Situation: A company offers a product combined with a service. Small companies can’t afford the combined price, but don’t need the full functionality of the combined product plus service. An option is to create an offering on a per-seat basis. In this option, how do you price seat utilization? How do you price a product and service?
Advice from the CEOs:
Pricing needs to follow value. For large companies, functionality and seamless operation are key. Small companies have different challenges – they have less money and don’t need all the features required by large companies. Configure a limited product for this market.
Don’t de-feature the product – create a different use / pricing model. Consider a model that prices based on the user company’s revenue, with periodic review of their revenue and fees paid. As they grow and increase utilization, they increase their ability to pay for, and their need for full utilization.
Use a cloud model and create a “pay per amount of use” option. Limit this offering to X number of users or X number of projects to create a different product from the full license option. While this will require monitoring, it will differentiate the partial license option from the full license option.
Develop an alternative to what is offered by the chief competitor and create an offering that this competitor can’t compete with.
Before making a final decision, institute a formal process for collecting ongoing feedback from customers. This will help to clarify alternatives going forward.
Situation: A company is considering purchasing a line from another company to complement its existing product line. They would split commissions with the current owner, and gain an additional employee with knowledge of the products to be acquired. The purchase would add to the company’s offering, as well as rights to additional products. The CEO sees this as a low risk move. How do you evaluate an acquisition opportunity?
Advice from the CEOs:
In evaluating a commission split opportunity, will the commissions that you would receive exceed the cost of both the additional employee which you will add, plus the support that it will require to maintain the new business? Do the new commissions cover the anticipated costs, plus a reasonable profit?
Have you vetted the numbers to demonstrate that this purchase provides a suitable return on investment vs. other potential investments that you could make? Is the marginal revenue that you will receive greater than the marginal cost that you will bear? Is the ROI of the new line greater than your cost of capital? If not, what can you do to improve the return?
Looking at your current operations, do you have your existing shop in order? Have you calculated the metrics that will allow you to understand, where you’ve been, where you are, and which provide a clear vision of where you want to go? If not, the question is whether you are ready to take on another line.
The bottom line question is – how do you know that this acquisition is the best use of your funds?
Situation: A company is drafting a pitch for their next round of funding. They want to reach both current and a new set of investors and highlight the improvements that they’ve made since their last round of funding. How do you optimize a financing pitch?
Advice from the CEOs:
Work on a quick demo of the site. This is critical for a software company. The site must clearly and quickly show what differentiates you.
When you sit down with potential investors, start your pitch with a catchy statement, e.g., “We’ve all heard about ‘pay it forwards’. I want to talk to you about ‘Job-It Forward’.”
Start the presentation with an overview and a simple illustrative explanation so that the audience instantly gets what you are doing. For example, “we’re about generating social capital and here’s an example of how we do this.”
Be careful not to drown your audience in detail. Limit yourself to 3 bullets per page. Use graphics rather than words as much as possible. Most people can only absorb a limited amount of verbal information, but they remember pictures.
If you’ve already started talking to potential investors, what are your results? What feedback have you received to date? Analyze this and adjust your presentation and pitch accordingly.
Can you show a potential funder ROI? For example, if you give us $X, we will generate $Y in terms of return. You want to demonstrate IMPACT! Those who will support you want to see the advantage of investing in you vs. other options available to them.
Include a slide showing sources and uses of money spent to date. Show how you will use the money that you wish to raise.
Situation: A company has a successful product, but the market is changing. Previous customers were savvy, but the market is shifting to more naïve customers who don’t understand how to use the product. How so you respond when the market for your product changes?
What you are seeing is a typical market evolution. (See Clayton Christensen’s book Crossing the Chasm.)
When a new product is introduced, early adopters are typically savvy users who quickly grasp the utility of the product. They don’t mind some inconvenience provided the product is useful.
As the market matures and starts to attract mainstream customers, new users will not be as sophisticated and expect the product to be easy to use.
If you don’t adapt to these new customers your product will languish as new competitors enter the market with user-friendly adaptations.
The path is clear. Figure out how to make your product easy to use. If you use a GUI (graphic user interface) make the GUI intuitive. Allow customers to get what they need with as few choices or clicks as possible.
These changes may alienate more sophisticated customers, but they usually only represent a small segment of your potential market.
Add a customer-friendly service component. This builds a service income base around the product. You have different options.
Align the customer with appropriate level of resource – you may not require high level resources to assist the customer, particularly if the product is one where the service consultant only needs to be one page ahead of the user.
Outsource the service component to a partner or use independent contractors.
Consider a remote monitor system:
A dashboard interface with easy to read visuals or messages that tell the customer when service is needed. This will enable them to perform simple maintenance using your tools, or alert them when they need to contact you for service.
An example is Norton’s evolving system of products that enables an unsophisticated home computer user to either use Norton tools to perform routine maintenance, or directs them to the Norton web site for assistance or more sophisticated solutions.