As we’ve seen, it’s usually much more important to focus your efforts on making money as soon as possible than on borrowing startup capital.
The more I focus on these things, the better off I am. In short, they are as follows: 1. Price your product or service in relation to the benefit it provides, not the cost of producing it. 2. Offer customers a limited range of prices. 3. Get paid more than once for the same thing. Principle 1: Base Prices on Benefits, Not Costs In Chapter 2, we looked at benefits versus features. Remember that a feature is descriptive (“These clothes fit well and look nice”) and a benefit is the value someone receives from the item in question (“These clothes make you feel healthy and attractive”). We tend to default to talking about features, but since most purchases are emotional decisions, it’s much more persuasive to talk about benefits. Just as you should usually place more emphasis on the benefits of your offering than on the features, you should think about basing the price of your offer on the benefit—not the actual cost or the amount of time it takes to create, manufacture, or fulfill what you are selling. Principle 2: Offer a (Limited) Range of Prices Choosing an initial price for your service that is based on the benefit provided to customers is the most important principle to ensure profitability. But to create optimum profitability or at least to build more cushion into your business model, you’ll next want to present more than one price for your offer. The key to this strategy is to offer a limited range of prices: not so many as to create confusion but enough to provide buyers with a legitimate choice. Notice the important distinction that naturally happens when you offer a choice: Instead of asking them whether they’d like to buy your widget, you’re asking which widget they would like to buy. Principle 3: Get Paid More Than Once The final strategy for making sure your business gets off to a good start is to ensure that your payday doesn’t come along only once—you’d much rather have repeated paydays, from the same customers, over and over on a reliable basis. You may have heard of the terms continuity program, membership site, and subscriptions. They all mean roughly the same thing: getting paid over and over by the same customers, usually for ongoing access to a service or regular delivery of a product. (Note: Don’t get too hung up on the exact numbers here. The point is that in almost every case, a recurring billing model will produce much more income over time than will a single-sale model.) The key to this model is not market share. It’s share of the customer. And to gain more of each customer’s budget, you first have to zealously treat every customer as a “best” customer, no matter which ones actually end up becoming the proverbial “customer for life.” The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future by Chris Guillebeau One of the first mistakes budding Makers make when they start to sell their product is not charging enough. It’s easy to see why, for all sorts of reasons. They want the product to be popular, and they know the lower the price, the more it will sell. Some may even feel that if the product was created with community volunteer help, it would be unseemly to charge more than it costs. Such thinking may be understandable, but it’s wrong. Making a reasonable profit is the only way to build a sustainable business. Let me give you an example. You make one hundred units of your delightful laser-cut handcrank toy Drummer Boy. Between the wood, the laser cutting, the hardware, the box, and
the instructions, it costs you $20 to make each one. Let’s say you price them at $25 just to cover any costs you may have missed, and start selling. Since it’s a fun kit and pretty cheap, it sells quickly. You suddenly realize that you’ve got to do it all again, this time in a batch of one thousand. Rather than putting up a couple thousand dollars to buy the materials, you’ve got to put up tens of thousands of dollars. Instead of packing the kits in your spare time, you’ve got to hire someone to do it. You need to rent space to store all the boxes, and you’ve got to make daily trips to FedEx. Now your hobby is starting to feel like a real job. Worse, the popularity of your kit has come to the attention of some big online retailers, and they’re asking about buying in batches of one hundred, with a volume wholesale discount. You’re thrilled that your kit is so popular and flattered that these retailers, who can reach many more people than your own website, want to sell it. But if you’re selling it at $25, that’s the market price—the retailers typically can’t sell it for more. The retailers ask for a lower price because they need to make their own profit on each one, usually around 50 percent. So they need to buy them at no more than $17 each. But that would mean you are selling each one at a loss! Your costs, which were once within the limits of hobby spending, are now at risk of driving you and your business into debt. What entrepreneurs quickly learn is that they need to price their product at least 2.3 times its cost to allow for at least one 50 percent margin for them and another 50 percent margin for their retailers (1.5 × 1.5 = 2.25). That first 50 percent margin for the entrepreneur is really mostly covering the hidden costs of doing business at a scale that they hadn’t thought of when they first started, from the employees that they didn’t think they’d have to hire to the insurance they didn’t think they’d need to take out and the customer support and returns they never expected. And the 50 percent margin for the third-party retailers is just the way the retail market works. (Most companies actually base their model on a 60 percent margin, which would lead to a 2.6x multiplier, but I’m applying a bit of a discount to capture that initial Maker altruism and growth accelerant.) In other words, that $20 kit should have been priced at $46, not $25. It may sound steep to you now, but if businesses don’t get the price right at the start, they won’t be able to keep making their products, and everyone loses. It’s the difference between a hobby and a real, thriving, profitable business. Makers: The New Industrial Revolution by Chris Anderson A business is like a aircraft carrier. It is a city on the ocean, a massive machine filled with thousands of people, most of them young, and inexperienced, and it they rotate through continually, and yet it runs like a machine, efficient and effective.
How? Processes. Every single process, machine, switch, thought that can be had or done on a aircraft carrier has been reviewed, the best way to handle found, the process documented, written down, everyone trained, and then the process is reviewed to insure that everyone is following the process, and to insure nothing has changed and the process needs to be reviewed again and possibly modified. There should be only way way to do anything in your business, so everyone that does that process does it the same way. It is your job to make sure that your team can only do it the right way. When I work on a new project, particularly one that I know little about, I first find the rules, how does it work today. What tells you it is working, how do you define success, how it is not working, and then you find the rules and principles that make it work the same way consistently and create a virtual machine to make that happen. D "So how do you manage a cold call?
First, it’s all about attitude. Your attitude. You’re never going to be completely ready to meet new people; there is no perfect moment. Your fears will never be completely quieted, because inviting rejection is never going to be appealing. There are always a hundred reasons to procrastinate. The trick is to just plunge right in. Remember, if you don’t believe you are going to get what you want from the call, you probably won’t. So, in the words of Caddy Shack, “Be the ball.” You have to envision yourself winning to win. And second, cold calls are for suckers. I don’t call cold—ever. I’ve created strategies that ensure every call I make is a warm one. In fifteen seconds, I used my four rules for what I call warm calling: 1) Convey credibility by mentioning a familiar person or institution—in this case, John, Jeff, and WebMD. 2) State your value proposition: Jeff’s new product would help Serge sell his new products. 3) Impart urgency and convenience by being prepared to do whatever it takes whenever it takes to meet the other person on his or her own terms. 4) Be prepared to offer a compromise that secures a definite follow-up at a minimum. Here are some of the rules I follow fleshed out in more detail: 1. Draft off a reference. The reason a cold call feels like torture was set out in vivid detail fifty or so years ago in an advertisement, recalled by Harvey Macka, in his book Swim with the Sharks. It pictures a corporate killjoy facing the reader, who is cast in the role of the salesman. The killjoy says: I don’t know who you are. I don’t know your company. I don’t know what your company stands for. I don’t know your company’s customers. I don’t know you company’s products. I don’t know your company’s reputation. Now—what was it you wanted to sell me? You can see the total lack of credibility one has when making a cold call. Credibility is the first thing you want to establish in any interaction, and ultimately, no one will buy from you unless you establish trust. Having a mutual friend or even acquaintance will immediately make you stand out from the other anonymous individuals vying for a piece of someone’s time. 2. State your value. Acquiring a reference or institution to draft off of is only a starting point. It will help you get your foot in the door. Once you have someone’s commitment to hear you out for thirty seconds, you’ll need to be prepared to deliver a high-value proposition. You’ve got very little time to articulate why that person should not try to get off the phone as quickly as possible. Remember, it’s all about them. What can you do for them? 3. Talk a little, say a lot. Make it quick, convenient, and definitive. You want to impart both a sense of urgency and a sense of convenience. Instead of closing with “We should get together some time soon,” I like to finalize with something like “I’m going to be in town next week. How about lunch on Tuesday? I know this is going to be important for both of us, so I’ll make time no matter what.” 4. Offer a compromise. In any informal negotiation, you go big at the outset, leaving room for compromise and the ability to ratchet down for an easier close. I closed my pitch to Serge by suggesting that even if he didn’t want to hear anything about digital content, I’d love to get together with him just to meet, given our mutual friend’s admiration and respect." Never Eat Alone: And Other Secrets to Success, One Relationship at a Time by Keith Ferrazzi, Tahl Raz Chris Anderson announced today he was leaving editing Wired magazine to go run his electronics business. As I read about it in his book Makers I not only see why, but I get jealous.
D "It was time to start our own factory. I started a proper company, 3D Robotics, with a partner, Jordi Muñoz (of whom much more later). In a rented Los Angeles garage, Muñoz started building our own mini Sparkfun. Rather than a pick-and-place robot, we had a kid with sharp eyes and a steady hand, and for a reflow oven we used what was basically a modified toaster oven. We could do scores of boards per day this way. As demand picked up, we outgrew the garage. Muñoz moved the operation to commercial space in an industrial park in San Diego, which was nearer the low-cost labor center of Tijuana. In came real automated manufacturing tools: first a small pick-and-place machine, then a bigger one, and finally an even bigger one with automated component feeders. The toaster oven gave way to a proper automated reflow oven with a nitrogen cooling system for perfect temperature control. And for that we needed a nitrogen generator, of course. And so it went, with more and more professional tools, which Muñoz and his team learned to use by finding tutorials on the Web. By this time we had outgrown the first space and expanded to a bigger space next door. Then we outgrew that, too, and today 3D Robotics has a factory that sprawls over twelve thousand square feet and a second one of nearly the same size in Tijuana. The facilities are buzzing with robotic assembly machines run by factory workers, and teams of engineers developing new products. Pick-and-place robots build circuit boards, which are baked in automated reflow ovens temperature-regulated by a nitrogen generator. Laser cutters, 3-D printers, and CNC machines make quadcopter parts. These are real factories now, just three years after Muñoz started hand-assembling boards on his kitchen table with a soldering iron. From Maker to millions In our first year, we did about $250,000 in revenue; by 2011, our third year, we had broken $3 million. In 2012 we’re on track to break $5 million in revenues. Growth continues at about 75 to 100 percent per year, which is common for open-source hardware companies like ours. We’ve been profitable from the first year (it’s actually not that hard in the hardware business—just charge more than your costs!), but try to reinvest as much of the profits as possible into building new factory lines. Because we’re online, we’re global from the start and tend to grow more quickly than traditional manufacturing companies because of the network effects of online word of mouth. But because we’re making hardware, which costs money and takes time to make, we don’t show the hockey-stick exponential growth curve of the hottest Web companies. So, as a business, we’re a hybrid: the simple business model and cash-flow advantages of traditional manufacturing, with the marketing and reach advantages of a Web company. We’re still a small business, but the difference between our kind of small business and the dry cleaners and corner shops that make up the majority of micro-enterprise in the country is that we’re Web-centric and global. We’re competing in the international market from day one." Makers: The New Industrial Revolution by Chris Anderson This is just a great book, reading in parts so can stop and think about what I am learning. This is a great example of why social networks have so much power.
D "I set up DIYDrones.com as a social network (on the Ning platform), not as a blog (so 2004!). That distinction—a site created as a community, not a one-man news and information site like a blog—turned out to make all the difference. Like all good social networks, every participant, not just the creator, has access to the full range of authoring tools: along with the usual commenting, they can compose their own blog posts, start discussions, upload videos and pictures, and create profile pages and send messages to one another. Community members can be made moderators, to encourage good behavior and discourage bad. What this meant was that the site wasn’t just about me or my ideas. Instead, it was about anyone who chose to participate. And right from the start, that was almost everyone. The site was soon full of people trading ideas and reports of their own projects and research." Makers: The New Industrial Revolution by Chris Anderson Check out the website mentioned. http://diydrones.com/ |
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