Start-up: September 2008 Archives

Setting the price for a new product or service can be an agonizing process for new entrepreneurs.  If they set them too high they risk turning off new customers.  If they set it too low, they risk leaving money on the table and locking their businesses into low prices.

Diana Ransom writes about the challenges of pricing at SmartMoney. 

Newbie entrepreneurs often miss the mark on pricing, says Laura E. Willett, a small business advisor and finance professor at Bentley College in Waltham, Mass. Entrepreneurs either blindly place a price tag on their product or service without taking a proper reading of the market or, perhaps more commonly, they underprice their offerings on purpose - effectively apologizing to the market for being new and inexperienced.

Ransom interviewed Belmont alum Cameron Powell for her story:

When Cameron Powell launched River Rock Media Group, a Nashville, Tenn., photography and media production company in 2005, he charged just $75 an hour for his photography service. Considering that similarly equipped photographers can earn between $1,500 and $2,500 for a full day's work, he's certain he underpriced himself.

"It got me gigs and it gave me experience working with people. But it didn't help me gain a whole lot of footing with the market I wanted," says Powell who now earns the going rate. Instead, he adds, "I was attracting people who didn't have any money."

If you have to offer low prices to enter a market, make it clear that they are introductory discounted prices.  Don't start with a low price and hope that you can increase it down the line. 

Knowing how to effective sell is probably the most underrated skill an entrepreneur needs.

We need to know how to sell to the customer -- products or services rarely "sell themselves".  It takes hard work and perseverance to get the connected to our customers.

We need to know how to sell to sources of money.  Bankers (if there are any left who lend money these days) and investors need to be sold on you and your business.

We need to sell to potential employees.  Going to work in an entrepreneurial venture, especially if it is still a start-up, is a risky move.  Most potential employees are more risk adverse than we are -- that is often why they are not entrepreneurs.

In an article at Smart Money, Diana Ransom examines the art of selling to the customer for a new start-up business in interviews with Don Kuratko from Indiana University, Stan Mandel at Wake Forest, and me. 

The first step is to recognize that challenges you face as a new venture:

Many novice entrepreneurs stumble when trying to win over their first few clients. Besides just making simple mistakes during the presentation, start-up entrepreneurs have few, if any, success stories that they can point to, says Jeffrey Cornwall, the director of the Center for Entrepreneurship at Belmont University in Nashville, Tenn. The lack of an established track record can really hurt a business's chances of landing a client, especially when the client is already working with a more-established competitor.

Ransom then identifies six key elements that lead to an effective pitch: 

• Know what you are selling
• Customize the pitch
• Back up claims
• Create a client base
• Offer free or limited use trials
• Enlist an advocate