Software Executive Magazine

December 2017

Software Executive magazine helps software executives grow their businesses by showcasing the business best practices of our readers, executives from established and innovative software companies.

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Pricing Mistakes At Every Stage Of Software Growth From free betas to discounting to confusing complexity, your software company needs to avoid these pricing mistakes regardless of what growth stage you're in. C H R I S M E L E Co-founder & Managing Partner, Software Pricing Partners PRICING MISTAKES: STARTUPS & EMERGING SOFTWARE COMPANIES One of the biggest mistakes for young software com- panies is unpaid betas. If we could get all of the startup founders in the world together in one room, we would tell them to try to avoid unpaid betas. If you're launch- ing a new product and need a small handful of early adopters to help round out the product, or a small handful of success stories in a new market vertical that is challenging to penetrate, that may be reason- able. But as you progress into the beta stage, adopting a strategy of unpaid betas for too long is dangerous. If a software company begins the relationship assigning a value of zero to its software in any way, it becomes incredibly difficult to charge for it later. This approach can easily morph into a free beta or free pilot strategy on an ongoing basis even in markets where a sizable number of customers has already been acquired. Young companies often rationalize away their lever- age in charging for their software under the guise that the buyer is investing their time as well. But the real- ity is that if there is no money on the line, no skin in the game, the odds are higher that your free software will rarely be used, if ever, during the beta. Worse yet, startups will be cranking their developers in an all- hands-on-deck approach to close feature gaps in the hopes of a potential buyer one day, only to become he real pickle no one ever tells you about is that each time you acquire a new customer, that customer uses a different 70 percent of your product, with additional gaps you didn't know about. This creates an enormous backlog of product features that needs to be addressed before the product/market fit stabilizes. And this, in turn, forces software companies to focus heavily on developing cru- cial product capabilities. Looking back, it's no wonder pricing was relegated out of the discussion entirely in our early years — and then, as with many items on the back burner, it never made its way to the forefront again. I think a lot of software companies operate in this way. As we re-architected our on-premises solutions for the cloud in 2006, we really tried hard to understand this phenomenon. Why did it take us so long to address pricing? Why were we so consumed on product that we inadvertently spent so little time on constructing how we would acquire and retain customers more profitably — arguably the single most important thing we should have been focused on? We began a multiyear journey to wire the pricing discipline into our business model. It was painful and time-consuming. We made mistakes and learned how to recover quickly. But in the end, we succeeded in addressing the single most important, and often missing, element inside our business model: monetizing our intellectual property with discipline, science, rigor, and good judgment. T We didn't know anything about pricing in the late 1990s when I was running a soft- ware business because, like many founders, we spent the majority of our time and money on the product's capabilities. The challenge with early software products is that your customers ever use only 70 percent of your product and learn to deal (at least short term) with the gaps. SELLING & MARKETING Framework By C. Mele PRICING MISTAKES AT EVERY STAGE OF SOFTWARE GROWTH SOFTWAREEXECUTIVEMAG.COM DECEMBER 2017 36

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