All Segments
a16z Podcast | Pricing, Pricing, Pricing
23 segments available
"Raise prices." Regular listeners of our podcast have heard this advice more than once. But why is this so key and yet so hard for many technical founders? And how should startups go about raising prices -- or more specifically, creating value -- for their products? In this episode of the a16z Podcast, former sales VP Mark Cranney (and head of a16z's EBC and go-to-market practice for startups) and former startup founder (and general partner focused on all things infrastructure) Martin Casado talk to managing partner Scott Kupor about pricing for startups ... especially for category-creating businesses. It's not all "pricing, pricing, pricing" though -- there's another important "p" in there too!
Segments Timeline
The Importance of Pricing
In this segment, the hosts introduce the topic of pricing and its significance for entrepreneurs, particularly technical founders. They discuss the common misconception that low initial pricing will lead to greater adoption, highlighting the potential pitfalls of undervaluing a product. The conversation sets the stage for deeper insights into pricing strategies and their impact on startup valuation.
"hi everyone welcome to the a six in Z podcast I'm sonal regular listeners of the podcast have probably heard us say more than once that entrepreneurs should raise prices why and the other question tha..."
Understanding Market Value
Scott Kupor and guests delve into the challenges technical founders face in understanding market value. They explain the fallacy of assuming intrinsic value in technology and emphasize the need for founders to establish perceived value in immature markets. This segment highlights the psychological aspects of pricing and the importance of aligning product value with buyer expectations.
"everybody this is scott Cooper I'm here with Martine and Mark and we are here to talk about pricing one of the reasons that this podcast in general is so important is I think that pricing is one of th..."
Value-Based Pricing Strategies
Mark Cranney discusses the concept of value-based pricing and how it relates to customer understanding and product evaluation. The segment emphasizes the necessity of putting oneself in the buyer's shoes to effectively communicate value. It also touches on the iterative nature of pricing strategies as startups evolve and gain market insights.
"right away and you've just cannibalized your top-line revenue almost immediately the scenario you describe to begin with is extremely common and the reason it's common over and above what you've outli..."
Navigating Pricing Challenges
The conversation shifts to the common challenges entrepreneurs face when adjusting pricing after initial market entry. The hosts discuss the importance of packaging and how to adapt pricing models based on customer feedback and product evolution. This segment provides practical insights into managing pricing as a startup grows.
"natural inclination does to I'll figure this out later mark so you're kind of describing kind of value-based pricing right so does that mean in those early days then that you kind of iterate on the pr..."
Establishing Initial Pricing
In this segment, the discussion focuses on how to set initial pricing in pre-chasm markets. The hosts share strategies for starting with higher prices and using sales feedback to refine pricing. They emphasize the importance of understanding customer needs and market dynamics in establishing a successful pricing framework.
"then there's the option of like I want to start all cart versus you know in a package all at once you know some customers might not need the whole product when you're first starting out or they don't ..."
Segmenting the Market for Pricing
The final segment explores the significance of market segmentation in pricing strategies. The hosts discuss how different customer segments, such as network engineers versus CXOs, perceive value differently. They highlight the need for tailored pricing approaches that reflect the unique perspectives and needs of various stakeholders within an organization.
"value to it I've gotten so many times the question it's like okay so how do you set that initial price you get a lot of these pmm types they want to go do this market research and like all the stuff a..."
Sales Insights on Pricing
In this segment, the speakers share insights on the role of sales teams in determining pricing. They argue that real market feedback comes from sales interactions rather than market research. The discussion highlights the challenges of setting prices in category-creating businesses and the need for salespeople to understand customer value deeply.
"managers across multiple functions all the way up to a cxo with higher level initiatives so that's something that maybe the first time founder that hasn't had to go through that whole process is not g..."
Learning from Startups
The speakers discuss the willingness of large companies to learn from startups, especially in emerging fields like AI. They emphasize the importance of setting aggressive pricing early to gain real market feedback and avoid self-delusion about product-market fit.
"it for a couple of reasons one of them is like the value of the sales team is certainly to sell and bring in a number but in my experience when it comes to setting pricing and to understanding what th..."
Preparing for Scale
This segment addresses the need for startups to think ahead about scaling their pricing models. The speakers stress the importance of modeling potential pricing scenarios for larger enterprise deals, ensuring that startups are prepared for customer inquiries about future adoption and pricing structures.
"often in a hot area say AI or deep learning you'll have these like really smart entrepreneurs that have done the PhD maybe they just pulled out of Google or something companies will pay to engage with..."
Overcoming Sales Challenges
The discussion highlights common pitfalls for early-stage companies when dealing with larger enterprises. The speakers emphasize the need for startups to understand the full scope of potential deals and the importance of having a clear pricing strategy that addresses various deal sizes.
"a lot of companies and the reason they get stuck in the mud particularly dealing with these bigger companies is a lot of earlier stage companies they haven't thought through what the rest of that deal..."
Financial Considerations in Pricing
In this segment, the speakers explore the financial implications of transitioning from on-premise solutions to SaaS models. They discuss how different accounting practices can affect pricing decisions and the importance of understanding customer budgets in the sales process.
"able to kind of give them you know in the quotes here's what the small deal would look like to get started proc here's what a medium-size deal with multi bu and then here's what a large deal would loo..."
The Macro Success Scenario
The speakers emphasize the importance of considering the macro success scenario when engaging with potential customers. They discuss how startups often focus on initial sales without fully understanding the long-term implications of their pricing strategies.
"is I mean that might have been centralized before with you know IT but the the whole world is changing because it's a line of business type sell people get stuck in the mud all the time I think it's r..."
Salesperson Competence and Market Fit
This segment discusses the critical role of hiring the right salespeople for early-stage startups. The speakers argue that the competency of salespeople should align with market maturity, emphasizing the need for individuals who can adapt and create new sales strategies in emerging markets.
"lot of cases we're trying to just throw a number out there because we don't have any data for that number we don't have any confidence in what it's costing them or what it would mean to them from you ..."
Creating a Scalable Sales Playbook
The conversation concludes with insights on the importance of developing a scalable sales playbook. The speakers stress that early customer engagement should focus on product-market fit and that feedback from the market is essential for refining sales strategies and pricing.
"trap a lot of CEOs or founders might fall into here is I'm gonna go hire somebody that's selling something somewhere to what I sell and if the problem with that I like in your case if I want to go you..."
Packaging and Pricing Strategies
This segment delves into how startups should think about product packaging and pricing strategies. It emphasizes the need to consider customer needs and market feedback when determining how to bundle functionalities. The conversation highlights the importance of creating tiered pricing options that allow customers to start with what they need and expand as their requirements grow, ensuring that the pricing structure aligns with the value delivered.
"targets and prospects turn into customers learn stop put the pulled the recipe you know take the recipe make it repeatable turn that into a playbook make that scalable you can't move it out of the lab..."
Navigating Early Customer Contracts
In this part, the speakers discuss the pitfalls of early customer contracts and pricing strategies. They caution against giving away too much value in initial deals, which can lead to long-term issues for startups. The segment stresses the importance of establishing clear boundaries in contracts to protect future revenue potential and avoid being overly generous with early adopters, who may negotiate aggressively.
"on with with the packaging and or different options the other thing is that you know one solution in one vertical land or use case could from a pricing standpoint or a value standpoint can be complete..."
Adjusting Pricing Strategies Over Time
This segment addresses how startups can adjust their pricing strategies as they grow. It discusses the challenges of setting market prices and the importance of being flexible in response to market conditions. The speakers emphasize the need for startups to continuously evaluate their pricing based on customer feedback and competitive landscape, allowing for adjustments that can enhance market positioning and profitability.
"some of these teams walk in with their junior varsity uniforms on and there's a lot of injuries that happen so you really got to be careful so how do you solve that I mean you know get some help you k..."
Continuous Pricing Review Process
The final segment highlights the necessity of a continuous review process for pricing strategies. The speakers recommend that CEOs and sales leaders regularly analyze win-loss reports and market conditions to inform pricing decisions. They stress that this should be a constant practice, adapting to changes in the market and ensuring that pricing remains competitive and aligned with the value provided to customers.
"as far as redoing the deal it's just customer or its case specific one thing I'd like to add though along those lines though on the product development side if you think about this early enough and an..."
Continuous Pricing Review and Market Dynamics
This segment emphasizes the necessity for CEOs and sales leaders to regularly revisit pricing strategies. Mark discusses the importance of conducting win-loss reports and post-mortems to understand market dynamics and customer feedback. He stresses that pricing should be a constant consideration, influenced by competitive pressures and product development stages.
"mapping it up with where am I out with the product where am i out with my customers that whole roadmap discussion isn't just an internal discussion that's something that you're constantly doing with y..."
Aligning Pricing with Sales Strategies
The conversation shifts to how pricing strategies must align with the type of sales organization a startup employs. Mark explains that different sales approaches, such as direct enterprise sales versus inside sales, require distinct pricing models. He highlights the importance of understanding how pricing impacts sales efforts and the overall go-to-market strategy.
"other question I had was you guys have also hinted us a couple times but the relation between the type of sales organization you can support and what kind of pricing you have out in the market you kno..."
Experimenting with Sales Models
In this segment, the speakers discuss the value of experimenting with different sales models to find the most effective approach. They share insights on how startups can start with inside sales and gradually incorporate field sales to optimize their sales strategy. The importance of adapting to market needs and buyer behavior is emphasized.
"down and because of the complexity is that typically means there's also going to be a big outlay either kept capital and/or operating and that's probably going to require you know an outside direct sa..."
Identifying Product-Market Fit Challenges
Mark Cranney offers advice to first-time CEOs on identifying whether issues stem from product problems, sales team inefficiencies, or pricing misalignments. He stresses the difficulty of achieving product-market fit and the need for patience and persistence in navigating this complex process. The segment highlights the importance of understanding market maturity and customer engagement.
"only certain types of products where markets are amenable to in inside sales model right like if it's a very mature market the customers educated is probably more amenable than if it's something total..."
Key Takeaways on Pricing Strategy
As the episode wraps up, the speakers summarize the key points discussed regarding pricing strategies for startups. They emphasize the importance of pricing early and often, involving the right sales personnel, and carefully considering product packaging. The segment serves as a reminder for founders to be aggressive with their pricing strategies while ensuring they do not undervalue their offerings.
"long so we're talking a lot about kind of first time CEO is here and let's just assume products not taking for some reason it's not selling we're missing our plan as a CEO how do you know whether you ..."