Mentoring startups has a lot of benefits: It gives something back to the community and helps other entrepreneurs avoid some of the mistakes that you’ve already made. And it’s also a lot of fun to meet entrepreneurs who are so passionate about their business. Sometimes, though, that passion can make it hard for startups to focus on the business basics, like pricing, market research and finding your niche.
I have had the opportunity to mentor quite a few startup companies in the St. Louis region over the past several years, and it is also satisfying to see the widening of the entrepreneurial community in St. Louis. We just had a business plan competition (the Arch Grants) which gave away grants of $50k to 15 different startups, a few of whom are in the process of moving into town (as part of the deal to take the dough). This is just one of numerous ways startups can raise funds here, as Jay DeLong shows in this video.
The common theme that I keep coming back to is that taking care of the basics of business isn’t always easy. What do I mean by basics? Things like pricing, understanding your market, and making sure that your niche is as narrow as possible. Let me give you a few examples.
Not a Charity
One services firm I know was charging too little. In fact, after getting some mentoring, the company doubled its rates! Figuring out what you charge isn’t easy: I wrestle with this all the time, particularly in today’s down economy. My own rates have fluctuated over the 20 years that I have been in business, and today I still marvel at firms that want me to do work for them at bargain-basement rates or, better yet, for free for “the exposure.” If I wanted exposure, I would go hiking in the mountains. I keep telling folks that I am not a charitable organization; I work for a living, and so should you.
Yes, there are times when I will work for free, but only under very structured and controlled circumstances. For example, I will speak at local community-based organizations’ conferences. A speaker friend I know books up to one pro bono event each month and puts it on her calendar. I like that method; you treat these freebies with the same value as paying gigs. She makes her money selling her books and consulting services from these events.
Sure, setting the right price is more art than science, but you do have to spend some time looking at your competitors and understanding that there is an implicit value in your rate. If you undercharge, you will be undervalued.
If you need help with your pricing, spend time doing testing; see what you can get at different prices from different clients. While this isn’t very scientific, it should give you an idea of how high your should (usually) raise your rates.
Finding Your Niche
Do you really have the right niche for your product or services? One software firm I work with has a very narrow niche for its product, and has done well continuing to focus on what people in that niche need.
But what happens if your niche is evolving? You have to evolve with it.
Typically, startups want to continually find a narrower niche, so they can become the dominant player in that niche. Many new ventures make the mistake of going too wide rather than deep; then you are in different markets with limited resources for each.
The term du jour is “pivot” (which used to mean solving a set of linear equations back when I was in grad school), describing the idea of refocusing your startup business as conditions change and you track your progress. Pivoting gives the impression that your original idea wasn’t sound. Instead, I like to suggest constantly refining your offerings.
Finally, once you establish the right price and the right niche, you need to find the right market for your goods and services. Another firm I know was focused on college-age young adults. When it developed a second service, it designed the new offering around this audience as well. College kids are customers who the company knows and understand. The idea is to leverage their existing expertise, not to try to be all things to all ages.
That kind of focus on business basics is a valuable lesson for any startup.