Finding a price point

27 08 2008

Prior to my trip to Boulder for the CWA Summit I settled on a price range for ClimbPoint that I could live with.  Since that time I’ve returned to my original estimate, sharpened it, and become more comfortable with the price I’m charging for the software.

Building a bottom-up sales forecast

My initial pricing decision was made based on an estimation of the cash I would need during the first year to cover my expenses.  I then guessed at how many licenses of ClimbPoint I could sell in that time period.  That gave me a minimum amount that I would need to charge for the software to break even after the first year.  I think my first amount was around $400 or $500.

The above method is roughly a bottom-up sales forecast, as described by Guy Kawasaki in the first couple points of this post on the art of bootstrapping.  I first began experimenting with this method while learning the art of the start.

Pricing and positioning

I then took some advice from Eric Sink on pricing and positioning, and checked out my competitors in the area of software for recreation management.  I made a list of similar products, along with the features they offered, the initial cost, and any maintenance fee.

Well, as my list grew longer I decided to plot my competitors on a two by two matrix based on cost and functionality.  Dirt cheap and painfully limited software was in the lower left, while the pricey software with all the bells and whistles was in the upper right.

I decided that I wanted ClimbPoint to be in the upper right quadrant, though not too pricey.  This exercise mainly served to boost my confidence when telling a prospective customer, “yes, we’re charging $650 for the initial license.”  Prior to convincing myself that this price was fair and reasonable, I was apologizing to customers because that price felt a little high to me.

A sanity check!

The most helpful activity in settling on a price for ClimbPoint was, to my surprise, talking with a potential customer and friend about whether the price was reasonable.  As we discussed the initial cost and yearly maintenance fee, I discovered that my friend felt he would have a hard time convincing his manager to purchase the product — the maintenance fee was almost 1/3 of the purchase price!

I don’t think I would have caught that problem with the pricing without customer feedback, and that “reality check” was the final piece of the pricing puzzle for me.  The updated pricing information is now prominently displayed on the ClimbPoint purchase page.

Learning the Art of the Start – Part 3

11 04 2008

This is the third in a series of posts on The Art of the Start by Guy Kawasaki. Part one was on “why you’re starting”, and Part two covered “describing what you do.” Look for another installment this time next week.

Activation: Get cash, get people and get going

The third section of The Art of the Start is entitled activation, and is centered around getting cash and getting going. The most useful chapter of this section for me was on bootstrapping, which describes how to build a sales forecast.

To this point in my life, most of the sales projections I’ve seen (and the few that I’ve attempted to put together) basically used the same method for figuring out the potential market share.

  1. Calculate the size of the market
  2. Figure out how much money 1% of that market represents
  3. Adjust accordingly, up to 10% of the market
  4. Celebrate, because you’re going to strike it rich

Guy calls these types of forecasts “top-down forecasts”. While they may be compelling for some investors, they are definitely not practical for the bootstrapper.

Realistic sales projections

The real question that sales projections should answer is “Given our sales team and the product we have, how many sales could we make in our first year?” This exercise was immensely helpful for me, so let me walk you through my bottom-up projection for the first year…

  • First, I assume I’ll work about 10 hours per week on this project and spend 2-3 hours of that time on sales
  • That will allow me to make maybe 3 sales calls per week, or 144 per year (long conversations maybe, but these are real conversations with real people ;))
  • If I assume that 5% of the people I talk to will buy my software, I may get about 7 sales
  • Each sale brings in $x worth of business, so I can estimate the money I’ll get from sales in the first year

The number that I came up with will probably allow me to break even for the first year, which I would be ecstatic about. Furthermore, the estimate for sales conversions is pretty low at 5%, especially considering that about half of the climbing wall managers that I’ve talked to said they’d be interested in buying it. At the very least this gives me a lower-limit to what I can expect when I start selling ClimbPoint.

Just get it out the door

Which brings me to the other piece of advice that I gleaned from this section: Ship early, then test. Thus far in my distribution of ClimbPoint I’ve been careful about making sure it was bug-free before sending it off. Guy does admit that a tarnished reputation is a potential downside to shipping too early, but he makes a good case for getting the product out the door, regardless of how incomplete it may be. I still have a hard time with this one.

The rest of this section goes into how to position your product (preferably against a market leader, if there is one), how to recruit good people, and the art of raising capital. Even though I don’t plan to seek investors at this point, Guy’s advice and insight on raising capital seems spot-on, and I think it will be a great resource if I’m ever looking for some cash in the future.

The fourth section of The Art of the Start, proliferation, apparently covers partnering with others and branding your product. There is also a chapter in this section about rainmaking, but I guess I’ll just have to wait and see what that one is about.

Crafting an effective elevator pitch

2 04 2008

Last Friday I attended an elevator pitch competition at the Burton D. Morgan Center for Entrepreneurship. When I arrived and discovered that registration for the competition was still open, I thought for about five seconds about registering…but since I could only stay for an hour, I decided it would be best to sit in and see what I could learn from others who were pitching their ideas.

The first hour of the competition featured pitches from about ten Purdue students, who were given two minutes to brief someone on their business idea. I wish I had been able to stay for the non-student portion of the competition (the pitches probably would have been better), though I learned a few things about what not to do when pitching an idea. Here are a few of the things I thought were missing from the pitches that I heard:

Begin with a question, or pique the person’s interest
It’s tempting to just launch into why the idea is great, but only a few pitches I heard actually hooked me within the first few seconds. Those began with a question or relevant story, statistic, or example.

Keep the pitch relevant
The most common question asked by the man in the elevator after the pitch had been given was basically “so what?”. Why is this idea relevant today? How is your solution different from everyone else’s? Spouting off facts about the market size and product design don’t mean anything if the elevator man can’t understand what the product really does and how it is unique.

End with a call to action
Too many pitches ended with the elevator man saying, “Ok, I’ll look into that”. Only one entrepreneur actually left the elevator man with a product example (in this case it was soybean playdough), and only one directly asked for a follow-up session in which he could explain in more detail his business idea.

I don’t pretend to have all the answers to creating an effective elevator pitch, and others have done a much better job covering this topic than me. One site in particular lists a comprehensive set of elevator pitch essentials, which I will probably never get around to totally reviewing (though the articles I’ve read have been helpful).

I also don’t yet have a written elevator pitch, though I was able to give a summary of my idea for climbing gym software to a manager from Motorola that I met that same day. He was impressed with the idea, and with the steps I’ve taken so far to test and refine the software. For me the conversation raised a major question about whether I actually want to pursue outside investment, which will be the subject of another post…

Growing organically: who needs startup capital?

25 01 2008

Joel Spolsky authored a great article in this month’s issue of Inc. entitled The Four Pillars of Organic Growth, which describes the benefits of (you guessed it) growing organically, and the perils of mis-using outside investments to grow too quickly. The timing of the article was great considering my recent option of entering a business plan competition. As a side note, I’ve decided to defer on that option for the time being and focus on getting the next release of ClimbPoint out. But back to the article…Here’s the summary quote:

“A company that lands a big investment too early is often worse off, not better. It often finds itself in a situation where it is much harder to make that investment pay off.”

Spolsky goes on to recount how many companies today (and I would say that VCs and the startup culture perpetuate this) rely on large outside investments to fuel fast growth. Now, I don’t believe that all outside investment is detrimental to budding startups, but I do agree with the primary point of the article, which is that startups should regulate growth so that revenue, head count, PR, and quality grow at approximately the same rate.

To this point I think I have experienced organic growth with ClimbPoint. I’ve only contacted about a handful of people about demoing the software, and already a few more have come on board via word of mouth or the Googlebot. One of the other marks of an organically growing company, according to Spolsky, is that “the degree to which customers are aware of your business never outstrips the quality of the goods or services you are able to provide to them.”

I think that accurately describes where I’m at now, and for the time being I’m fine with word of mouth publicity. In fact, I don’t expect to begin marketing my climbing wall management software for another few months — and even then, I’ll be targeting specific groups so that I can be sure to maintain quality and ensure that it serves the needs of the climbing community.

While it would be nice to have some extra startup capital, I am content to grow slowly and organically. After all, getting there is half the fun right?

Business plan competitions: worth it?

16 01 2008

Last week I attended an information session for the 2008 Burton D. Morgan Entrepreneurial Competition. It’s basically a business plan competition for Purdue students, faculty and staff. The annual event is open to everyone, and the prize money is nothing to sneeze at.

Gold Division
Black Division

The money, of course, was one of the first slides in the overview presentation. The two divisions above serve to separate undergraduate students from graduate students and faculty. Undergrads comprise the Black Division, and everyone else affiliated with Purdue participates in the Gold Division. If memory serves me right, the presenters said that last year there were somewhere in the neighborhood of 50 entries in each division.

At first I was definitely intrigued by the idea of the competition, and somewhat excited about it. Now that I’ve had a few days to think about it, however, I’m not so sure that I’ll enter. Here are the main reasons…

  • Priorities – Day by day I’m getting closer to having the first release of ClimbPoint ready for sale. If there are a few gyms that buy the software, it would nearly offset the winnings were I to come in 4th or 5th in the competition (and I think I’m being generous even giving myself a shot at those spots).
  • Intellectual Property – It makes me a little uneasy that none of the judges (nor anyone else attending the competition) will be required to sign any kind of non-disclosure agreement. NDAs in business plan competitions are pretty rare anyway though, as most participants have already filed patents on their ideas prior to competing. There is zero chance that I’ll file a patent before the competition (or ever), so I’m reluctant to show off my idea to random people who have the money and resources to do something with it if they choose.
  • Time – This one is related to #1. Were I to make the first cut, I would be required to submit a 30 page (or so) business plan describing all aspects of the market, the competition, and my plan for entering the market. This exercise would be beneficial, but at this point (especially with having to write the final report for my Masters project) I don’t think there’s time to do it, or do it well.

There are a few reasons I can think of to try it. The presenters at the info session stated that all “rejects” will get some feedback on their executive summaries or business plans. The guidelines for the executive summary and business plan are fairly extensive, and much of the research that I’d need to do to complete them would probably be helpful (my market research and marketing plan have been mostly theoretical to this point).

So here’s a question for all 4 of you who are following this blog…Am I overlooking anything? Is there value in entering this contest? Would writing a business plan really be a waste of time? There are some good comments over at wsj on the waste of time issue, but I’d like to hear some other thoughts…