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December 17, 2009
How To Price Software Without Just Rolling The Dice
OnStartups Posted by Dharmesh Shah
I’m going to open this article with a short (and true) story. I officially
kicked off my marketing software company,
HubSpot, about 17 months ago. If you’ve read my blog for any period of time,
you likely know that I’m a big beliver in the “charge early, charge often”
mantra. As it turns out, in order to “charge early”, you have to figure out
what you’re going to charge people. That is, you have to have a
price for your product. Thankfully, both my co-founder (Brian
Halligan) and I had recently graduated from a top 5 MBA program. And, it wasn’t
just any top 5 program — it was MIT. You know, that place where
science and math and uber-geeky analytical stuff happens. So, you’d think that
when it came time to figure out a price for our product, we’d really dig in, do
some heavy-duty analysis, some really hard thinking and come up with a
relatively well thought-out price. That’s not what happened.
If you're a startup junkie, you can follow me on twitter @dharmesh. I post quips, tips and random things of interest.
When it came to deciding on the price for our software, we basically just rolled the dice.
I’d love to for the statement above to be an exaggeration. Surely, we spent some time pondering that oh-so-important factor in our business sucess. Nope. We didn’t. One of us (I think it was me) suggested “how about $250/month”, and that’s what we went with. And, that’s where the price remained for about 2 years.
Things turned out fine for me and HubSpot. But, you still shouldn’t do this. Don’t just roll the dice when it comes to pricing your product. Give it some thought, consideration and (gasp!) some analysis. Your first step towards this path should be to run over, right now, and get the book “Don’t Just Roll The Dice: A usefully short guide to software pricing” by Neil Davidson. Even if Neil weren’t such a nice guy (he is) and even if he doesn’t run my favorite conference (he does) and even if he didn’t build a really successful software company himself (he did), I’d still implore you to read the book. It’s got the highest value-to-length ratio I’ve seen in a business book in a long time. Go get it, right now. And, if you’re still not convinced, Neil’s even been nice enough to give it away for free in convenient PDF form. Yes, that’s right, you don’t even have to buy the freakin’ book on Amazon for $9.95 (though you could).
Just on the off-chance that I caught you at a particularly skeptical time and you’re still not convinced, here are some of my notes from the book.
Insights On Software Pricing From “Don’t Just Roll The Dice”
1. Your product is more than just your product. You might think that your software product is just the bits and bytes that your customers download (or access online), but you’d be wrong. What customers are actually paying you for is the entire experience of doing business with you. Everything from how you market and sell the product, to how you help people use it and how you maintain it going forward. All of it. Your pricing should be based on this reality.
2. There’s a difference between perceived and objective value. It doesn’t matter how much “real” (objective) value you have baked into your product if your customers don’t perceive that value, they are not going to pay as much for it. Hopefully, their perceived value is a function, to some degree, of the objective value. If not, you’re screwing something up.
3. Community matters. The group that your customers belong to, or want to belong to will impact the price they’re willing to pay. For example, some people buy hybrid cars not just because of the environmental benefit or the higher mileage but because they want to be part of that community. The same reason some people buy a BMW. Determine what kind of community you can build (or tap into) around your offering. Help people belong to the community they want to belong to.
4. As it turns out, people do buy drills (not holes). There’s the reasonably famous adage around “people buy holes, not drills”. The point is to focus on the benefit to the customer (not the product itself). I generally agree with that notion. But, it’s useful to keep in mind that holes can be a commodity, but people still sometimes pay $400 for a drill. Benefits are important, but the direct benefiit is not the only one that customers value.
5. The more differentiated you are, the more you control price. This one should be obvious. If you have a product that’s about the same as all of your competitors, then you don’t really set your price — the market does. Of course, nobody thinks of themselves as being identical to their competition (especially software companies). But, what we often forget is that it’s difficult — and very risky, to try and create a completely new category and be totally differentiated. Decide which dimension you’re going to differentiate on and make sure it’s reasonable given your particular constraints (like cash).
6. No battle plan survives contact with the enemy. This quote is not actually in the book, but I think it still fits the theme. When setting pricing, it’s important to consider what the “market response” is going to be — particularly if you’re in a well-defined category. Just because it doesn’t make economic sense for a competitor to get in to a price war with you, it doesn’t mean they won’t do it. Particularly if they’re big or well-funded. If you’re thinking about competing on price, keep that in mind. Better yet, don’t do it at all.
7. Remember to be fair. As humans, we often have a sense of what we think “fair” pricing is. Even though a particular pricing model is “theoretically optimal”, it might not be wise in practice. As software entrepreneurs, we often think we can get away with certain types of price segmenting simply because it’s enforceable in the software. Just because you can keep customers from doing certain kinds of things (unless they pay up), doesn’t necessarily mean it’s the right (optimal) thing to do. In the long term, it could actually hurt. Try to put yourself in the customer’s shoes and envision if they think the way you price things is fair. [Note: I’m not suggesting you be all rainbows and cupcakes and suggest that you price based on being “nice”. I’m just saying that you might actually make more money by being empathetic]
8. Pricing complexity has a cost. One of the things you learn in micro economics (and is discussed in the beginning of the book) is the concept of supply and demand curves and how you can segment your pricing in order to capture the maximum value (i.e. optimize revenues). This can be a wonderful thing. But, it’s critical to remember that this segmentation has a price — it’s not free revenue. For example, when HubSpot went from a single price ($250/month) to two prices (still pretty simple), life got a lot harder. All of a sudden, our marketing, sales and even our operational efforts got more complicated. The product got more complicated. All of our pretty charts that we used to talk about the business and measure success got more complicated. The reality is that when you add a new dimension to your pricing structure, you’re adding a new dimension of complexity. Oh, and by the way, the *second* price that you add to your product is the most expensive. After that (third, fourth, etc.) things get a tad easier because you’ve already built some of the infrastructure to support multiple prices. And by that point, your brain is already used to the pain.
Phew! I typed this entire article in one sitting while simultaneously reading a majority of the book for a second time. If I haven’t convinced you yet that you should go read it then I think I’m hopelessly inadequate at conveying the importance of this topic and the usefulness of the book. Or, maybe you’ve already got it all figured out. If so, may the wind be in your sails and may you go forth and prosper. For the rest of you, just download the book.
And, on a more selfish note, what are your biggest insights when it comes to software pricing? What challenges have you dealt with? What questions do you have about pricing your software? If you’re looking for some great answers, you can post a question on Answers.OnStartups.com where a bunch of smart folks like Neil Davidson (the guy that wrote the book) hang out. Hope to see you there.
If you're a startup junkie, you can follow me on twitter @dharmesh. I post quips, tips and random things of interest.
For more articles by this author, visit http://www.onstartups.com
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Trendwatching: 10 Crucial Consumer Trends for 2010
 2010 is rapidly approaching; we hope the December edition of our Trend Briefing, detailing 10 trends for 2010, will assist you in getting things going (again). Go straight to the Briefing, or quickly scan the 10 trends below: 1. BUSINESS AS UNUSUAL | Forget the recession: the societal changes that will dominate 2010 were set in motion way before we temporarily stared into the abyss. More » 2. URBANY | Urban culture is the culture. Extreme urbanization, in 2010, 2011, 2012 and far beyond will lead to more sophisticated and demanding consumers around the world. More » 3. REAL-TIME REVIEWS | Whatever it is you're selling or launching in 2010, it will be reviewed 'en masse', live, 24/7. More » 4. (F)LUXURY | Closely tied to what constitutes status, which itself is becoming more fragmented, luxury will be whatever consumers want it to be over the next 12 months. More » 5. MASS MINGLING | Online lifestyles are fueling 'real world' meet-ups like there's no tomorrow, shattering all predictions about a desk-bound, virtual, isolated future. More » 6. ECO-EASY | To really reach some meaningful sustainability goals in 2010, corporates and governments will have to forcefully make it 'easy' for consumers to be more green, by restricting the alternatives. More » 7. TRACKING & ALERTING | Tracking and alerting are the new search, and 2010 will see countless new INFOLUST services that will help consumers expand their web of control. More » 8. EMBEDDED GENEROSITY | Next year, generosity as a trend will adapt to the zeitgeist, leading to more pragmatic and collaborative donation services for consumers. More » 9. PROFILE MYNING | With hundreds of millions of consumers now nurturing some sort of online profile, 2010 will be a good year to help them make the most of it (financially), from intention-based models to digital afterlife services. More » 10. MATURIALISM | 2010 will be even more opinionated, risque, outspoken, if not 'raw' than 2009; you can thank the anything-goes online world for that. Will your brand be as daring? More » We're confident that applying the above to your business will bring you at least one profitable, zeitgeist-compatible innovation in 2010! For More information about these stories, visit: http://www.trendwatching.com Join The NYC Business Networking Group Free at http://www.meetup.com/The-NYC-Business-Networking-Group |
December 16, 2009
Forbes Leadership: How Women Are Getting On European Boards (And Why U.S. Companies Should Care)
Elin Hurvenes, founder of the Professional Boards Forum, on how companies around the world can recruit female board members.
Norway stunned the corporate
world in 2002 when it passed a law requiring corporate boards to be
comprised of at least 40% women. Corporate executives deemed it "total
madness," saying they couldn't find qualified women for the posts.
Enter Elin Hurvenes, an entrepreneur with an MBA from the London Business School, who started the Professional Boards Forum
to bring together executives and experienced businesswomen. Having
helped place as many as 200 female directors since then, Hurvenes, 49,
has been asked to speak on the issue in countries as far flung as
Jordan, South Korea, Australia and Brazil.ForbesWoman: France recently followed Norway and introduced a quota bill. Are any other countries considering legislation?
Elin Hurvenes: Not to my knowledge. I was in Paris recently to speak at The French Women Lawyers' Association, and met with Brigitte Gresy, who wrote the legal framework for the French proposal. Her attitude, and the atmosphere among the women there, was one of impatience--"it's time for a change and we need legislation to make it happen."
Other countries, like Spain, have taken a different approach--making a recommendation for "equal representation" of men and women. Will that work?
My guess is there is not going to be a significant raise in the number of women on boards unless the government has offered Spanish companies new measures and incentives to assist them in recruiting women to board positions. Telling companies to fix something they may not perceive as a problem may have no effect. Ansgar Gabrielsen, the minister behind the quota law in Norway, told chairmen and company owners here that he would not legislate if he saw significant improvements over a two-year period. Nothing happened, so the legislation was passed.
On the other hand, didn't Sweden reject a quota law a few years ago?
Yes, they were going to legislate but dropped the plans after seeing the controversy that followed the Norwegian legislation. But, unlike Norway, Sweden has a strong line of women investors, both heiresses and women wealthy in their own right, who serve on the boards of companies they invest in and that helps. The Swedes currently have about 23% women on their boards, which is well above the European average. A quota law requires a huge amount of political guts and few have the appetite for it.
What can women do in countries where legislation is unlikely to push for greater representation on boards?
Many simply have no idea how to go about becoming a non-executive director, and for the vast majority, contacting a couple of headhunters is not enough. They have to start building the networks they need, put themselves out there and work hard to raise their own profile.
I believe we'll also see a push from investors and chairmen who believe diversity at board level is good for business. Recent research by McKinsey found that gender-balanced teams outperformed all-male and all-female teams on ROE, operating costs and share price. Intrigued by this, they then measured on everything they could think of. And again, gender-balanced teams outperformed single gender counterparts on all accounts.
The U.S., where women comprise only about 15% of directors, is unlikely to enact quotas. Do you have any advice for women here?
Yes. Don't sit around and wait for divine intervention. Realize you are on your own and make it known to everyone in your network that you are ready, qualified and keen to take on a non-executive director role. Spend some time thinking about what type of company, size, sector and board role you feel ready to take on. Define the skills and abilities you will bring to a board and how will you be able to contribute, and then articulate it. I cannot stress enough the importance of making yourself known to the people who influence board composition: chairmen, investors, CEOs and nomination committees.
Also, be prepared to start somewhere. Few people, men or women, go straight onto a FTSE100 or Fortune 500 board. Learning the ropes on the board of a smaller company will stand you on good ground later. To quote one of the chairmen I work with, "It is hard to bring to the top table someone who's never set foot in a boardroom."
Why are top male executives so surprised that qualified women exist?
If there are no women in the top management of their own company, it's easy to assume accomplished women don't exist. A Norwegian chairman told me after attending the Professional Boards Forum, "I'm 63. The women I know are my wife's girlfriends and, like her, they've stayed at home. I can't ask any of them to serve on my board."
You receive e-mails from all over the world--what are women saying?
I get e-mails of thanks and encouragement, but also of frustration and irritation, particularly from women who feel they've been effectively locked out of the boardroom by tradition, lack of visibility and, surprisingly, by headhunters who act as gatekeepers.
One very smart and ambitious woman was fuming when a headhunter told her to come back once she'd got her first directorship through her own network--only then would they be interested in helping her.
I also had an e-mail recently from a woman who, having been seated next to a senior chairman at a charity gala said she "probably bored him to death with my board ambitions" but a few months later got a call to serve on one of his subsidiary boards.
You initially opposed Norway's quota law; what made it work better than you expected?
In 2002, our corporate boards were 6% women. Now we have 45%. If the legislation was removed tomorrow, would we revert back to 6%? Not in a million years! And that's the acid test, I suppose.
See Also:
France Weighs Gender Quotas for Company Boardrooms
Keep reading at http://www.ForbesWoman.com
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5 Ways to Use Social Media to Amplify Your Content
Dec 14, 2009 -
Producing great content as a lead generation play is only part of the deal for most marketers. You also want and need to make certain that plenty of prospects eyeball, read, and share the content.
Smart marketers are turning to social media platforms as a way to create awareness about video, audio, and written content that teaches, demonstrates expertise and spreads the all important sales message in ways that can turn social media into a very effective lead generation tool.
There are many ways to go about using social media as a tool to amplify your content, but the best way is to develop and tinker with a systematic approach that you can kick into gear with each piece of content.
Here are the components of just such a system.
1) Before you write a word
I’ve often tweeted a kernel of a blog post out prior to writing just to gauge interest and maybe even solicit feedback and ideas. I’m always amazed at how valuable and accurate this can be at helping me with things like titles and resources.
I also tweet or update my status as I interview a guest for an upcoming podcast interview.
These kinds of practices can set the table and hopefully generate some interest and awareness of your content producing activities prior to amplifying the actual content.
2) On your turf
Make certain that it’s very easy for people to tweet, share, send or otherwise amplify content for you.
No matter what the format, add social media tools such as the Tweetmeme retweet button, Sociable plugin, AddToAny plugin or ClicktoTweet links that allow your readers to promote your content on Twitter or other social networks with just one click.
Use a plugin on your blog such as Related Posts to make it easy for blog visitors to find and share other relevant posts on your blog.
Another way to promote and amplify is to alter your content and repurpose it in vehicles such as an email newsletter, a short video abstract posted to Facebook, or a transcription of your podcast using CastingWords published as a printed article.
3) Social networks
When you write a blog post you should consider updating your status throughout a number of social networks that you participate in. The only hesitation is that you must consider your entire strategy here. If all you ever do is Tweet your new blog post, you may not find much engagement going on. I suggest that this be one of the ways you participate, but make sure you round this out with other useful updates as well.
While you can certainly overdo this, it’s been tested and proven that simply asking your Twitter follows to retweet by adding something like Please RT at the end of a Tweet does increase retweets.
Tools such at TweetDeck and Seesmic allow you to Tweet once and add your update to Facebook and LinkedIn at the same time. A Facebook App from Involver can bring you Twitter updates to your Fan Pages and Plugins such as Twitter Tools can even automate a Tweet each time you post to your blog.
A word of caution. While all this automation can sound like a blissful thing, you may find your amplification efforts more effective if you take the time to customize your updates and the way you refer to your content in slightly different ways for different networks. I can’t put my finger on it exactly, but followers on Twitter react in different ways than friends on Facebook or connections on LinkedIn.
4) Social bookmarks
Spreading the word or sharing images, audio and video on sites such as YouTube, and Flickr is a great way to create new avenues to your content.
Taking a more active approach such as joining and participating in social bookmarking sites such as delicious, Digg, Reddit and Mixx can create powerful streams of traffic if you are willing to spend the time it takes to build connections and find people who want to amplify your content.
Darren Rowse of Problogger wrote a great piece that shows how he built fabulous traffic using a Flickr Group.
I also use a URL shortener in Tweets from StumbleUpon, another social bookmarking site, called Su.pr that adds significant traffic and views from the StumbleUpon network.
Lastly, seek out and find niche social bookmarking sites in your industry as these can be sources of very highly qualified traffic. Here’s a great list to get you started from Traffikd.
I use a small business focused bookmarking site called BizSugar to generate additional interest in many of my blog posts.
5) Related content
A final, and probably more advanced, method is to seek out content related to yours and participate in conversations that give you the opportunity to highlight your content in logical ways.
The most obvious is to find related content on blogs and post your comments. Simply adding links to your posts in comments is an easy way to become a spammer, so make certain that you are adding value and earn the right to point to something you’ve written that helps make the original post more useful to readers.
A blog comment plugin like Disqus also shows the other places that people who make comments on your blog also read and comment. This is great data for finding related bloggers to network with.
Image credit: kainet
For more articles by this author visit: http://www.openforum.com/idea-hub/topics/marketing/article/5-ways-to-use-social-media-to-amplify-your-content-john-jantsch
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Forbes Leadership: Why Men Don't Promote Women More
Leadership
By Shaun ReinBecause women aren't pushy enough.
Women often complain about the glass ceiling. Friends of mine tell me their bosses only promote from within the old-boy network. Studies show that women in the U.S. still get just 77 cents for every dollar men are paid, even with increasing gender parity in higher education.
And how many of the people running the biggest 500 companies are women? In 2009 only 15 were, among them Carol Bartz at Yahoo!, Indra Nooyi at PepsiCo and Ursula Burns at Xerox. They are exceptions in the male-dominated ranks of C-level executives.
I will be honest. In my career, I have tended to promote more men than women. I have even generally given men higher salaries. Why? Am I sexist? Do men do a better job? The answer is a resounding no to both.
Actually, it is mostly women's fault. They simply don't ask for raises or promotions as often as men do.
My organization conducted interviews with hundreds of American, European and Chinese women, and most said they felt that if they worked hard and showed they were valuable to the company, they would get promoted. They also said they feared they could be fired if they appeared too pushy, especially in a downturn.
But the reality is that promotions rarely happen just because you're there and you're good. You need to tell people how good you are. This is especially true at more junior levels, where it can be harder to get noticed and there is more competition for plum positions.
Male or female, you have to not only earn that promotion but also make your bosses know they need to give it to you. Bosses tend to promote not just valuable people but people who push to move up the ladder. After all, good leaders know that they do best if they're flanked by good lieutenants. They want to give opportunities to people who want to grow with the organization and not flee to the competition.
Undeniably there are toxic corporate cultures where women are treated terribly. Stay away from those places. Corporate culture is hard to change. The rot starts at the top.
Our research also suggests, perhaps surprisingly to some, that most men have nothing against working for a female boss. Only a minority of men told us they would object. In fact, many said they'd prefer a female boss, because of the greater likelihood she'd understand the need for work-life balance (which I wrote about in "Enforce The No-BlackBerry Rule").
If a major obstacle to getting promoted is yourself, what should you do about it? Here are two tips for women--or anyone starting a career, for that matter.
First, you can't get what you don't ask for, so ask for a promotion and a raise, even in a downturn. Most bosses won't fire you for saying you'd like to move ahead. Have you ever heard of anyone being let go for asking for a promotion, except during a political battle for the top spot? Very often bosses don't even think about who should be advanced and who shouldn't. They're busy juggling too many things. You have to sell them on the idea of promoting you.
How? Don't go into the room threatening, saying give me a promotion or I'll leave. That's an old sleazy salesman's trick. Instead, take a long-term approach. Arrange a meeting to discuss what you can do over the next three to six months to earn a promotion and a raise. Prepare three to five talking points that highlight what you've already done. Try to pick talking points that show how you've generated revenue and demonstrated leadership.
After explaining to your boss what you've accomplished (he or she may be surprised), ask what you need to do now. After the boss tells you, make sure you live up to those new expectations. If after a few months you don't get that raise, it may be time to look elsewhere.
Second, women should not use overt sexuality to get ahead. Occasional mild flirting may have its place, but to be taken seriously, focus on business. Look professional and attractive but not sexy. The same goes for men. Guys who dress too flashily likewise aren't taken seriously--except in the entertainment world.
Looks do matter in the business world, as Laura Sinberg recently wrote for Forbes. But you want to be remembered for your business ability, not for how you look in a short skirt. The latter hardly gets you taken seriously as a business executive.
Promotions are tough to ask for, especially when you're concerned about fitting in. But any woman who wants to rise high in the business world should consider being more aggressive in seeking out promotions and increased responsibility. Approach your boss with a plan, make your case and make sure that no one forgets you are a strong business mind. Before long there will be far more than just 15 women at the top.
Shaun Rein is the founder and managing director of the China Market Research Group, a strategic market intelligence firm. He writes for Forbes on leadership, marketing and China. For more from Shaun Rein, click here.
For more articles by this author visit: http://www.forbes.com/2009/12/11/women-job-promotion-leadership-careers-rein.html
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December 15, 2009
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