Lean startup validation: Don't be cheap
If you're the founder of an incipient startup, it's tempting to offer your product or service for free to get to initial traction. That's mostly a bad idea though - which is why I advise founders to focus on getting paying customers as soon as possible.
But once you ask prospects to part with their money, you'll encounter resistance. People who just told you how much they love your idea, and how great it would be to have such a thing as yours suddenly become a lot less enthusiastic about your product.
You need to fully commit. No retreats!
I encounter the following all the time: a founder hesitantly embraces the idea of charging money to validate a business idea. But once a couple of prospective customers don't buy, they flinch, squinch and retreat.
"Oh, maybe charging money this early was a bad idea after all", the deflated founder tells himself, rationalizing his withdrawal. "I should just offer our product/service for free, get a foothold in the market, prove that I can provide real value, and then we can start making money."
How to catch 'Charge-O-Phobia'
At a recent Lean Startup Conference a fellow speaker told me how an initially enthusiastic prospect turned cold once she revealed their price tag.
The price is too high, the prospect said, thank you very much, but no, goodbye.
She tried to win the prospect back, assuring their price would be negotiable and she'd be willing to make substantial concessions should that be required to reach an agreement.
But the client refused to re-engage in the conversation. "You may contact us again next year", he cut her off.
Dispirited, our founder developed what can almost be called a phobia of charging money. She had pinned high hopes on that particular prospect, everything seemed to be going well... until she had asked for money.
Stop chasing unicorns
If a prospect cuts off the conversation just because an initially quoted price was too high, that prospect never had any sincere buying intent.
Which is exactly why you want to ask for the money early and often. Because some prospects will lead you to believe that they love and want your product... and yet would never buy it.
What should you do when an initially enthusiastic prospect turns cold once you quoted your price?
Find out why they think your offer isn't worth it. Ask a lot of follow up questions to uncover the real reasons. It's almost never price!
Why don't they want to pay your price?
How much would they want to pay, what number did they have in mind?
How much would this be worth to them?
What would you have to offer to make them want to pay your price?
Not getting real answers?
If you feel the prospect isn't being fully honest with you, bring it up:
"This is really hard for me to understand. Help me out here. What am I not getting right? It seemed like you were really interested, and our solution is the perfect fit for you, and I'm open to hear the price you had in mind to make this work. Help me understand how we can move the conversation forward. What am I missing here?"
Resist price pressure
It's always tempting to just lower your prices, but that's almost never the right answer.
What do you want to be worth? That's what you should be charging! You can't build a sustainable business with commodity pricing. Instead, go with 20/60/20 pricing.
All too often founders don't charge enough money because they lack confidence. They want to avoid asking themselves an uncomfortable, but fundamental question: "Did we convince them of the value our product/service creates for them?"
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