Don’t sell to beginners
Jon Buda and I are getting closer to launching our SaaS, and that means we need to figure out pricing. We realized a lot of pricing depends on who you’re selling to. Should we sell to startups? Should we aim at the enterprise? Hobbyists?
We reached out to Patrick at Price Intelligently to help walk us through the pricing process.
During our chat, Patrick said, “In your early stage two things are essential; if you can nail these two things (even if you get everything else wrong) you’re typically fine.” According to him, the two things to focus on are:
- Your customer focus
- Your value metric (I’ll talk about this in a future post)
Choosing your target customer is incredibly important. “From the beginning, you want to figure out who is going to be a sustainable, profitable customer,” says Patrick “it’s going to determine how you do your marketing, and also how you’re going to structure your pricing.”
Patrick helped me realize something:
If you’re bootstrapping, you shouldn’t sell to beginners, new startups, or hobbyists.
When you’re building a company, there’s an inclination to sell to folks who are “just getting started:” new companies, people building their skill set, beginners. After all, they need the most help, right? But increasingly, I see this as a trap.
“Selling to your startup friends probably won’t be profitable,” comments Patrick. Startups and beginner customers might be easy to attract (they sign up for free newsletters, guides, and free tools), but they have three significant downsides:
- They’ll use free tools and resources if they can.
- They don’t have the same capacity to pay as experts do.
- Most new startups fail, so they don’t make stable, long-term customers.
Simply put, it’s hard to build a sustainable business for beginners. They can’t pay as much, and they don’t stick around as long, which results in a lower lifetime value.
In B2B, it’s the intermediate to advanced companies who need our help and will pay you for a long time.
They’ve proven they can survive the startup stage. But now they’ve exhausted all of their free resources, and they’re starting to plateau. To get to the next level, they’re going to need outside help, and because they have revenue, they can afford to pay for it.
“Targeting beginners requires you to do more work on the periphery of your core skill set. When you get hyper-focused on what you do best + combine it with supporting intermediate/advanced businesses, you love your work and get paid well for it.”
– Val Geisler, valgeisler.com
The best target market is “professionals who are already heading in a specific direction.” They’re in motion towards a specific goal.
For example, my friend Brennan’s company (RightMessage) is almost at $20k in MRR. They’ve proven they have traction. My guess is their first milestone is to reach $5 million a year in revenue.
To accomplish that goal, they’re going to need specific assistance. Things like:
- “Help me increase sales by 30%.”
- “Teach me how to podcast so that I can reach a bigger audience.”
- “Take away my downtime.”
- “Equip me to design better onboarding flows.”
They’re going to hire outside help to assist them with these things; to help them get to their goal.
One way to visualize this is a delivery truck driving towards a destination:
Along the way, a rockslide covers the road:
Who are they going to call?
(If you yelled out ROCKBUSTERS, you and I could be friends)
To me, B2B products and services we build are a lot like that. We’re removing obstacles for businesses, helping them achieve their goals.
But targetting the right customer is critical. For example, the delivery company has already proven a few things:
- They’re investing heavily in their equipment (the delivery truck).
- They’re investing in their personnel (trained truck drivers).
- They have high-value customers who can pay them to haul big loads over long distances.
- They’re committed to building a company for the long-term.
Contrast that with a solo bike courier who is just getting started:
The biker courier is sending signals that show they probably wouldn’t make a great customer for a B2B business:
- They have minimal investment in their equipment (bicycle).
- They’re likely serving low-value customers (short routes, small payments)
- They probably don’t see themselves being a biker courier for 5-10 years.
There are all sorts of services the delivery truck company will pay for:
- Nitrous injections, to give their engines more power.
- Roadside assistance, to get the truck back on the road.
Logistics software, to map the fastest routes.
Here’s the crazy thing: you and I could invest the same amount of energy building products for the truck company as the bike courier.
Sure, we can sell the cyclist PowerBars (for energy), roadside assistance, and a mapping app, but they don’t have the same capacity to pay.
As product people, we need to focus on the right customers. Let’s not invest in customers who might not be around in 6 months. Instead, let’s build things for professionals that help unlock their potential.
Listen to the whole interview
Want to listen to my whole interview with Patrick from Price Intelligently? It’s here:
Notes from Justin Jackson
Startup stories, lessons, and tips.
Sent on Saturday mornings.
(Read it while you drink your coffee)