorities. I don’t have to say how much I agree to this, because you have to agree to everything that Guy says (unless one thing, which I will leave for the end). He was the Macintosh evangelist, and part of the team around which the universe revolved, and one must respect that. Your focus must go towards the things you will be proud to share with your spouse. Why spouse? Well Guy celebrates women, and in all his books he is referring to “she”, rather than “he” when he wrote. This is his way of repaying them. You know what? This wouldn’t be a Guy Kawasaki post if I didn’t do the same.
Maybe that’s the reason Guy loves to fly Virgin? On a more serious note – this is what happened.
Backstage in Moscow. Richard Branson is speaking before me. He asks me if I ever fly Virgin; I admit that I never have. He asks me to try it. I say to him: “If Richard Branson asks me, I guess I have to.” He then gets on his knees and starts polishing my shoes with his jacket in order to convince me. Can it get any better than this?
So, there you have it. When was the last time you polished your prospective client shoes? Maybe today is a good day to start. Lot’s of people use some company’s products just because of the way their CEO/owner behaves. I am sure you can find examples in your lives. Be that CEO.
I have never flown with Virgin Atlantic because I can’t afford it, and I was never on a flight longer than 3 hours. But, I will one day. I’ve read Richard Branson’s autobiography “Losing my virginity” and it inspired me. I love inspiring people, and I love to inspire other people (or at least try). I also love successful high school/college dropouts, they are like that statistical spike that no one can explain. Flying Virgin Atlantic, increases your chances of bumping into Guy Kawasaki by 0.0000001% and it also gives you a common topic with your favorite VC. You won’t bump into Richard Branson, he flies with an air balloon, or water skies.
Guy loves his family. He has 4 children, and I cannot begin to explain the respect I have for successful business people (especially investors) that have children. This also means Guy turned down a job offer from Yahoo, that he says cost him 2 billion dollars. So, if Guy doesn’t invest in you, don’t take it to your heart. He has Meniere’s disease, and he can always say he didn’t hear you right. Hint, if you are are a startup that helps people with Meniere’s disease, go for it. Guy likes to joke about his condition, and that he got it from hearing lousy pitches. What’s a lousy pitch?
Enter the bozos. A bozo by Steve Jobs’s and Guy Kawasaki’s definition is a person who… for example, reads of the slides. When you give a presentation, DO NOT, I repeat, DO NOT, read of the slides. The slides are not there for you to be your crutch, you must know your shitake. (Shitake is a word Guy often uses) They are there to help people understand what the heck you are talking about. A picture is worth a thousand words, right? Use pictures, use videos! If you want to create inspiring presentation read Carmine Gallo’s book The presentation secrets of Steve Jobs. It helped me tremendously! When I gave my first presentation it was of bozosity (you see you can use this as an adjective) proportions. And then one day, I gave a presentation to about 50-70 college students. First thing I said I am not going to talk about my startup because it’s really technical and niche, and they wouldn’t understand any of what I said. I then proceeded with the 20 minute presentation about investors, inspiring companies like Apple, Zappos, and Simon Sinek. The first question from the audience after the presentation was: “What is it exactly that your company does?”. I am not telling you this to brag, but to give you an example that this stuff works! Don’t be a bozo, don’t read of the slides, remain eye contact, people want to be inspired. Guy Kawasaki also has a 10-20-30 rule. 10 slides, 20 minutes, 30pt font. Do just this, and you are better than 50% presenters. As you might have guessed, Guy doesn’t love bozos, in fact, he sets his Rottweiler on them.
Every man loves his car (no matter what they tell you). Guy drives a Porsche. One does not simply buy, drive, have a Porsche. It is a special connection. Guy often posts photos of his Porsche, of the replacement Porsche they send him, and when he goes to the track to drive a special Porsche. Tip, respect the Porsche.
One last thing. Whatever you do, if Guy Kawasaki says your startup sucks, don’t believe him. He said so himself. As a matter a fact, don’t believe anyone like him. He says, the most dangerous people for your startup are VC’s who say they won’t invest in you, and that your startup sucks.
Some VC funds even display their anti-portfolio, and there you can find companies like Apple, Google, etc. Thing is, hitting a jackpot with an investment is close to gambling. A barefoot guy on LSD, and a guy wearing flip-flops are responsible for the creation of Apple and Facebook. The asocial guy responsible for the creation of the biggest social network. Seriously, are you kidding me? Richard Branson was a dyslexic who didn’t get through high-school. How do you find the courage to invest in people like that? There are no analytic skills that can tell you where to invest for a big return. Go with your gut feeling. Why is going with your gut feeling the right thing to do? Well read Simon Sinek’s Start with Why: How Great Leaders Inspire Everyone to Take Action, and Malcolm Gladwell’s “Blink: The Power of Thinking Without Thinking“.
First of all, I should say that 50% out of nothing is still nothing. You shouldn’t be afraid of giving equity, however, you should be smart about how much you give and to whom. If an investor asks for 50% of equity he is probably inexperienced. Why?
1. If he has the majority of equity, you are actually not the owner of “your” company, ergo it’s not your company. If he is asking for 50% he is probably an angel investor, which means you “lose” a lot and you haven’t even started. In fact, you just had your first exit, and you can go on vacation. This will most likely kill the entrepreneur inside you and if the dark days come (and trust me, they will) you are probably more likely to raise hands, say that it’s not your project anyway, and leave.
2. If you are willing to give away 50% of something that’s so valuable and spectacular, why are you doing it? If it’s not that spectacular, why would I want to do it in the first place?
3. If the investor is experienced, he is probably testing you, your negotiating skills and your perception on value of the idea. But in this case, he will probably start with a much lower take in equity depending on the region, industry, market size, etc.
How much of equity should you give away to an angel investor? It depends on many factors, sadly your location is the first one that will influence this decision. In Silicon Valley, angel investors get below 10%, but in other parts of the world equity goes as high as 30%. You should also take into account if it’s „smart money“ or just money, that you are getting.
If your angel has a big contact list, or Rolodex, as they like to call it, perhaps it’s worth a consideration. Sometimes 30% equity means the success of your startup, and 6% means failing. This is something you will have to decide on the spot, since these decisions are really unique, custom and differ from case to case.
Giving away equity also depends on the amount of money you are getting. Also, this sets the current value of your company. But, company valuation isn’t something you should be concerned at this stage. Now your top priority is to launch early, launch often or as some say “fail fast”. Or as Guy Kawasaki would put it: „Don’t worry, be crapy“. So let’s take the 50% equity as an example and see how it would play out.
Angel investor: Your project looks interesting, and I am interested in taking a shot. I can give you $50.000 for return of 50% in equity.
You: Thank you very much, I am glad you like what we are doing. But, I am willing to give 10% at most. I want to leave room for first team developers, and VC fond.
Angel investor: Ok, even 10% sounds good, but than I am willing to give only $10.000.
The question now is, what are you going to do with only $10.000? Is this investor worth the bother? Are you going to answer his phone calls on Sunday when the project starts to go south? Is this investor going to scare away other bigger investors that want to be alone before the VC fond comes? What if you took 30000 for 15%? How much money do you need in order to get the startup moving and making first sales? How much money/time do you need until first sale? How much money/time do you need until break even?
I know I put up a lot questions, and not so much answers. However, asking the right questions will move you in a direction you want to go.
You have just read the 3rd question and answer of my book. Interested in reading more? Preorder my ebook, and support the good I am doing.
[EDIT 22nd, August, 2014] If you liked this blog post, perhaps you will like the ebook]
I was just looking at the new prices for WhoAPI, and I have to say that for the better part they were set up by the other co-founder. I wanted to raise some concerns, and instead of just going to him individually, I decided to write this blog post. Hopefully, it will help startups like Webiny who are just in the process of changing their pricing strategy. And also give me a chance to go through some things on my own, and give an opportunity to the other co-founder to learn something.
In startups like WhoAPI, and Webiny, where there is a mix of technical and business-oriented co-founder pricing, is a tough call to make. The technical guy either overprices (because he cares about his masterpiece) or underprices (because he is considering only the cost of his development time). It’s not that the other one doesn’t care about his masterpiece, it’s just that technical co-founders are short sited when it comes to pricing.
I believe that nobody is good at everything, and I have yet to meet a technical person that kicks ass at pricing strategy. Maybe I did meet him, but we didn’t talk about pricing. That’s because technical guys don’t like to talk about pricing, business guys do. Get it? Rocky will knock you out with his left hand, but his right hand is just not so powerful. Then why does Rocky like to punch with his right hand? Now, don’t get me wrong, I love technical co-founders, I work with one for the past 10 years, and you will find here interviews with them, but at least they could read a little bit about this if they want to make such a key decision.
The technical co-founder needs to put in the quality input guiding the business co-founder, giving him a ballpark on the complexities of their product. And then the business co-founder needs to set the prices. After all, it’s his ass on the line if the product doesn’t sell, or the company isn’t making enough money. (That off-course is unless it’s a lousy product). But it’s not about covering your ass, it’s about getting the company (meaning everybody onboard) move forward!
Pricing a product is one of the toughest things to do in business, especially in startups, and especially in disruptive startups with innovative products (or services, but I am using the word product). Pricing your products properly in many ways leads to the company’s success!
Before setting prices, one must be clear about one thing, you are here to make money. The creative part is over, now it’s time to focus on making money. This does not mean “rip people off”, but take into evaluation what your client’s ROI will be. So, don’t sell that life insurance to the poor guy who barely has money for bread, just to make the sale. Making money means generating enough revenue from selling your products so that you can not only cover your costs but take a profit and perhaps expand your business.
The biggest mistake many businesses make is to believe that price alone drives sales. Prices, rebates, discounts are just short-term rush, like a drug. It creates addiction, and takes you to a downward spiral! There is no passionate clients and buyers that tattoo a company logo on their body! Do you think that a 20% discount will make your client tattoo your logo? On more information about this, please read Simon Sinek’s: Start With Why.
Selling price is a function of your ability to sell! Everybody can sell a Ferrari for $200, but can you do it for $200,000? It’s no surprise technical people aren’t good at setting prices, most of them aren’t good at sales! You can find more about this with How to Sell at Margins Higher Than Your Competitors : Winning Every Sale at Full Price, Rate, or Fee, Lawrence L. Steinmetz, co-author of How to Sell at Margins Higher Than Your Competitors : Winning Every Sale at Full Price, Rate, or Fee.
“What’s the difference between an $8,000 Rolex and a $40 Seiko watch? The Seiko is a better timepiece. It’s far more accurate? The difference is your ability to sell.” says Lawrence L. Steinmetz.
Usually, it involves considering certain key factors, including pinpointing your target customer and take into account how much will he profit from your product (or what will your product provide him), tracking how much competitors are charging, and understanding the relationship between quality and price.
- Your actual product costs, including labor and the costs of marketing and selling those products.
- All of the operating expenses necessary to own and operate the business.
- The costs associated with borrowing money (debt service costs).
- Your salary as the owner and/or manager of the business.
- A return on the capital you and any other owners or shareholders have invested.
- Capital for future expansion and replacement of fixed assets as they age.
You may realize that you have missed your target audience by pricing your products too high. You can always choose to discount your products or give customers something for free in order to get them to try your product or generate traffic to your storefront or website. “You have to get people in,” says Charles Toftoy, associate professor of management science at George Washington University. “People like getting something for free or some kind of discount.
Your product price should vary depending on a number of factors including:
- What the market is willing to pay.
- How your company and product are perceived in the market.
- What your competitors charge.
- Whether the product is “highly visible” and frequently shopped and compared.
- The estimated volume of product you can sell.
One thing is for sure with pricing, you will know really soon if you got it wrong…