My cofounder Simon and I recently soft-launched our new startup. We got 10 sales and made $5,000 on the first day of our launch. Not bad. But then things got tough. Over the next few months, we scratched and clawed our way up to $15,000 and then stalled out. We needed more cash, but we weren’t in a position to raise money, and we didn’t want to take out a bank loan until our business model was proven. We felt stuck.
What the hell were we going to do? Was this the end?
With the help of a few advisers and business coaches—thanks Marisa Murgatroyd and team!—we discovered a new path forward: we needed to charge way more. So we crafted a new offer. But this time, instead of charging $500, we used a much heftier price tag—like orders-of-magnitude heftier. Three weeks later, we had three new clients and more than six figures on the books.
I call this the Price vs. Growth Paradox.
Counterintuitively, the price of your product should be inversely related to the age of your startup.Counterintuitively, the price of your product should be inversely related to the age of your startup. Click To Tweet
In other words, you should charge a lot in the beginning, and then charge less as you grow. Why is this seemingly backward advice a good idea?
The answer is simple: cash flow.
A higher priced product gives you more cash with fewer sales. It gets better: with a higher priced product or service, you can have a smaller sales team or no sales team at all and still get things moving. That means more time for product development, which is the most important task in the early days. Since you’ll be working with a smaller group of clients, you can also launch with a more bare-bones product because you only need to please a few people, vs. hundreds or thousands or millions.
This allows you to give extreme care to your customers, which creates a feedback loop and helps you build a better product. Customer service is easier, too, because you’re only serving a handful of folks.
See how this works?
Initially selling a higher priced product creates a business that’s easier to launch and manage. Once you have cash on hand, you can more easily scale the business. After building up some buffer, you can start spending money on things like marketing funnels, ads, automation, etc. This is exactly what our company is now exploring. You can also introduce lower-cost products. Of course, there are other ways to build a company.
You could raise money, for example. But that typically requires founding a previously successful business into the millions of dollars in revenue, cultivating relationships with super powerful people, or building a product that gets traction straight out of the gate. This can work, but it’s a far less accessible route for most people, and it takes away your control.
Why not just make six figures from a few sales and go from there?
The Price vs. Growth Paradox is certainly counterintuitive. That’s why most entrepreneurs start small. But then they get stuck because they aren’t able to secure enough traction or capital to grow. If you’re struggling to get going, try reversing your thinking and see what happens.
Don’t start small. Start big.Opinions expressed here by Contributors are their own.