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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  1. 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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  2. 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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  3. 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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  4. 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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  5. 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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  6. 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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  7. 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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  8. 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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