What if your price is right–but your customer is wrong

If you’ve ever read David Sklansky’s Theory of Poker, you’ll enjoy this post. Sklansky’s book is a giant if-then statement. Your best action depends on too many other variables for it to ever be the same. The logic is twisted. And the actual cards in your hand may be completely irrelevant.  

Startups are like poker. There are so many variables, and the only time you’re sure you’re winning is when you’ve actually won. Lots of the time you can look like you’re winning–til you lose (looking at you, Builder.ai). Up til then, it’s all about reading people and probabilities with no clear correct choice. Except if you’re confident–then you might bluff your way to victory. But you can just as easily fold a winning hand.

Poker might feel like an odd start to a post about pricing and ICP (ideal customer profiles) but it’s the if… then nature of the Theory of Poker that hits. When you’re Salesforce and you’ve sold thousands of companies literally billions of dollars of software, you know your ICP and you know their willingness to pay. When you’re a startup, possibly selling something nobody’s ever sold before–or, perhaps worse, something people are selling for a variety of price points–its more complicated.

We’re working on pricing and signing our first customers at Skyp.ai, so this is top of mind. Every founder struggles with this at some point. So here’s my theory of pricing startup technology.

The two objections you can never overcome

Pricing starts with the pain you solve and the budget of your customer. The value you create matters–but it is far from the most important thing. I would argue there are plenty of Salesforce implementations that destroy value, and yet they still charge a premium. But they were able to convince someone with budget that they solved a pain-so they made the sale.

Pain and budget are non-negotiable. You cannot get someone to buy if they don’t have the pain that your product solves. And you cannot get someone who doesn’t have money to pay you. Create all the demand you want, have tons of leads in your CRM. But if they aren’t in actual pain or don’t have money, it will end badly for you.

This matters because as you get leads, you might think–I’ve figured this out! We have people who want what we’re selling!

But do they want it–or need it? And, are they the right people?

Want vs. Need

I’ve seen a few articles recently about product development interviews or presales. People who want to buy your product when it’s half built are in pain. You are onto something and this is probably your ICP. People who say, “that’s a really interesting solution” or “I could see this being useful for someone else”–they are not in pain. They will not buy. They were interested enough, perhaps, to take a meeting. But that is a “no, thanks”–even if they don’t realize it themselves.

You cannot convince these people to buy. Hiring an amazing salesperson will not change your close rate meaningfully if this is what you are hearing. You set your lemonade stand up next to a bunch of rich eskimos, and they simply don’t need lemonade. Hot chocolate would have been a better idea. Or hot tea.