Our Daily Bleg: Need Some Startup Strategy, Please

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A reader named Patrick Nash needs your advice:

My friend and I have developed a cutting-edge technology for social media. There are other similar technologies out there for social media but we could never compete with their resources. Should we just point blank say we are the cheap alternative as a selling strategy? Sounds cheesy and flimsy but may be our only avenue.

What do you have to say to him? I don’t expect a lot of you to have experience specific to his product, but I know there are a lot of starter-uppers among our readership (yes, both kinds of starter-uppers), as well as what you might call “psychology of pricing” pros. So let’s see what kind of advice you have for Patrick.

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COMMENTS: 31


  1. Amy Weissfeld says:

    Nobody likes cheap. But we do like affordable. So just find a better way to say it. We say, “Bringing Enterprise-class personalization to the SMB market.”

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  2. andrea says:

    Hmmm I know that sounds like a good idea. I have no experience, but from what I have read and seen it seems that pricing is not the only factor that makes someone choose a company over another.

    As you mentioned “you could not compete with their resources” from which I can conclude that you are a smaller company, so the one big advantage your main competitor has is that they are bigger, most people associate bigger with being more reliable.

    The best way perhaps is to compare your product with your competitor(s)’s product and equal out the similarities and then show at the end (without focusing too much on it) the price difference.

    Also approach some forums that discuss similar products like yours and talk about your product and introduce your product and why is a better alternative.. perhaps it simply is because of the pricing, but I’d find one other small benefit .. perhaps (easier to use), more support.. etc..

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  3. StatSpotting says:

    Also reg the pricing itself – pls see if the decision maker will have any issue picking the cheapest. some ppl do not pick the cheapest.

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  4. Dirk says:

    Patrick – I have experienced the pain of a crowded market in the Internet space and I am a pricing expert.

    My advice is that unless you have a dominant strategy and the associated tactics to spread the word on your solution, you are better served by a HUGE price on your service and add in a high level of customer support.

    Remember the only winner in a price war – which is what you will initiate – is the customer. Your competitors will only react to your lowered pricing by lowering their pricing.

    Well-loved. Like or Dislike: Thumb up 13 Thumb down 0
  5. Jeff Cronin says:

    Just like Andrea I assume that your inability to complete with competitor resources is really just a proxy for being smaller, not necessarily that you can’t deliver a superior product itself. I have always been in this position professionally and worked to leverage the upstart position vs. a larger and more well known competitor. In general you will need to align your specific capabilities to the needs of a subset of your potential buying community and focus there. If your goal is to grow into the ‘big’ company then you need a strong (read; high-margin) position to leverage into adjacent segments.

    If your goal is to be a successful business being run by you and your team then I would recommend you simply become a boutique provider to a specific segment.

    Focus is the one thing you have that your competitor cannot match, that and the fact that they typically won’t find a $40 million market attractive while you as a startup could play there for years.

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  6. Mitch says:

    You offer a better value proposition than your competitors.

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  7. Will Caskey says:

    Give up. Four large competitors (Google, Facebook, Apple, Microsoft) have not already bought your service, which is the best statement of its value as can be requested. The market is healthy, and it has spoken.

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  8. Sam says:

    Does cheaper mean less reliable?

    You could always set the price in accordance With the demand you receive. Being the cheaper alternative wouldn’t always sway the client into investing in your product or business.

    Pick a unique selling point and promote it! Price isn’t always the winning factor (but it can only help!)

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  9. Joe K Fobes says:

    Look deep inside and ask yourself

    “if I was the customer and I knew all the facts, would I buy from me?”

    If the answer is no, then do something else.

    If the answer is yes, then ask yourself “why?”. And the answer to that is what you say and sell.

    Congruency and sincerity sells.

    Joe
    http://www.wikihyp.com

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  10. Clancy says:

    Market to smaller companies or universities or anyone with eccentric but low volume requirements. Then emphasize customization and your ability to meet more esoteric needs. In other words: go after the customers the big players ignore because it’s not worth their time to try to please. Unfortunately, this means more work for you and your friend. Your customers will stick with you because you are “more responsive to their needs” which means they can push you around because you need their business whereas Google and Microsoft can ignore them.

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  11. Breandan Filbert says:

    Patrick, Instead of making it about you and your strategy, describe the person who would best utlize your service. If it is affordable to smaller businesses and other start-ups describe the owner who would want to work with you.
    So your statment might sound like ‘The real approach to social media a small business can actually afford to implement’
    It really is all about your customer and not about you after all. Make your marketing work as the marketplace works.
    Good Luck and Good Selling!
    Breandan Filbert
    SalezWORKS.com

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  12. Niranjan says:

    I would be very interested in learning more about the offering. There are many strategies you could adopt : depends on a whole range of factors :

    a) B2B / B2C
    b) Who the competition is?
    c) Can you niche first and broaden?
    d) What is the response to your product from the end users?

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  13. carlosmx37 says:

    -Contact a recently graduated marketing guy with knowledge of internet development.
    -read past articles of the very good magazine “inc”.

    -ask yourselves what is the main advantage of your product that even microsoft,google,or facebook cannot match.Besides the low price,of course!

    there is a market for all products,of course,but the marketing guy or girl can help you to figure where is that market.(e.g.,..I have read recently that the chinese have bought a company in my country to make basic stoves that will sell for less than a hundred dollars in africa!)
    good luck!

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  14. Rich F says:

    My gut feeling would be to give it away !! let me explain, produce a ‘lite’ version that you can release as open source or free download with an option to upgrade to full version at a later date.

    Alternatively, produce a free demo version that be given away with any relevant IT mags / publications.

    It works for crack dealers !!

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  15. Tim says:

    If you are a very low cost base organization, that may mean that you can enter markets that would not be as profitable for the higher cost companies. you maintain a “normal for sector” profit level in a sub sector that the others find unattractive due to there fundamental cost structure. then you move up the food chain

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  16. Tim Dellinger says:

    Your only avenue isn’t selling yourself as the cheap solution. Cheap = worthless (customer perception), and the last thing you want is a price war (you’ll lose).

    Your only avenue is creating a more compelling user experience, and building up a base of passionate users to help you iterate your product, and possibly pivot. Otherwise, you have nothing of value to sell. Build things that people want, and charge what they’re worth!

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  17. AaronS says:

    You use whatever selling points you have. If that is your selling point, then you find a way to say it effectively. I mean, “Why Pay More?” is a good selling point for millions of folks–just look at generic medicine.

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  18. Doc says:

    Patrick,

    As an angel investor I see from two to ten social media startups each week. At times I suspect that everyone on the planet has a social media concept. Don’t let that deter you. Consider that there were hundreds of auto manufacturers in the early years of the last century. Only a few survived and they were not necessarily the obvious winners in 1910. Consider the current prospects for AOL, MySpace and other reccnt hot properties.

    Focus your effort on the user. What does your concept do for the user? If you’re merely lowering the cost by a bit you’ll have a hard time. Disruptive products are the best. How does your concept displace or improve on existing social media? Will your concept allow users to do something they’ve never been able to do before on line? Your area is not like a consumer or B2B product. There, the solution to a point of pain is the key. In social media you’re selling something that’s basically a luxury good – people don’t need it but the more their friends use it the more attractive it becomes. How do you play to that?

    Go to the Kauffman Foundation website and look up angel groups in your area and find out how to pitch to them. There are lots of people who are willing to bring resources to start-ups.

    Best of success.

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  19. DaveyNC says:

    Just read this article by James Altucher: http://www.jamesaltucher.com/2011/04/the-easiest-way-to-succeed-as-an-entrepreneur/

    Everything you need to know, right there.

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  20. Gabriel Moss says:

    Gosh I sure appriciate the pull to be the low price provider. What I would do in your situation is look for the one stand out unique aspect of what u offer. Even if in the end u chose to be the lower-priced option describe explicitly what that means in concrete concise termanology. For example A company I created called text medicine is in the start-up faze. Our proposition is simple and explicit.

    “What if you cut your twillio bill in half forever?

    At twillio you pay 2 cents per text message sent and recieved. This can add up to tens of thousands of dollars per month with the successful implementation of your program. At Text Medicine we focus soully on the simple sending and recieving of text messages via your application. There for we can lower our cost to be able to charge 1 cent per message sent or recieved by your program. And our API is identical to twillio making halving your bill as easy as flipping a switch.”

    It sounds like what you are passioate about is creating cutting edge solutions for social media. I say follow your heart and make what is unique about you explicit and concise.

    - Gabriel

    PS Sent from my iPhone so pardon the adbrevs.

    If you have created cutting edge technology

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  21. Horatio says:

    I just finished with Start With Why by Simon Sinek. I recommend reading at least a portion of that book. The basic premise is that people get stuck on the how or what (in your case perhaps cheapest alternative) and should instead focus on the why. Why are they in business why does their product exist? How is the world a better place because your company exists. This is a strong way to avoid being commoditzed or competing in a space where you can’t compete i.e. they have a better product, faster service etc.

    He gives Apple as one example. They aren’t always the best product but they have a clear WHY and people who buy their products have a vision for why they want them.

    Good luck.

    http://www.amazon.com/Start-Why-Leaders-Everyone-ebook/dp/B002Q6XUE4/ref=sr_1_1?ie=UTF8&m=AG56TWVU5XWC2&s=digital-text&qid=1305159114&sr=1-1

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  22. Nick Altman says:

    Being the cheapest is shortsighted. Promote your product as a new, better solution to a the challenges most businesses face with social media. If you able to deliver on this promise you can position yourself as a higher quality product and charge a much higher price. The market will perceive higher price=higher quality product. You might want to take a look at Influence by Cialdini and The 22 Immutable Laws of Marketing by Ries and Trout for more on these concepts

    Focus on pitching your product to businesses you identify that would greatly benefit from your service and use your first few customers to generate referrals. This will build social proof that demonstrates the power of your product to other prospective customers.

    Avoid creating a lite or free versions of your software as it will only pay off if you gain a MASSIVE amount of users. Skype and evernote are examples of this, both have large followings but Skype makes around $1.30 a user and evernote about $0.60 a user.

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  23. Dan says:

    Similar to a previous post mentioning a ‘value proposition’, you need to identify your entity’s competitive advantage – is the only advantage price? If so, there will always be a market for a cheaper alternative, however, is this really how you want to position yourself as a company? (Answer should be ‘no’ – see comments from Dirk).

    Maybe this is that you can provide your good/service for a more affordable price, but also look at what the large firms cannot do, which you can. Maybe a more personalized service or more intimate customer service. Maybe there is a demographic that is not being serviced or aware that your good/service can add value to their firm. Another thing to look at is, study and ask around about the opinion of your competitors, do they have a feature or function that is missing, or frustrating, or that you can enhance or optimize?

    http://www.twitter.com/DanGazarek

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  24. Anthony Lazaro says:

    Sounds like you have a competitive advantage (i.e., a cutting edge technology) but not all the bells and whistles as some of the other players. Your lack of “resources” may mean customers are less willing to switch or choose your services over the competitor. Thus, some sort of discount may work.

    HOWEVER, prices (especially for internet services) typically just go down. Thus, this discount needs to be apparent to the customer that it is temporary and that your services command a high price. I would highly recommend using free trials or even running a large promotional campaign (50% off this month) to engage customers and get them to test out your service.

    Anthony
    ThePricingJournal.com

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  25. Ross Hartshorn says:

    Pick a slice of the market (e.g. educators, small clothing retailers, rock bands, whatever) and learn their situation better than any of your bigger competitors. Then, you will be able to pitch your technology (and what it can do for them) better than the companies aiming at the entire world.

    The number one obstacle to selling new technology is that the customer is confused by the products on offer. If you demonstrate that you can speak their language as well as that of technology, you will stand out.

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  26. beuler says:

    All these comments are missing key strategies of the digital age (some of which you might object to on moral grounds but should study all the same):
    1 – Offer your service for free until you reach critical mass.
    (The value of a network increases exponentially with the size of the network)
    2 – Leave the market and becomehttp://www.freakonomics.com/wp-content/themes/freakonomics/images/post.jpg a patent troll.
    (Can’t win based on current patent law? Just harass your competitors into settling out of court)
    3 – Market to Venture Capitalists
    (Forget customers for now, focus on marketing to investors who can give you the resources you need to build a competitive business)
    4 – Find a different application
    (Apply your service to solve a different problem that the competition is addressing and become a monopoly in your new chosen market).

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  27. Daniel says:

    Patrick, you say you have developed a “cutting edge technology” but also that there are “other similar technologies”. If there is a lack of distinct (to the consumer) product differentiation then to try and undercut your rivals may be your only option, though as others have said the level of customer services, after sales etc can be just as important to the consumer. On the other hand, if your product is truly distinctive, then you should be able to charge a premium for the service you offer that nobody else offers as well as you do.

    Also, it doesn’t escape my mind as an internet user and ‘consumer’ myself, there is a significant unwillingness to pay for internet services and many will go to extreme lengths to find a free alternative (which wouldn’t be difficult if one of the ‘big’ players was offering such a free service, implying a different monetization route may be best). Social media may yet buck this trend, but I think people were very quick to dismiss your price advantage.

    Also Dirk, you claim only the customer wins during a price war, the customer undoubtedly wins but it may also benefit the company. (In economist speak, it depends on the price elasticity of demand) Basically, if the lower price brings in sufficient additional quantity, it will also be a net gain for the business as well as the customers.

    Having said that, Tim is right to point out that you would lose a price war, as you yourself admitted you can’t match these companies for resources. So it’s a tricky one! I do recommend taking advantage of being able to offer a lower price though, but obviously it’s then about how you present it. “Great value for money” sounds much better than “cheaper alternative than rivals”.

    Economics Student

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  28. Eric M. Jones says:

    A small contribution:

    I am frequently approached by people who want to develop some product (hardware, not software). They are very cagey about disclosing to me what they have in mind.

    Their plan is to hire a lawyer and file patents to protect their brilliant idea. I tell them to just start making and selling it immediately. You can always throw on a “Patent Pending” to make idea-thieves think twice, then you have a year from first public disclosure to file if you want. This goes along with the “ideas are worthless” rule.

    The USPTO (U.S. Patent and Trademark Office) has five million ideas that you can have for absolutely free. Learning the simple USPTO search language is worthwhile.

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  29. Kate says:

    I work for a startup myself, and I use a lot of free/cheap tools to manage our SoMe presence, like HootSuite, etc. Since I’m the only non-coder at my company, I’m always looking for a tool to help me out, and if it was cheap/free, I’d take it to try anyway.

    I agree with some of the other commenters to avoid the word “cheap.” It can have a negative connotation. Try going for something like “low-cost,” or “affordable,” or grab a thesaurus. There’s a huge market for SoMe tools out there, I’m sure you’ll hit something.

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  30. Martin says:

    Patrick,
    If I’ve learned one thing after 30 years of selling everything from bar soap (for P&G) to software it is there is NEVER only one way to solve a problem. Don’t despair and don’t start selling on price. Think of price as a line in the sand. Once crossed you can never return since prices ONLY, or with very rare exceptions, go down. Technology has the built in price erosion based on Moore’s Law, so starting low and being forced lower will mean a difficult ROI road.

    Even more important, price rarely creates brand advocates needed to get any startup to scalable traction. There is always a magical story to tell. P&G calls this the “unique selling proposition” (USP). You may be too close to your creation to know its brand advocate creating USP, but there is always one hiding in plane sight. Maybe your product’s USP is a combination of features combined with your backgrounds and journey. Sitting here with so little information I only KNOW your company, brand and product has a USP. Anyone helping you develop it would need more information.

    Don’t worry. You are not alone. I’m working with an old friend who has more than twenty years marketing products for others having the same difficulty. Finding the magic story always takes time, usually needs help from trusted sources and good resources. Here are some resources I’ve found helpful:

    Made to Stick by the Heath brothers (helps boil your story down so it creates its own “meme”)

    All Marketers Are Liars by Seth Godin (don’t let the title fool you this book is about storytelling)

    Tell To Win by Peter Guber (great stores and tips for how to sell million dollar stories from a Hollywood mogul)

    I would be glad to help anyway I can (for free since I know startups never have any free cash flow). ScentTrail Marketing is my blog. Type “ScentTrail Marketing” into Google and it comes up first. Good luck, have fun, find your product’s magical story and don’t start selling on price since there is always time for that later if all else fails.

    Martin

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  31. Siobhan Devlin says:

    No matter what pricing structure you choose, please remember that price is not a value proposition. If I don’t see the value of a product or service, even 99 cents is too much. Consider, for example, that just because an app is free on the Apple app store, doesn’t mean you want to download it – the cost in that case is only your time to click “download” and the space it will take up on your hard drive. A better positioning statement might be “lean” since some small businesses of solo-preneurs might find similar larger scale products too bloated / expensive / complicated / high-tech / unfriendly / hard to learn for their needs. Cheaper is NEVER a selling strategy you want to get into unless and until you’ve determined that’s the key appeal of your product, and you can’t possibly know that until you’ve done a beta run or soft launch. Definitely don’t over-price yourself if you’re offering something less feature-rich than the big guns in your industry, but don’t make the mistake of thinking “cheaper” is a selling feature.

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