Community Economic Development Fund

Articles and podcasts to help plan and operate your enterprise.

Can you really withhold price information?

 

 

The internet age has disrupted so much about pricing of products and services. In decades past, price was so much more opaque and subject to negotiation like in a medieval bazaar. If as a buyer you couldn't fully understand the features, benefits and scarcity, you tended to be more willing to patiently engage with the seller to seek this information. What you got was usually served with big helpings of persuasion.

 

The buyer-seller game has changed both for B2C and B2B transactions. Now, most of us check the price of an item on Amazon before making a decision about whether a store purchase (at a potentially higher price) makes sense for our priorities. Many B2B transactions are carried out online with no human sales intervention so pricing has to be plainly displayed.

 

All this has conditioned buyers in B2B environments to expect transactions to work more like they do in the consumer world. I wonder if it is really possible to withhold pricing information without risking losing a significant chunk of the top of the prospecting funnel? Then again the whole idea of the sales funnel is in disruption as more and more buyers show up at their suppliers doors having already researched the product or service of interest with the help of the internet.

 

So this leads me to question the practicality of the advice of Geoffery James in his Inc Magazine article: The Single Most Essential Rule About Pricing. And that is "Never quote a price before the customer fully understands the benefit of buying." While I agree that his advice represents excellent classic sales technique, I just question whether contemporary buyers have the patience to cooperate. Of course much depends on the nature of the product or service and how much information is publicly available for close analogs. A good salesperson should react to this circumstance and the level of research a prospect has conducted. So if you think you can pitch before meting out too much price information, please give it a try.

 

-- Frederick Welk
CEDF Business Advisor

What’s wrong with being smaller?

By Anthony Price

Company of One by Paul Jarvis is a contrarian's message against the popular business mantra of growth at all cost. This growth message is ingrained in business but rarely questioned. We watch stock prices of public companies as if it is the national sport. But should we worship growth? Is growth always in the best interest of employees and the company?

Growth can be a curse when the focus moves from satisfying customers to arbitrary financial numbers that often reward wrong behaviors as opposed to continuously improving products and the customer experience. Jarvis asks, “What if you worked instead toward growing smaller, smarter, more efficient, and more resilient?” 

Jarvis seeks to “build better, not bigger, businesses.” In the book, he says, “Staying small doesn’t have to be a stepping-stone to something else or the result of a business failure—rather, it can be an end goal or a smart long-term strategy.” 

Company of One is a powerful message for a one-person business and a philosophy employees can use working for larger corporations. This book is an instant classic for any person making a living as a business or selling their skills in the marketplace. 

Jarvis toiled for twenty years as a one-person business. Over the years, he worked with Warner Music, Mercedes-Benz, Microsoft, and was featured in USA Today, Fast Company, and WIRED. His online courses have helped over 13,500 students.  

Jarvis earned his master’s the hard way, not as a freelancer exchanging time for money, but as a business satisfying customers one at a time. Operating a business is not easy, and doing anything well for a longtime commands respect. 

Along his journey, Jarvis learned much about creating a sustainable business. And now he has something to share with you in his magnum opus: Company of One.  Jarvis takes on questions about growth from his unique perspective. 

Next time you see your favorite business magazine with the hotshot of the moment on the cover, keep walking and do it your way. Read more about Company of One here.

Middletown-based Anthony Price, CEO of LootScout, is author of Get the Loot and Run. He works as a business consultant and trainer across Connecticut.

Is there such a thing as too much capital?

It’s not unusual for a borrower to submit a loan proposal to a bank or a community lender like CEDF for more money than the numbers will support. It’s our obligation to make sure that the ratio called global debt service is in line with reality.  This means considering all of the financial obligations of the borrower personally, as well as the capabilities of the business, can the loan be repaid at the contemplated terms? We won’t offer the loan if this condition can’t be met.

That’s also why typical loan covenants forbid a borrower taking on more outside debt without a lender’s approval. It can rock the boat and make the ship roll over.

Sometimes, if only a lesser loan amount can be supported, the loan officer will ask the applicant if the business plan can be realistically changed and still work. This is entirely a business judgement of the applicant.  The lender wants to accommodate by approving a modified proposal, but a lender can’t promise that a smaller loan is workable.

Sadly, the enthusiasm and determination of borrowers sometimes outweighs their judgement. It’s frustrating when a CEDF business advisor, trying to help a distressed client some months down the line, hears the peril that the client is facing was caused, “because you didn’t give me enough money.”  The unwelcome truth is that had the client been allowed to borrow more, odds are the bottom might have dropped out even sooner.

Another fantasy of inexperienced small business owners is the idea that getting free of debt and raising big money in the equity markets is somehow a dream come true. Appropriate debt financing is cheaper than equity financing. There’s no shame in using it.

All of the business magazine cover stories, however, are about entrepreneurial rock stars who raise lots of equity capital.  Here again, there are many dangers and considerations. Jason Fried, CEO of Basecamp, an SaaS (software as a service) company, provides a very different perspective in this interview. Dreaming of being swept off your feet by venture capital companies?  Be careful what you aspire to.

-- Frederick Welk
CEDF Business Advisor

 

 

 

Small Business As Usual 19-3, the right questions

Anthony Price

Are you asking the right questions about your business? Do you have the right business model? Are you solving problems for customers? Are you an entrepreneur or a small business owner? Middletown-based Anthony Price of LootScout wrote a book, "Get the Loot and Run," to explore questions like these.

 

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