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Advice for Startups

A longtime tech mentor talks about issues like setting price levels and what it means to "pivot."

I have had the opportunity to mentor quite a few startup companies in the St. Louis region over the past several years. I was asked yesterday why I do it, and it because I want to give something back to my community, help others avoid some of the same mistakes that I did when I started my own business, and also because it is a lot of fun to meet entrepreneurs who are so passionate about their business.

It is also fun to see the widening of the entrepreneurial community in St. Louis: we just had a business plan competition (the Arch Grants) which gave away grants of $50k to 15 different startups, a few of whom are in the process of moving into town (as part of the deal to take the dough). This is just one of numerous other ways startups can raise funds here, as Jay DeLong shows you in this video about startups.

The common theme that I keep coming back to is taking care of the basics of business isn't always easy. What do I mean by basics? Things like pricing, understanding your market, and making sure that your niche is as narrow as possible. Let me give you a few examples.

One services firm I know was charging too little: in fact after getting some mentoring they doubled their rates! Figuring out what you charge isn't easy: I wrestle with this all the time, particularly in the down economy that we have today. My own rates have fluctuated over the 20 years that I have been in business, and today I still marvel at firms that want me to do work for them at bargain-basement rates, or better yet, for free for "the exposure." If I wanted exposure, I would go hiking in the mountains.

I keep telling folks that I am not a charitable organization: I work for a living, and so should you. Yes, there are times when I will work for free, but under very structured and controlled circumstances. For example, I will speak at different local community-based organizations' conferences. A speaker friend I know books up to one pro bono event each month and puts on her calendar. I like that method: you treat these freebies with the same value of paying gigs. She makes her money selling her books and consulting services from these events.

Yes, setting the right price is more art than science, but you do have to spend some time looking at your competitors and understanding that there is an implicit value in your rate: if you undercharge, you will be undervalued.

If you need help with your pricing, spend some time doing some testing: see what you can get at different prices from different clients. While this isn't very scientific, it should give you an idea of how high your should (usually) raise your rates.

Do you really have the right niche for your product or services? One software firm that I am working with has a very narrow niche for its product, and has done well continuing to focus on what people in that niche need. But what happens if your niche is evolving? You have to evolve with it. As I said earlier, you want to continually find a narrower niche, so you can become the dominant player in that niche. Many new ventures make the mistake of going too wide rather than deep: then you are in different markets with limited resources for each.

The term du jour is "pivot" which used to mean solving a set of linear equations back when I was in grad school but now means that you refocus your startup business. That gives the impression that your original idea wasn't sound. Instead, constantly refine what your offerings are.

Finally, if you have the right price and the right niche, there is the right market for your goods and services. Another firm I know was focused on the college-age market. They had a second service and designed it around this audience, because this customer is someone they knew and understood. They want to leverage their expertise in this space, not try to be all things to all ages. It is a valuable lesson.




Tags: startups, startup


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