3 Questions Every Startup Founder Should Be Able to Answer with Confidence

Mon, 14.02.2022, 09:30

Starting your own business is no small task. And there are so many things to do. Right at the top of the list is figure out how your business will make money. By definition that is what a successful business does. Of course while meeting the higher calling of serving their customers. When building a new business it’s exciting to talk about what you or your products do. And it’s easy to get caught up or lost in that. Reality is that your main task is to figure out how you will make money in your business. To do that there are three questions you’ll need not only to answer but answer with confidence. Here they are.

What’s the Value of Your Offer?

You might be thinking, “Wait a minute. You just said I’m good at talking about what I do or my product does?” That’s true. And it’s different then talking about the value that your offer brings. This is a small and powerful distinction. When you speak of the functions and features of your product, it’s not the value. When you speak about the kind of services you bring, that's not the value either.

The value is what the customer or client gets from those things. It’s one step further. If you can’t confidently express the value of your offer, then people aren’t going to want to pay for it. Furthermore, getting the best prices for what you offer is impossible.

The more deeply you and your team understand this, the more confident you’ll be. You’ll be better prepared to charge the right prices and sell what you have to offer.
 

What’s the Price of Your Offer?

This one seems obvious and I would say most Founders can tell you the price. But there are two areas where they tend to fall short.

First, they leave determining the price until late in the process. Which makes it difficult when speaking with potential investors or writing a business plan. Why? Because you don’t have a clear enough picture of how sustainable your business model is. You can’t figure out profitability without price.

The second area where they fall short is in how they respond to the question. Often they answer the question, with the intonation of a question, like “It’s 250?” This shows me they aren’t sure if the prices they’re charging are right. And that they don’t feel confident about what they charge. Maybe they don’t understand the value or the customer. Possibly they don’t know how to determine the right prices in the first place.

Regardless of why, if you can’t answer the question confidently, then the person / people who asked the question won’t be convinced either.

What’s the Impact of a 1% Price Change?

I must confess I love this question. One because it’s so powerful and two because not enough people actually know the answer. Pricing is the most impactful profit lever a business has. That means that every 1% in price counts in your business. If your prices rise by 1% or fall by 1% that does not mean your profits rise or fall by the same amount.

Your profits will fall and rise by a higher percentage. If you’re a purely service based business, price and volume will have similar impact. But the more variable costs you have, the bigger the change to your profits will be. And yes, it can and is for many businesses a double digit change in profitability.
When you don’t understand the impact of price, then you don’t understand how your business decisions or pricing performance impact profit. When you know the impact you can make much better decisions for your customers & your business.

In Conclusion

Building a successful, sustainably profitable business requires energy, skill and know how. To get pricing right, you have to understand value from the customer's perspective. You have to be able to set, get and effectively manage pricing in your business. And you must understand your business’ profit picture.

Know the answers to these 3 questions and you’re well on your way to reaching your goals.