CheatCodes - Losing £1.7 million
Timo's Business Mistakes #2: Failing to charge high enough
One of the biggest mistakes I made in business was charging too low.
When running Fanbytes - my influencer agency - we were charging £1,000 for brand campaigns.
This was for a service which our competitors were charging 10x more for.
The reason why was simple…
We were scared.
We were scared of someone saying no to our price.
We saw them saying no as them rejecting us as people.
Eventually it got too much, we concluded we could sell a ton of these £1,000 offers and still not be profitable!
So we changed our pricing very slowly.
Charging £1,000 for a customer then 4 customers later raising it to £2000.
Then £5000.
It took us years before we said “our minimum spend is now £20,000.”
This was stupid.
Some of our competitors were charging £20k from the beginning and even though that meant we were getting clients, we were getting them because of how cheap we were rather than how good we were.
You don’t ever want to be in this position because sooner rather than later you end up being a commodity.
Another weird thing happened when we changed our min spend to £20,000.
It forced us to think about what a £20,000 service should be and subsequently what a £50,000 and £100,000 service could look like.
We raised our price and then rose to the value of that price.
By the time we sold Fanbytes, we were doing campaigns for £500,000 with global brands - a far cry from those £1,000 days.
Sometimes I kick myself for not raising our prices high enough, we left so much money on the table..I estimate that we left about £1.7m in deals.
Ouch!
So key takeaways:
Realize you’re not alone. That queeziness you get when saying a “big number” is just a human thing. Don’t feel bad.
Charge based on your value not the lowest price. Then figure out what is worth that higher value.
If you want to raise your prices, don’t just raise by small increments. Be drastic then rise to the value of that price.
Hope you learn from my mistake,
5 business lessons from a $50 million CEO.
Last week I read "Strategic Entreprenurism: Shattering the Startup Myths" by Jon Fisher, Gerald Fisher, and Wallace Wang. I've read it before, but I'll never forget the FIRST time I read it.
This book literally opened my eyes to an entirely new way of building companies and was a huge influence in me selling my company for tens of millions.
Here are 5 of the most eye-opening lessons:
Make your first customer a big company who may acquire you
Focus your effort on solving a critical problem for a very big company in the space you choose.
This is best because it allows you to customise the solution for their specific company, thereby making you an extremely integrated part of their system that is hard to remove.
When you are hard to remove, solve a critical problem, and very focused on a large company - they often acquire you.
It makes more sense to bring it in-house VS paying an external company.
2. Build with an exit in mind
Make decisions based on the end goal: Selling the company.
Add strings to your company's bow that increases the value, and therefore makes your business a more attractive acquisition target.
Examples include: Intellectual property; Proprietary technology; Excellent talent; Patents; and long term contracts. (to name a few)
3. Be honest about your intentions with investors.
Don't tell investors you're going to "build the next Google," then turn around and sell the company for £20m.
Be upfront and say - "I want to sell this company for a price in this range."
Most investors highly respect the realism, but ALL investors appreciate knowing exactly HOW they're going to get their money back.
Win-win.
4. Focus on profitability, not growth.
Don't burn cash for the sake of hyper-growth, social media hype, and TechCrunch articles. ,
Focus on building a money making machine that has real traction, and grow it.
Buyers love a business that is a money-making machine because it's significantly less risky than a company that has 10x'd it's people, growth rate, and investment in the last 2 years.
Build sustainable traction. Dictate a higher price. Retire. (in that order)
5. Sell before the end of the company's life.
I cannot stress this enough - DO NOT sell the company once you've squeezed every penny of profit out of it.
Nobody wants to buy a company that is "only downhill from here."
Sell once you're 70% of the way up and use that remaining 30% growth potential in your pitch to potential buyers.
"If you buy us now, you can do XYZ to reach THIS BIGGER NUMBER."
^^ That is a much more compelling sales pitch than - "We've already won and there's not much left to grow."
Sell when there's still juice left to squeeze.
