UPDATED – Pricing for start-ups

Pricing for start up businesses | Debra Chantry | Business Coach

I was recently contacted, through The Icehouse where I work as an Executive in Residence & Business Coach, to answer some questions for www.stuff.co.nz on pricing for start-ups.

Here are the questions that I was asked and my full answers.

1. Is there a temptation to price too low? What are the risks of just trying to undercut competition?

There is always a temptation to price too low, particularly when you’re a start-up and you think that the only way you can grab market share is to make it cheaper for people.

This is particularly evident in the service sector, where people look at ‘big company’ prices and realise that they can charge a lot less than big companies because they don’t have the overheads.

Pricing is always a short-term strategy & one of 2 things will happen over time. You will become a larger company and will start to encompass some of these overheads, which means that you can no longer sustain the lower prices, or someone with bigger pockets will drop their prices to match or beat yours… and no-one wins in this situation.

The reality is that if you have established a real ‘pain point’ and / or a ‘unique value proposition’ then customers will not choose you on price alone. They will come to you because you offer them something that they need or want and they will be prepared to pay for value.

The same applies for products & services.

2. Is there a temptation to price to overvalue services in the hope of making big returns?

Not generally.

What I do find is that people underestimate the costs of running a company in general. Often people miss out on the basic costs or don’t think to the future when the company grows and what additional costs that is likely to bring. As a consequence they tend to undervalue their products & services and price too low.

I also find that Kiwis, and particularly female entrepreneurs tend to undervalue their own time & experience. We work with many companies where we take them through an exercise to understand what value they truly offer and it almost always results in increasing prices.

That said, there are cases where people have over-valued their product or service and often a change in price will create significant increase in demand, that substantially affects the profitability of a company. This can work both with a price increase and a price decrease if the pricing is wrong. It’s about getting the right balance and understanding what value you offer, what margin it can support and the competitive nature of the industry that you are working within.

3. How do you accurately value your skills and services to meet the market when you’re starting out, so you don’t have to make big adjustments later.

We encourage every start-up to do an analysis of the competitive environment. This would include things such as pricing, features & benefits, positioning, quality, selection, service, reliability etc.

From here we work with frameworks that help you map out the environment and see where your niche is and what value is to the customer, and therefore what margins it can support.

Once a company has established their niche and their value, then pricing becomes an easier task.

4. How common a problem is it for start-ups to get the pricing wrong – and what are the implications of getting it wrong

It is very common for start-ups to get pricing wrong. The implications of this is that they may get stuck in a business where they are working long hours, are not reaping the rewards and can not afford to bring anyone else in to help them.

Additionally they risk losing customers when they put their prices up.

It does sometimes happen in reverse when the price has been too high and a small adjustment can significantly increase demand but in general I would say that it is easier to start higher and lower your prices than it is to put them up.

NEW – What’s the biggest product pricing mistake?

The biggest product or manufacturing pricing mistake that I see, particularly with artisan / handmade products, is not costing the product properly – either through missing out components of the product or not taking into account the labour time to make the product.

Artisan producers often neglect to consider the costs of using a commercial kitchen and their own labour costs. At the end of the say, when you scale, you will have to employ labour to undertake this task, so it needs to be built into the cost of the product.

Add this to trying to compete in the same pricing space as mass manufactured goods or goods from China and it’s a recipe for disaster.

COLD HARD FACT – Hand made / artisan adds value to the product and you need to recognise that value and charge accordingly. If you can’t find buyers who are prepared to pay that price, then you don’t have a product that is worthwhile making for sale.

I’m always happy to have a chat to start-ups about their pricing – just contact me.

Written by Debra Chantry (Principal | Business Coach) for stuff.co.nz.

 

Making business planning fun – is it possible?

Business Planning | Business Strategy | Business Plan

It can be overwhelming to put pen to paper and come up with a workable, detailed and water-tight business plan. You know it’s important because without a plan you have no direction, and of course you’ve been told by every business guru around, without a plan you are doomed to fail.

No pressure, right?!

You know something? Business plans really are just guesses. I’m not the only one who thinks so. Check out this snippet of wisdom from the book “Rework”.

You don’t know what the market is really going to do and how it will impact your business. If you sat there and went through every worst-case scenario you’d be working on your plans for months and be thoroughly depressed in the process. Then throw in Murphy’s Law – that one scenario you didn’t plan for, will be the one that actually happens – and then where are you at?

So now that you even more daunted about the prospect of writing a business plan, let me change your focus a little and make it less daunting and more… fun!

Is a business plan important?

Yes a plan (or guess) is important, you need to write one for your financial backers, your business partners and you need one for yourself too. It is a place to start from and a place where you can refer to when you need to make big decisions. “Should we invest in the R&D department or marketing?” Referring back to your business plan will help you come to the right decision.

Planning is vital, it will save you time in the long run. Think of it this of it this way, just imagine that instead of giving your web team a clear brief, you said: “Oh just make me something, but I don’t know what I want until I see it.” You know what? You’ve just created the perfect storm for massive delays, budget blowouts and a creative team who will despise you.

A business plan works like that too. If you don’t know what you want the end result to be, how will anyone else?

Don’t get hung up on it.

But don’t worry that the plan has to be perfect. Just because you’ve written it once, doesn’t mean you’re ‘one and done’. This is a starting a place, a plan which you will revisit and tweak, that’s normal and expected. One of the first things we learn in marketing is “Adapt or Die”, if you don’t adjust to market conditions your business will go under. Your original plan may have only mentioned Widget A, but you always knew that there was a possibility that you may need to change to Widget B.

How to stop procrastinating

So you know it’s important and you know you need to start. You also know that the business plan will adjust over time, but by golly you seem to be more interested in washing the dishes and cleaning the house than writing that business plan.

So rather than having a goal of “I will write my business plan this week”, think more along the lines of a ‘system’. James Clear has some great advice on how to change your thinking and achieve more in the long run.

The idea is rather than making it a big scary goal, break it down to a process.

Something like: “Every Monday and Friday I will complete a section of my business plan.” So rather than thinking of it as a goal, think of carving out time every Monday and Friday. Then, before you know it … thy will be done. It may not be as fast as you had initially hoped, but it will get done. If you ditch the need to have it done by a certain date, and commit to writing on certain days, you will feel more satisfied and successful.

Just start.

So let’s have a little fun with it. By coming up with ways to make it less overwhelming, you may be inclined to get the plan written today – rather than sometime in the future. You could try one of these ideas:

  1. Write from the first person. Throw in a lot of ‘I will sell…’ ‘It is my belief’ etc.
  2. Don’t call it planning. Call it something else, mind-mapping, soul-searching, brain storming. .. whatever makes it more palatable.
  3. Not a writer? Use your smartphone and voice to record your plan – and get someone else to type it up if needs be.
  4. Incentive (or call it what it is – bribery). Every section complete means you reward yourself with something.
  5. ‘Not specified or TBC’. Don’t be afraid to use these phrases. As we know it’s all just guesses anyway. You really don’t know how many units you’re going to sell. So put TBC in there for now and come back to it later.
  6. Just write it. Don’t worry about the structure and making sure you fill in all the blanks, just go for it.
  7. Done is good enough. Just get it done, don’t go for perfect … it is a work in progress doc.
  8. Use a variety of media. A business plan doesn’t have to be a 20 page block of text. Use video, audio, graphs, notes, diagrams to lay out your content.
  9. Use a variety of APPS. We are spoilt for choice when it comes to online business tools. Consider an app such as Evernote, Pinterest or iMindMap to keep your plan visual, mobile, easy to access and add to.

A really fun way of getting a pretty complete business is plan is:

Your business plan in 10 tweets” method.

Since we live in the social media age you probably think and write in 140 characters anyway. Use this to your advantage. This will help speed things up and make it fun!

Think of these categories as a tweet which you can come back to and flesh out where needed. So here are 10 categories that you can fill in – a total of 1400 words.

  1. Describe your business. (Value Proposition)
  2. What ‘problem’ are you solving in the market? (Market Need)
  3. Describe your product and since visuals sell, include an image. (Your Solution)
  4. Who is your competition and why is your product better than your competitors? (Competition)
  5. Who is going to buy your product? (Target Market)
  6. What’s it going to cost? i.e. How much to produce the items, and how much are you going to charge your customer? Go for gold and decide how many you are going to sell and what profit you are going to make. (Financials: Budgeting & Forecasting)
  7. How are you going to market your product? (Sales Channels & Marketing Activities)
  8. What have you already achieved and what do you want to achieve? (Milestones)
  9. Time to introduce yourself – why are you the right person to lead the team? (Management Team)
  10. How much money do you need to launch the business and how are you going to spend the money?(Funding Needs & Use of Funds)

You could even do this in your lunch hour during the work week. All you’ll need is some ‘extreme focus’ and you could have it done in no time.

Of course you may need to flesh out the above sections if you are after financing. But what I’ve found is that the hardest part is getting through this first ‘draft’. Once things are clear in your mind and on paper, it’s much easier to take each of these sections and dig deeper to make it more palatable for your potential investors.

If you look at writing your business plan from a different perspective, it can be a fun and rewarding process.

And if you can’t get started yourself then get someone to facilitate the process (my specialty is arse kicking!).

My question to you today is then, should writing a business plan BE FUN?

Gigabit Town Judging

Gigatown competition driven by chorus

Last week I was I was asked to judge the videos for the Gigabit town competition on behalf of The Icehouse. (Where I’s a Business Coach & Executive in Residence)

What is Gigatown?

Its a competition run by Chorus where businesses and towns compete to become a ‘Gigatown’.

To quote their website (www.gigatown.co.nz):

Gigatown can be the most connected, gig-savvy town in the Southern hemisphere with access to a one gigabit per second (1Gbps) internet connection.

How do we decide who gets to be Gigatown? Actually, we don’t decide – you do.

We’re looking for the town that wants it the most. There are two ways we’ll be measuring that drive, enthusiasm and determination to be Gigatown:

1. by listening out for the town with the loudest voice on social media; and

2. by tallying up the supporters for each
town signing up on this website.

The  final entries were selected & then passed to us for final judging.

It was a great experience – I learnt a lot about some of our fantastic New Zealand Businesses bur also a lot about some of our more rural towns.

I can’t tell you who our favourites were…. but watch this space.

 

Written by Debra Chantry – Business Coach | Principal

 

 

Wendyl Nissen – Charging forward

Wendyls - Business Coaching | Business Strategy | Business Planning | The Icehouse | Debra Chantry

It has been my absolute pleasure to work as a Business Coach for Wendyl Nissen & Daniel Ellison of Wendyl’s through The Icehouse. Wendyl & Dan have an amazing philosophy to help people live a healthy eco life and you won’t find people more passionate about it!

They started their business a few years ago and as Wendyl puts it, “tended to organically grow from one crisis to the other.”

We’ve spent the last few months business coaching, undertaking strategic analysis and planning to understand where Wendyl & Dan want to take the business and then what they and the business needs to do to achieve that goal.

It’s been an interesting journey and we’re not there yet… but it’s great to see Wendyl’s charging forward 🙂

Debra Chantry – Business Coach & EiR at The icehouse.

For the original article – click here – http://www.theicehouse.co.nz/wendyl-nissen-and-the-icehouse-part-2-moving-forward/

Wendyl Nissen and The Icehouse Part 2: Charging Forward

Written by Wendyl Nissen
At Wendyl’s we’ve been very busy implementing the first part of our business plan. We are six months into our work with The Icehouse and we have successfully re-branded. We have changed from Wendyl’s Green Goddess to simply Wendyl’s and we have a much more simple, easy to navigate website – check it out at www.wendyls.co.nz. And most importantly we have changed the design of all our labels to take them from their heritage, brown paper, Whole Earth look to a more colourful, simple, younger look.Our all-natural cleaning and beauty products now look capable of growing into a bigger, younger market and finally have a website to support it. Yet we have still retained the essence of our brand which is honesty and trust. We have added the tagline to all our products which says: “Handmade by us, for you, since 2009, Wendyl and Daniel.” And we still provide the recipe for all our products- the only difference is they are now on the website rather than on the label!My son Daniel and I would not have had the confidence to do this monumental change if it hadn’t been for our Icehouse mentor Debra Chantry who has met with us every two weeks and gently pushed us to meet our own deadlines which we would have stretched had it been up to us. She also encouraged us to take some risks (getting a bank loan to do the re-brand). But most importantly she was there to listen when we said: “This is all too much, it’s doing our head in!”Because the thing about changing your business for the better is that a) it is hard relentless work and b) it is just plain scary.So Debra’s role expanded ever so subtly from giver of information, common sense and advice, to supportive social worker, giving me and Daniel much needed hugs and pats on the back when we were lacking confidence.
We look forward to our fortnightly meetings with Debra because she can help us see ourselves from the outside when we are so involved with the inside day to day workings. We’re not business analysts and have tended to organically grow from one crisis to the other. Now we have data to analyse and can see trends and good news on the horizon.Now, we need to take our new look and find the new customers it was intended for.We know we have a secure, loyal customer base in my age group which is women 40 and older. Now we need to target customers in the younger age group of 18-30 to which my son Daniel belongs.These are the young professionals who care more about the environment than any other generation before them. They don’t mind paying a bit extra for a product which is trusted and will help the planet. They regard the extra expense as something they should pay for as responsible citizens.

So now, with Debra’s help, we’ll be hiring a marketing coach.