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. 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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  2. 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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  3. 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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  4. 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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  5. 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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  6. 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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  7. 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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