Avoiding the Hockey Stick Plan

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Avoiding the Hockey Stick PlanAfter counseling over 1,500 clients seeking to start new businesses, it’s troubling so many of them seem possessed with what can be called the Zuckerberg, venture capital, or hockey stick plan to starting a business.

I typically read 3 to 5 startup business plans a week.  So many are simply outrageous just because of the projected growth curves.

Everyone thinks they are the next multi-million or billion dollar startup.  They find the need to project $15-20 million of revenue in a couple of years to get funding.  This was illustrated recently by the response of a client.  I asked her the basis of her forecast which showed a sales growth rate of 15-20% per week.  When asked about her assumptions she said,

“That’s what the venture capital firms say they want.”

In contrast, many studies of entrepreneurs from IDEO to Malcolm Gladwell contend that slow but steady, multiple product developments, experience, and testing are the best predictors of success. [Read more…]

Startup Capital is the End, not the Means, to a Successful Startup Business

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Startup Capital is the End, not the Means, to a Successful Startup BusinessSeveral clients and consultants advocate startup capital as entrepreneurs’ greatest need.  Our take on this assessment is they have put the cart before the horse.

Startupconnection argues entrepreneurs need to develop a basic business plan before they worry about raising money.  Any source of startup capital will be reluctant to provide access unless one can initially address a number of key questions:

  • How much does the venture/business need?
  • How and when will funds be paid back?
  • Why should anyone have faith to invest money in the venture?
  • What is the expected risk and return?
  • What are the resources the venture/entrepreneur has or plans to have to   support the request?

[Read more…]

Internet Marketing – The How, Not the What

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internet marketingThere are thousands of consultants who will tell you what to do to be a success in Internet Marketing.  The real issue consulting clients face, however, is to get advice on how clients can develop and execute an online marketing strategy.

I have found five areas where consulting related articles, books, webinars, training, particularly with the how, fall short:

  • They do not provide the expertise needed to execute a marketing effort.
  • They fail to understand a client’s needs, goals, capabilities and finances.
  • They offer no way to understand a client’s interests and marketing hot buttons as they relate to their customer/s.
  • They fail to integrate the different elements of a marketing program. As a consequence, consultants do not offer guidance to the client so that the weakest link in a client’s marketing program does not ruin its overall marketing effort.
  • They do not help a client determine goals and the measurement parameters necessary to help them improve their efforts for success.

[Read more…]

Excellence in your Business Planning

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What is “Excellence?”

I recently asked several professionals to answer the question:  What is Excellence?

Respondents included teachers of developmentally challenged kids, heads of hospital emergency departments, and fast food restaurant executives.

Their answers were simple:

  • Developing excellence in the business planning process should be the major focus and direction
  • Focusing on results is biased by outlying variables
  • One needs to accept small gains and details and understand the differences in individuals and structures when defining success.

These responses were typical of those I received in my survey, as exemplified by the teacher who beamed about her young challenged student learning to say a color or being able to walk up the stairs.  For the emergency department manager, the example had to do with reducing average patient waiting time a few seconds.  She noted that those few seconds could prevent more severe complications from heart attacks and save lives.  The fast food manager emphasized the importance of coordinating production of food with its prompt delivery, either “for here” or “to go”.

The purpose of this article is to make the point that these responses don’t really get to the heart of the question “What is Excellence?”  Instead, they focus on specific actions and outcomes rather than on the culture and execution of excellence throughout the organization.

The following illustration will help clarify my point:

Excellence Embodied in Business Planning

 

Examples of companies that, by using good business management, embody excellence throughout their organizations.

Examples of companies that, by using good business management, embody excellence throughout their organizations.

 

Many companies say they are committed to excellent customer service.  However, some companies have come to embody true excellence and not just give lip service to the term.  Examples of such organizations include Lands’ End, Ritz Carlton Hotels, Nordstrom’s, and L.L.Bean.  These companies have truly embraced business planning excellence at the heart of their identity, vision and mission.  Excellence permeates every aspect of these organizations.

There are several common factors in these diverse companies that illustrate the components of excellence.  It is sometimes overlooked in business planning that it is the culture and the commitment required throughout the companies in developing excellent practices.

Examples include:

  • In order to offer unlimited returns you need to provide excellent quality
  • Service companies like Nordstrom’s and Ritz Carlton both recruit and train staff to be excellent from the very first day
  • Companies focused on excellence exhibit trust in their customers.  The reality is that most consumers are honest. If companies are preoccupied with the few cheaters they will often ignore many legitimate complaints and not improve as a result
  • Empowering employees both encourages satisfied customers and motivates employees to experience success.

Another component of excellence is identifying, nurturing, and realizing the potential of excellent people. While it is easy to extol the virtues of excellence, we frequently ignore the conditions and risk of not pursuing it.

  • Excellence requires integration with organizational cultures, structure, and collaboration
  • Excellent people often tend to be independent by nature and require a culture that encourages their energy, determination, and focus
  • Evaluating the potential of excellent people becomes complex. They are frequently introducing new concepts, processes, and technologies. Evaluating both the risks and costs of success is frequently done in unchartered waters.

A major negative consequence of “results-focused” excellence is that we can make more errors in constraining excellent people than we do by encouraging them.  The reason for this is quite simple.  Everyone is aware of the costs and failures of special programs that do not succeed.  What we are not aware of are the losses we never realized in not pursuing new and exciting strategies.

These issues also relate to us as individuals.  We all want to be effective at whatever we are doing.  No one starts their days saying “I am going to do a lousy job today,” or “I am going to make my day miserable.”  However, many times our aspirations, goals, and efforts become frustrated.  There are numerous dimensions to this dilemma that can all contribute to our ineffectiveness.  Avoiding failure and stifling excellence has now become epidemic to many organizations.  The organization builds layers to take every idea and ensure it is analyzed and reviewed to meet various legal, cultural, and strategic criteria.  This almost always results in delays, watering down, and eventual rejection of the exceptional and different.

A friend of mine once put it this way when talking about many students coming out of ivy league business schools:  “They are not trained how to succeed, but how NOT to fail.”

Some suggestions for creating an environment and approach that foster Excellence include:

  1. Recognize strengths and weaknesses—then pursue the strengths.  For example, in interviewing applicants I will focus on the strengths rather than the weaknesses to learn about the successes to understand the energy and dedication of an applicant
  2. Find opportunities where one can succeed.  People are frequently terrified to quit many dead end jobs or admit they are wasting their careers.  This is particularly true in declining companies and industries
  3. Provide the confidence to pursue what one should be doing.  Many times both individuals and organizations minimize risk even if the payoffs more than justify the risk
  4. Stop spending so much time trying to correct weaknesses.  Start exploiting advantages that can result in significant opportunities.  Organizations continue to feed lost causes and ignore realities like changing demographics, technology, and competitive position
  5. Organizations need to commit to professional decision making as opposed to position.  Companies need to start accepting expertise through giving more responsibility to their key employees and having flatter organizations.  These organizations are also frequently more nimble and have lower costs
  6. Within organizations, different cultures need to accepted and appreciated.  For example, the accounting and product development teams have different roles and require different structures and rules to be optimally efficient
  7. If an organization is not making mistakes, they aren’t trying hard enough.  This is the best phrase I have heard in terms of learning to accept risk.  The key issue is not to encourage failure.  The successes will justify the total effort.

It is clear that both individuals and organizations have over-emphasized the risk of failure versus the rewards of success.  One need only look at the old line industries, such as retail and furniture, to realize that many of them have simply not adapted to their changing environments and taken the necessary risks to survive.  Similarly, individuals underestimate the risk of staying in poor situations and the rewards of trying to maximize their capabilities.  Both individuals and organizations need to realistically assess the risks of failures and the rewards of success.

As Gandhi said:

Many people, especially ignorant people, want to punish you for speaking the truth, for being correct, for being you.

Never apologize for being correct, or for being years ahead of your time.

If you’re right and know it, speak your mind.  Speak your mind.

Even if you are a minority of one, the truth is still the truth.

New Structural Paradigms for Business Management

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How Can They Become Part of the Business Management Process?

Today, businesses (large, mid-sized, small and startups) and the business management experts that advise them are all focused on openness, transparency, brainstorming, support and innovation.  We, too, have acknowledged their potential positive impact on decisions, motivation and profitability.  Unfortunately, the reality is quite different, they are rarely happening nor are they truly supported.  This article highlights the constraints and barriers facing business management to executing needed business changess.  We have found that just as what’s so often similar to today’s conflicted political environment; what’s missing in business management is a realistic view of many issues and the changing environment we live in.

Society and business management fail to recognize old paradigms and structures are failing

New Structural Paradigms for Business Management

New Structural Paradigms for Business Management

Many of our largest and seemingly most powerful corporations have experienced zero growth or failed over the last ten years.

  • Large corporate structures ( the post office, newspapers, magazines, and brick and mortar retailers), are all gradual losers or worse.
  • Companies and society continue to do what they have done in the past, often with poor results.  Despite massive investments, varying economic and political efforts, social problems like education, unemployment, and income inequality, are not being properly resolved.
  • Ignoring and failing to adapt to societal/business trends is done at our peril.

Many political, religious, educational and other institutions are facing crises because they fail to adapt.  For example, it is generally accepted that pre-kindergarten programs dramatically impact education and long-term societal goals.  Yet, few school systems nationwide have adapted them.

  • Closer to home we tend to ignore trends and deal realistically with issues. For example, U.S. manufacturing jobs aren’t coming back when countries such as China and India pay 10-20% of our rates.
  • Demographics make matters even more complex:
    • Women are soon to represent over 50% of the labor force;
    • Workers over 45 have increased from 31% to 41 % of the population;
    • Over 50% of births in the country are non-white;
    • Large numbers of college educated students between 20 – 26 face extremely difficult odds in finding well-paid jobs and careers;
    • The list goes on.

With little real attention to these changing trends and other factors, poor performance of many organizations is virtually a given.  What is even more distressing is that it is the business management structure of these organizations that produces much of the results rather than the typical financial discussions.  For instance, the long held proposition that bigness which includes:

  • economies of scale
  • Spreading expertise
  • marketing synergies

Other presumed advantages have simply shown little evidence of success in the last few years.

Why is this phenomenon so apparent and why have so many organizations shown so little progress and success?

  1. First, many seemingly successful companies have tunnel vision, organizational constraints etc. and ignore emerging technologies and opportunities.
  2. Second, they lack the flexibility to respond to the needs of the market and use outdated solutions to new problems.
  3. Third, they fail to allow the vision, entrepreneurship and risk necessary to succeed.

The challenge facing today’s business management, organizations, and individuals

The business management challenge for organizations and individuals today is to create an environment where the structure and culture of the organizations encourages adaptation and change. I strenuously argue that if we do not learn to accept and accommodate deviant behavior within and outside organizations, we cannot achieve excellence or change.

While business schools, particularly top MBA programs, and organizations both preach openness, creative dialogue, and problem solving; they are seldom really practiced. In reality, support, listening, teamwork are frequently emphasized over fact finding, analysis, and arguing over alternatives.

This assessment was evident to me in my own consulting efforts over a number of years.  Many of my colleagues focus on being supportive of virtually everything a client proposes and avoid asking for difficult but necessary facts such as financial and sales records.  After years of my criticism, two of my colleagues have modified this strategy and adapted a simple good-guy bad-guy approach along with my collaboration.  They start meetings telling me in front of the client to be nice and if I am not, they will just tell the client to ignore me.  The strategy almost always works because we are surprised at our ability to get information and discuss what would be hidden or avoided in a normal session.

Improved communication, the internet and digital integration have profound effects on organizations we fail to fully comprehend.

Companies such as Nordstrom’s, Amazon, Zappos, Ebay, etc. thrive on opportunities from the internet and digital communication.  In contrast, companies such as HP, Sears, and Blockbuster continue to adhere to tradition bound business approaches and tend to change executives every few years or less.

Open systems and collaboration are like winning the trifecta at the horse track.

What is emerging today as a potential solution is the acceptance and reliance upon open systems and collaboration.  Open systems have been around for a long time but are becoming the norm for success.  They reject bureaucracy, authority, hierarchy, and closed decision making processes.  They encourage participation, diversity, new rules, and to some extent, chaos.

Google, the Internet, Facebook, LinkedIn, smartphones, tablets, etc. are examples of enablers through open systems.  Facebook and iPads may seem like play toys to some, but their inherent potential is just in its infancy.  The ability to quickly find information, engage participants, communicate, and see spontaneous actions and decisions are all results of these new phenomena.

What must we do to adapt to the changing requirements of business?

What is frustrating is that there are realistic new models of success.  We simply need to follow them which is not something typically done.

1.  The simplest approach is more cooperation.  Bartering, measuring and communication are suggestions for improving cooperation:

  • A highly skilled client of mine who had a costly technology needed to raise capital.  He had several investors who were willing to participate, if he could raise seed money from other investors.  He managed to get small investments from some clients and in return gave them dramatically reduced services as an offset.  He then got investment funds to jump start his business.  His clients got services they normally couldn’t afford, an investment opportunity and great value for the services.  The client also got initial success stories to help market to other customers.
  • Organizations need to be open to measurement and feedback.  Looking, understanding and sharing financials, operations reports and sales reports are the first step.  Simple research studies, social media and other devices are additional tools.  Simple management involvement through tools which might include just walking around or “how am I doing“ also work.
  • You need a commitment to open communication.  One of the investors on the “Shark Tank” TV program had simple advice for an entrepreneur who wouldn’t stop talking:  Stop talking and listen!

2.  The most difficult opportunities can be to pursue proven winners.

  • Have you hugged your best customers today?  We frequently take our best customers for granted and don’t thank them enough, help them adapt to changes in their needs, or simply listen to their concerns.
  • Similarly, where are we experiencing success and failure?  I can’t tell you how many clients don’t track sales by product or account, measure internet results or even monitor traffic and success.  In addition, when these efforts are executed they usually focus on the problems.  I would argue there is frequently more opportunity in expanding the successes than trying to fix the inevitable.

3.  The success of smaller, more innovative companies shows that many organizations should get smaller or act smaller in order to effectively deal with today’s environment.

  • Reducing layers and creating professional cultures are a start.  Boards and management need to split up organizations, spin off or create more independent groups.  That may be what’s really necessary to maximize the potential of both individuals and organizations.
  • Large organizations say they want excellence, entrepreneurship, innovation, risk takers, etc. but, really, they tend to encourage mediocrity.  For example, short term goals and reviews for both organizations and individuals actually inhibit the development of more positive cultural characteristics rather than spur them on.
  • Testing and failure which are critical parts of innovation are punished more than rewarded.  Even sound risk taking is reduced because of the fear of repercussions within the organization.  In short, organizations frequently ignore the advice “you can’t score if you don’t take a shot.”

4.  Finally, organizations are surprised rather than managing their environment.

  • On a number of different levels factors like global warming, aging of the population, product life cycles, technology changes, and the Internet are highly predictable.  What is frequently missing is recognizing and dealing with them.
  • Aspects like culture, personalities, and social standards can have dramatic impacts.  In 2005 over 1000 patents each were issued to businesses and people in places like Santa Clara, California, Austin, Texas, San Jose, California, and Boise, Idaho.  In contrast, New York City, with all the population and wealth, had only slightly over 600, and Los Angeles and Chicago were not even in the top 20. (Wall Street Journal, July 22, 2006)

5.  The greatest need for change is a commitment to open systems and collaborative models.

  • One of the most important outcomes from open systems is the collaborative decision making model.  As decisions become more complex, the need for diversity, internationalism, innovation, and expertise expand.
  • For example, when discussing issues the nature and presumed cause of problems are typically explained and focused on.  There is, however, little talk of solutions.  As one sales consultant argues: “We all know the adage….features tell, benefits sell.”  If that is true, how come so many of us still speak in terms of features and not benefits?  The prospect doesn’t care what your product or service does, they only care about what it does for them.

New paradigms for business management success

These new paradigms:  cooperation, betting on success, smaller can be better, and open collaborative systems, offer great hope for organizations.  While they involve new approaches to problems, the solutions are readily available.  What’s needed is to allow our organizations to be effective.  To do so, involves providing opportunity and education.  As the great manufacturing consultant Edward Deming once said regarding leadership, “It is the ability to drive fear out of the organization so that employees will feel comfortable to make decisions on their own.”

In simple terms, the first step is to recognize:

  • People want to do a good job and succeed
  • Organizations inhibit many of these efforts
  • The complexity of organizations and the environment add further complications to success
  • Organizations and individuals need to find the opportunities to overcome these barriers.

Rethinking Pricing

rethinking pricingRethinking Pricing

Introduction

Pricing products or services used to be a relatively straightforward process.

You would:

  • Calculate your costs
  • Determine how much profit you wanted to make, and
  • Add appropriate brand value.

You would then tweak your pricing model a little bit with promotions, clearance sales, supply and demand considerations, seasonality, and product life cycles.

You then tested your model a little and, Voila! — prices were set forever — well, at least until you had a cost increase or a price war broke out with your competitor.

pricing supply and demandSo much for the simple “Good Ol’ Days…”

Our traditional notion about how to price our products and services has undergone a complete transformation in recent years.

Consider the following:

  • Production and distribution techniques have changed dramatically and become much more efficient.  This has resulted in great value and pricing opportunities for huge retailers such as Wal-Mart, Costco, and Amazon to name a few
  • The Internet now allows price changes to occur immediately, with instantaneous visibility and accessibility to consumers.  An entire new “deal/discount” industry has been born from this shift, including companies such as Groupon, Gilt and others, and
  • There is much greater diversity in consumer pricing behavior these days.  The same consumer who will buy $ 1000 shoes in better department stores will go to places like T.J. Maxx and Amazon for unbranded commodities at 20-40% off.

Despite the increased complexity and ever-changing nature of today’s pricing environment, there are still some basic rules and simple tips you can follow to build your market share, make money in the process, and establish long term success.

Here are some considerations to review to maximize your pricing results.

Branding

The two most touted but diverse strategies to develop effective pricing are:

  1. “Build a brand and charge whatever the market will support” and
  2. “You can make it up with volume.”

$1000 designer purses and Amazon represent successful examples of these extremes.

If you can build a differentiated brand, it is generally the most effective strategy.  However, the “if” in this equation requires that you develop an integrated and frequently expensive marketing program to support your brand.  This often includes not only a great product, but a program to communicate its quality, its image, its service and many other attributes that require sound marketing, advertising, and promotion.  It is well to remember that many of the best brands have taken years to develop compared to the short time spans and limited resources that startups generally have.

What are you really selling and what is the customer buying?

Product definitions keep changing.  Airlines add new fees, restaurants keep bundling their meal offerings, and warrantees keep changing in both price and characteristics.  One of the most critical aspects of pricing which is frequently considered from more of a cost perspective is the product or service itself.

What are the components, quality, service, presentation, and add on characteristics?

What is your competition doing and what do your customers expect?  For example warehouse clubs thrive by selling multiple units at lower prices per unit while other industries like candy bars and coach airline seats raise prices by creating the ever-shrinking product. Ingredients and contents can also change.  When cotton prices soared for the apparel industry many suppliers switched to polyester at lower costs.  In the tech sector, chip prices keep declining and technology companies seem to add more memory rather than lowering prices on existing models.

Product pricing is also affected by bundling and unbundling or to coin a phrase, “Do you sell it your way or our way?”  Bundling — if done correctly — can both improve a product offering and satisfy the customer, such as selling complete meals or LEGO sets.  Bundling can also be a way to increase profits by adding elements such as high margin warranties to low margin items like electronics.  Bundling can also enhance sales and value such as offering extra services in places like fitness centers or nail salons.  While shipping used to be considered an element of Bundling, free shipping with minimum purchases has now become almost an essential part of the pricing and shopping experience, both on the internet and with brick-and-mortar stores.

Pricing strategy

In the final analysis, it is individual consumers who will determine the effectiveness of your pricing strategy.

In contrast, unbundling can provide both value and customized products, so that customers don’t buy products they don’t want or need.  Computer companies let you build your own model to your own needs.  Many automobile companies feature the same “custom design option” — now often over the internet.  As an aside, every time I try to “unbundle” and buy a customized product, I end up with more than I need at a higher price.  Unbundling has become so popular, however, I have to assume there are many people who know how to do it right.  Spirit Airlines offers no frills fares and charges for every service to maintain perceived low prices.  Generic brands represent another form of unbundling by charging lower prices in exchange for brand marketing and reputation.

Pricing psychology can also dramatically affect your success.  After you have worked long and hard to develop a rational pricing strategy, remember consumers can react strongly to psychological presentations that we all understand conceptually but frequently ignore in the moment.  These can include practices such as pricing at “$9.95”(instead of $10.00), eliminating the actual dollar sign, unmonitored purchase limits, offering some items for free, selling two for $9.95, changing colors, and font sizes, etc.  The list of factors that can influence consumer pricing psychology is long and complex, and it is essential to factor it into you’re rethinking of pricing.

Maximizing opportunities by varying prices

One of the most successful efforts by sports teams and airlines is variable pricing.  The simplest thing is they have ranges in seat prices by location and quality.  First Class versus coach or company box versus general admission for the same ticket can vary from up to a thousand dollars and more.  The biggest change however is in varying prices by time, seasonality, holiday etc to develop revenue in off peak periods etc.

While these examples utilize sophisticated and expensive computer models, the most noted model is very simple.  Specifically the early bird special in Florida has been around as long as I can remember.  Similarly, vendors seem to suddenly appear in major urban markets when it starts to rain with overpriced umbrellas.

Understanding and communicating prices is another way to differentiate your products.  Few people actually understand the basis for pricing of products such as cars, credit cards, phones, airlines, happy meals, etc.

Freemium

The concept of “Freemium” is more than a business model.  It’s also a pricing strategy.  Offer a free product or service, then offer ‘pay-to-upgrade’ features, and you have a Freemium strategy.  Remember that companies like Google and Facebook were built on free offerings for entry, followed by a host of upgrades and “for pay” services.  Ancillary aspects of the Freemium strategy include samples, blogs, demonstrations, contributions to charities, etc. — these can all create awareness and build long term volume at little or no initial price.  An older variation is to basically “give away razors and printers” to sell the “blades and ink.”

Promotions

Contrary to some popular opinion, “Promotion” is not a dirty word and the use of promotions is not synonymous with diluting the value of your brand.  New outlets (like flash sites or Amazon), bundling, seasonal programs, etc., are several of many valid ways to offer promotions and discounts in order to increase volume without diluting your brand.  There are a near-limitless number of ways to offer promotions without downgrading your brand or its image. And, let’s face it — today’s consumer expects promotions.  Here are a couple of promotion concepts:

  • Essential to the process of effective pricing is to understand the entirety of your product mix.  Getting people into the store with loss leaders is a proven strategy.  For Seasonal retailers the use of such promotions as “back-to-school” or “holidays” drive traffic to the store (or website), where they thrive on specials and often buy other products NOT on special.
  • Product costs can be greatly affected by promotions, buying shelf space, markdowns, packaging, inventory requirements, returns, etc.

No document about rethinking pricing would be complete without a discussion of the effective use and understanding of the ever-changing environment of the internet.  Selling direct, selling through Amazon or eBay, linking with flash sites, affiliating with industry sites, etc., are all valid distribution vehicles that employ ecommerce and the internet.  Most importantly, customers are checking the internet with increasing frequency, so you must be extremely vigilant about your competition and how your product’s pricing compares.

Service and Quality

Many customers will opt to stay with a company in large part because of the quality their service after the sale.

Service and quality can be the big differentiators between you and your competition, especially for small businesses.  Buying from a reliable supplier, receiving good information and prompt, personal service after the sale are critical to success and profits.  Even hospitals will promote their emergency rooms’ time to service in order to attract new patients as well as to improve satisfaction and actual health outcomes.  In contrast, restaurants and retail stores can suffer major declines if customers have to wait too long.  Other factors that can affect price decisions are quality, availability, selection, return polices, and guarantees.

Efficiencies of Logistics, Sourcing and Distribution

Another aspect of pricing strategy that can provide major competitive advantages has to do with logistics, sourcing and distribution efficiencies.  These may be used to reduce costs for you and prices for your customers.  For example, Amazon is able to employ such efficiencies to operate on a 15-20 percent margin while traditional retailers have to work on 40-50 percent margins.  Similarly, shipping times, delivery methods, using direct shipping, etc., can affect inventory management costs, all of which translate into pricing at the point-of-sale.

While pricing has become more complex it also provides more opportunities for success.

Entrepreneurs who recognize that traditional pricing models no longer apply in today’s world of business, will be better able to price their goods and services appropriately in this “Brave New World.”

Profit and Pricing

pricing for profit

Don’t lose sight of the very real fact that at the end of the day your pricing strategy absolutely MUST generate sufficient profit for you to support and grow your business.

While pricing strategies can vary widely depending upon the factors we have discussed above, ultimately the survival and growth of your enterprise depends upon your ability to price your products or services at a profit that enables you to re-invest into your company, be it in research, expansion, employee retention or investor dividends.

In order to be sure that your pricing allows for such profit, a thorough and accurate model of your direct and indirect cost structure needs to be in place, and you need to know what the sustainable level of gross margin and pre-tax profit is for your industry sector.  If your margins are too high for your industry, you either need to be able to substantiate your added value or be prepared for competitors to emerge on the scene and start eroding your market share.

Final Words on Rethinking Pricing

Pricing of products and services for startups is much more complicated today than it was even ten years ago.  However, a good pricing strategy is really is an essential element of your overall plan to maximize your company’s marketing efforts.  A well-thought-through pricing strategy can accelerate segmentation, enhance the value of your branding, maximize opportunities to remain competitive and generate sustainable profits.  The important aspect when rethinking your pricing strategy is to aggressively manage and innovate your entire pricing package rather than simply reacting to short-term changes in the market or competitive pressures.