Lean Startup Conference 2014: "Will they buy?"
If you’re a B2B business idea and want to find out whether it's valid and worth pursuing, there is one question that you should ask above all others: Will they buy?
Don't just ask prospective customers "Will you buy it if I build it?"
That's not enough. You need to sell them your product. They shouldn't answer with words, but with dollars.
If they give you money = "Yes, I will buy this."
If they don't give you money (even if they say they would) = "No, I won't buy this."
Money is the ultimate and absolute validation that your business is creating value in the world.
But what if you haven't even built your minimum viable product (MVP) yet? How can you validate a business idea and do customer development if you don’t have something to sell yet?
That’s exactly what lean sales is about. You sell the thing before it exists.
Most entrepreneurs spend too much time, money and effort on designing a logo and website, printing business cards and fancy brochures, and not enough time getting customers.
It’s a fallacy to believe that these things are necessary to get customers. If you can’t close deals without bells and whistles, then your business idea probably isn’t valid anyway.
Get customers before you build the business!
That’s how my co-founders and I started our company ElasticSales. We went from initial idea to paying customers in a very short amount of time, with nothing but hustle; we wrote a very basic sales script and started cold calling other startups and sold them our service. In fact, we landed 7 paying customers in 14 days.
It was a scalable on-demand sales force (think Amazon AWS, but instead of servers, we offered salespeople).
We grew fast, but there were some serious issues.
Finding the right pricing model
Our price model was messed up. We had charged a flat $300 per salesperson per day, which didn’t properly reflect the value companies got out of our service, and it didn’t allow us to run our business in a predictable manner. Some months we couldn’t keep up with demand, other months we had to pay for a huge overhead and weren’t generating enough revenue.
So we came up with a new and bolder pricing structure, which allowed us to work in a much more predictable and scalable way, and as a result of that, offer a lot more value to our customers.
If you are interested in a more detailed breakdown of how we fixed our pricing, just send me an email.
Turning our internal sales software into a public product
To manage all the sales emails and calls our sales reps did for our customers, we needed to have a solid sales software. We looked around and tried to find something—but they all sucked nothing met our expectations. So our engineers built our own in-house sales software.
Salespeople loved the simplicity, and productivity gains so much that they started telling their friends about it, who also worked in sales, but for other companies. Soon we started seeing random salespeople asking us if they could buy our software.
That’s what ultimately led to the decision to release Close as a product in January 2013. We signed up a lot of customers, increased our prices and reached profitability very quickly.
Our sales software was still pretty much an MVP at that time—we didn’t even have reporting. A sales CRM without reporting features is akin to a bicycle without a saddle.
But salespeople still bought it, paid for it and loved it. That is validation!
If you’re not embarrassed by the first dollar you charge, you charged too late.
How to price your product
Finding the right price point is a complex endeavor, but let me simplify it:
- Come up with a number that you think is right. You probably already have checked out what other, similar products in the market charge, and have an idea about how much it's worth.
- Once you have that number, double it.
- That’s your price.
Charge a high price from the beginning.
Then start selling. The market will tell you whether your pricing is right or not. I use the 20/60/20 formula.
20% of your prospects tell you they won't buy because it's too expensive
60% of your customers should tell you "It's a bit high-priced, but we're getting so much value out of it that it's worth it."
20% of your customers tell you pricing is not a factor at all (and you could even be charging more, although few actually tell you that).
Most founders undervalue their own product. That's not a good thing—not even for your customers. Because it deprives your startup of future resources you need to make your product even more valuable.
Don't want to charge for v1?
Most founders don’t want to charge money early on. They want to give it all away for free and then build in some clever monetization scheme (it worked well for Zenefits, right?). Or they want to allow the first 1,000 companies that sign up to use it for free.
Now in some cases that can be a good strategy. But in most cases, it’s simply a justification for not facing the emotional discomfort of asking people to pay for your product.
If you’re charging money, you’re really asking your prospects and users the question: “Do you believe that our offer actually delivers something of value to you?”
If the answer is yes, they’ll tell you with their money.
Want more advice on getting customers for your startup? Get started with our free sales course today!