first million sketch narrowYesterday I chatted with the cofounder/CEO of a startup company currently going through the YCombinator program (which means they have to remain anonymous for now).  They’re working on getting to their first million in revenue.

The company has a neat business solution for developers of mobile apps, and they’re getting some great word of mouth interest early.

The CEO is a smart cookie, but new to founding a company and sales, so she had some basic questions, such as:

  • We have three different pricing/packaging options; where do we focus to generate the most revenue?
  • How do I price big-ticket/enterprise sales?
  • If our six-figure / enterprise deals (six figure annual deals) are taking 6+ months to close, am I doing something wrong?
  • Should I work with agencies to help them sell and recommend our stuff?

Here for you are the paraphrased questions and answers.  Keep in mind I know nothing about your business, so take just want resonates with you.  Maybe my advice would be idiotic applied to your business!  Ignore anything that doesn’t feel right.   

1) If our six-figure / enterprise deals are taking 6+ months to close, am I doing something wrong?

No, not if you have a great product that they’re actively interested in and need (that is, they aren’t blowing you off).

(And you early companies may still be in the phase of figuring out if you’re a need-to-have or nice-to-have, or in tech jargon ‘are you a painkiller or a vitamin?’.  If you’re nice-to-have to your current market, you’re probably going to struggle until you figure out who needs you. Let’s save that for another day and assume you have found a market niche where you’re needed.)

When selling something important or new to big companies, it often takes them 6-9 months to buy because of the nature of group decisions.  They have more people involved in decisions, more moving parts, more rules, more people who need education.  It’s harder for them to buy.

It’s just the nature of the beast.  So one of your jobs in selling is rather than “sell”, help them buy.  Often this means you need to help the main person (your champion or coach) at the prospect who wants your stuff to sell it internally to their peers and boss(es).

You OCCASIONALLY may run across an early adopter or a visionary CEO that can push things through faster, but be prepared for things to take longer than you want.  (Of course, who said you had realistic expectations on how fast things should take?)

A few tips to speed up big ticket sales cycles: as an early company there are probably about 1000 things you should or could do to sell better, but here are a few starting ideas:

  1. Go Top Down: Dig into your network to get high level referrals to CEOs / board members when you can.  If you have a small network, try a cold referral approach.  When you’re being proactive, going top-down from the CEO is better & faster than going bottoms-up from some random user who loves your product but has little influence.
  2. Focus On Prospects Who Need You & Can Buy Faster: Despite what all your sales experts tell you, it’s pretty rare that you can get a prospect to speed up their natural decision-making process, just like you can’t do much to speed up highway traffic if you’re stuck in it.  Instead, focus on finding the kinds of prospects who are more likely to buy faster (aka find an alternate, faster route off the highway.)  
  3. Clarify your “Ideal Customer Profile” as much as you can to help you filter the real prospects from tire-kickers (see page 47 of Predictable Revenue for exercises).
  4. Speak, Don’t Discourse, Articulate Or Expatiate: Ok ok, so you went to an Ivy League, majored in English or won a science experiment.  The kind of writing that impressed professors sounds like bullshit and is just confusing to a real person.  Simplify or dumb down all your materials and speech to make it as easy as possible for prospects to understand what the hell you’re talking about.  Remove words like “leverage”, “platform”, “explode”, “cross-pollinate”, and any acronyms.  And ruthlessly get rid of all your filler words and fluff.

2) We have three different pricing/packaging options; where will the most revenue come from? 

This company has three pricing tiers:

  1. A $50/month one for individuals,
  2. A small/medium business tier that’s about $1000 a month, and
  3. A high-end, enterprise level that’s custom, but usually about $10,000 a month.

For b2b companies – if you’re not doing transactional stuff – most of the revenue growth will come from being able to find and sign big deals.  Signing a single $20,000 a month deal is worth a lot of $50 ones!  And the bigger deals tend to be more committed, more financially stable, and better references, so there are a lot of business reasons to be able to sell big deals.

Now, the small customers can be really valuable too – just not for revenue.  They can be champions/ referrers, give you useful product feedback, develop add-on ideas/code/features/content for you, can be enjoyable to work with /help, may seed larger deals, and who knows what else.

The lesson: work on smart segmenting of your types of customers and designing different packages that appeal to them.  You need some kinds of customers/products that are great at bringing in money, but not every type of customer needs to bring in much money directly if they have other benefits.

Related Article: 10x.

3) How do I price my tiers, especially my enterprise level?

I like a top-down and bottoms-up approach.

Bottoms-up, comparative pricing – easier to get started: Look around at what people are paying for anything similar to what you’re doing.  That gives you a baseline for expectations that can be useful to start with.

For example, most b2b software-as-a-service companies charge say, $20-$60 a month per general user for what they offer.  After seeing lots of services pricing this way, buyers get mentally anchored to expect similar services to charge similar amounts.  So you can charge something else, but you need a real justification for it (we’ll get to that).

Come up with some product/packages, guesstimate some prices, and bounce them off live prospects.  Just make it up as you go along and try things to see what works. (Shhh – here’s a secret – this is a key to success in life too.)   It doesn’t take long to get some data or a feel on what’s working and what you need to adjust.  There’s no secret formula or 7 step magic system.

Top-down, value-based pricing – bolder: 

If you have a good feeling or understanding for the concrete impact that your product or service can have on customers, you can price it backwards – set the price, then figure out who would need it enough to pay it.

Your costs shouldn’t matter here.  If you can tell something is worth $1,000,000 to an ideal buyer, whether your costs are $100,000 or $10,000 – so what?  Charge $1,000,000!

In the early days, better to sell it for higher prices to fewer people who really need it, then to try selling it for lower prices to anyone and everyone, scattering your focus/energy.  “Pick a niche, get rich.”  Focus on fewer, better, bigger customers.   Check out 10x.

Focus on your ideal customers/prospects – yes everyone can use your stuff, but who would find it incredibly valuable?  Who NEEDS what you have?  What is the impact you can help create?  What is the dollar value you can justify because of it?

These ideas can apply to your $50 general users (perhaps you should charge $125?) or $150,000 enterprise customers (perhaps you should charge $750,000?).

Go ahead & price out free or cheap products for reasons other than revenue: more word of mouth, reviews, development, community, user stories, whatever.

But – for the products/packages you count on for the bulk of your revenue, do your best to be bold in pricing them high and according to the value you create.

4) Should I work with agencies / partners to help them sell or recommend our stuff?

When you’re early, it’s easy to have the dream of landing one key partnership that lands in your lap and magically skyrockets your business to the stars!  An Ebay to your Paypal.  A peanut butter to your chocolate.  A Jekyll to your Hyde.

Developing b2b partners that drive an dgrow your revenue for you takes a lot of investment in time, energy and patience.  Once in awhile people land a lucky bluebird, but don’t plan on it – put it in the “nice to have” category two years from now.

Having said that, if people – like at agencies – are excited to help refer/sell what you’re doing, sure!  Help them along, as long as it doesn’t distract you from whatever your main priorities are.  Maybe they’ll be a bluebird.  Maybe they’ll help you learn more about who you should target and how you should position and sell to your market.

Ultimately, 90%+ of you should focus on making your own sales team & efforts successful first, before investing your precious time on partners.  By doing it yourself first, you’ll be able to better spot great partners, convince them with data/experience that you can deliver, and you’ll have the experience and tools already in place to help ramp them up.

Tip: As an early company, use this rule of thumb to avoid wasting time on ‘nice to have could be should be’ partnerships: “if they aren’t a yes, then they’re a no.”  

It’s like shopping.  Sure, there are a lot of shirts or shoes or gadgets that would be nice to have…but if it’s not a clear “yes, i for sure want/need this” then put in in the ‘next year’ bucket.

Final Thoughts – Raising Money

A lot of incubators – like YCombinator, like Founders Institute – seem to make raising money the whole point of the incubation.  If you’re feeling caught up in the “gotta raise money” myth, remember:

  • Remember the point of building a business is to build a business, not to raise money.  
  • You may think that after you raise money, things will get easier – but they can just as easily get harder, especially if you raise money from a VC who’s ready to ratchet up the growth pressure.
  • Raising money may help grow your business, but there are strings attached.  The types vary depending on the kind of money you raise.  It’s not for everyone.  Go in with your eyes open.  For example, your goals and tolerance for risk will be different from your investors’.  
  • There are always ways to bootstrap and make progress without raising money – if you want to avoid it or delay it.
  • There are lots of kinds of businesses you can start that don’t need much money.  Most of mine I started with less than $100.  In fact, a guy wrote a book about it, “The $100 Startup.”

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