Use Scarcity to Sell your Startup’s Product

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startup-selling-scarcityWhen you are selling a product or service the most powerful thing you can create is scarcity. Scarcity can cause customers to assume your product or service is more valuable and of a higher quality. Most importantly it generates an increased desire or need for whatever you are selling. Scarcity can even create that reason your customer needs to sign on the line that is dotted. For example, when we startedArchitel, our managed services company, we had lots of prospects who had agreed they wanted and needed our service, but we were having a hard time getting them to close. Changing technology providers is VERY disruptive and there are a million reasons to wait until next week or next month to sign our services contract. We needed a REASON to get them to sign now instead of later and that reason turned out to be scarcity.

At the time we could barely turn up one new client per week. The reality was that we could likely only turn up one new client every two weeks with our available staff. So we drew a 3 month calendar on a whiteboard in our office and listed all of the upcoming turn-ups, marking up a full week as unavailable for each. We then greyed out 50% of the remaining available weeks, marking them as unavailable as well. Next we listed all of the prospective clients next to the calendar and we realized that if we sold ALL of the prospects it would take MORE than 3 months to turn them all up using our new ‘turn-up availability calendar’.

We had just created ‘scarcity’. We couldn’t accommodate everyone that wanted our service. We then began calling our prospects and explained to them the available dates and that we had several other prospects who might take those dates if they didn’t act fast. Half of the clients went ahead and secured a turn-up date. They realized that if they delayed they might have to wait four months or more to get turned up. The truth was that our turn-up dates ARE a scarce resource we just didn’t market them as such before we invented the ‘turn-up availability calendar’.

Scarcity is usually pretty easy for a startup – as ALL resources tend to be scarce when you’re just starting out, but big companies use scarcity too – think Apple and the new iPhone. There are STILL lines out the door at Apple stores here in Dallas. Google did it with Gmail – you had to be invited by someone to get an email account. There are a million ways to create scarcity – it can be a VERY powerful sales tool for startups. Give it a try.

Only you can make your CEO look good.

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startup-ceo-supportPreviously, a Quora user asked me if it would be appropriate for an employee to let his CEO know that he thought he was a bad CEO. The question made me laugh, so uncharacteristically I answered it. It occurred to me that all CEOs are bad, but some seem good because they’re supported by great teams. I contend that if your CEO either is or seems like an idiot you suck as an employee, but I am getting ahead of myself.

When I was in my twenties and started working for other people it never took much time for me to realize that everyone I worked for was completely out of touch. The problems we faced were so obvious I knew that if I were in charge I could easily fix everything. It made me realize I couldn’t work for other people. I knew that I needed to start my own company. Of course the moment I did I realized how much of an idiot I had been. Being a CEO is perhaps the hardest job you can imagine. If everyone would simply do exactly what the CEO you told them to do everything would work splendidly. The problem is that you aren’t hiring robots, you’re hiring humans who have their own agendas.

Startup CEOs have three primary jobs. The first is to ensure that there is enough money in the account each month to make payroll. The second is to recruit the best and brightest employees to join his company. The third is to enunciate a vision and SOMEHOW convince his team to help him execute that vision. The third is by far the hardest.

Assuming you are not the CEO, your job is to help the CEO execute on his vision. Agree or disagree as long as you accept a salary from the company you owe the CEO and the company 100% loyalty. Seriously. If you don’t respect the CEO or aren’t willing to help him be successful you need to leave the company ASAP. It is up to the board of directors and shareholders to fire the CEO – not you. Instead of taking the time to complain about him, work with your peers to find ways to help him be more successful. He IS an idiot unless you can help him win. You’re an idiot if you can’t help him be successful. Help him win and you’ll win. Or quit already. But don’t, please don’t, keep complaining about how your CEO sucks.

Raising Money from an Angel Investor

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My son is a huge fan of Khan Academy. If you’re new to the startup world these videos from Khan on raising money for your startup are actually really good. You’d be surprised how few entrepreneurs really understand these basic concepts:

Raising money for a startup: Raising money from an angel investor. Pre-money and post-money valuation.

Termsheet No-Shop Clause Negotiation

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no-shop-clause-termsheet-negotiationOne of the entrepreneurs I mentor got a termsheet from a local investor and expects to get another one shortly. The termsheet has an expiration date and includes a no-shop clause. For those of you unfamiliar with the term, a ‘no-shop’ is clause in a termsheet between an entrepreneur and a potential investor that bars the entrepreneur from soliciting termsheets from other investors. In other words, the entrepreneur cannot “shop” the deal around once he executes the termsheet. I recommended he attempt to remove the clause from the agreement.

In most cases the no-shop clause is VERY expensive for a startup and costs the investor nothing. Most startups begin raising money about six months before they’ll actually need the money. If you sign a termsheet with a 60 day no-shop on the third month of your fund raising process you’ll be out of money before you’re allowed to start raising money again. You can’t blame him for asking for it, but I’d recommend you attempt to negotiate its removal. If you can’t get it removed you should attempt to modify it to include a ‘cost’ for the investor.

On several occasions I’ve been successful modifying a ‘no-shop clause’ in two specific ways. First, I’ve asked that the no-shop begin only AFTER the other party had begun third-party legal or accounting diligence (i.e. engaged outside lawyer or accountant) incurring fees. Once an investor has gone ‘hard’ on a deal and has real skin in the game it isn’t unreasonable for them to ask for a no-shop. Second, I’ve asked for a break-up fee equal to my third party legal or accounting costs incurred as a result of the transaction in exchange for a no-shop provision. Again, if an investor wants me to take my company off of the market so he can evaluate the deal all I’m asking is that he have some skin in the game. Alternatively, he can elect NOT to ask for a no-shop provision – usually the best option. Finally, you should make the no-shop provision as short as possible. You need to keep raising money until you close. Never stop shopping your deal (unless of course you’ve agreed to stop for a period of time).

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Unless you are a fortune-teller, long-term business planning is a fantasy.

— Jason Fried, Basecamp

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Everything around you that you call life was made up by people that were no smarter than you and you can change it, you can influence it, you can build your own things that other people can use.

— Steve Jobs

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One key to entrepreneurial success is to get a great group of people around you who believe in your idea.

— Richard Branson

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“It takes humility to realize that we don’t know everything, not to rest on our laurels and know that we must keep learning and observing. If we don’t, we can be sure some startup will be there to take our place.”

— Cher Wang, CEO of HTC

How to join a startup if you can’t code. My 3 Secrets.

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salesmen-coder-startupI was reading Kyle Wong’s post on LinkedIn titled, “Making An Impact At An Early-Stage Startup If You’re Inexperienced And Don’t Code“. His points are good, but I think he is missing the real point. If you want to join a startup these days you need to do one of two things:

  1. learn how to code
  2. learn how to sell

I’ll tell you my first secret, learning how to sell is MUCH harder than learning how to code. Many developers will likely argue with me, but I can let you in on my second little secret – my 13 year old learned how to code in two languages by the time he was 10. Coding isn’t rocket science – it is something you can learn over the summer. There are scores of online learning resources and with new languages like Apple’s Swift there are more and more opportunities to become an expert within months. My advice? Learn how to code iPhone apps using Swift and start your own company or join a startup. It will be a lot easier than starting a company as a non-technical founder or joining a startup as – well whatever inexperienced non-coders call themselves.

My third little secret is that people who know how to sell make a LOT more money than people who only code. The people who had sales skills at each of the startups I founded got paid more than me – a lot more than me. Selling is a LOT of work, but its a lot of fun. And you CAN learn how to sell. Selling skills translate throughout a startup. For example, when you are recruiting new employees or raising money from investors you’re really just selling them on the vision of the company.

The best place to learn how to sell? The BIGGEST company you can find. They will invest tens of thousands of dollars in you in an attempt to teach you how to sell. Some of the biggest telecom and internet companies in the world spent hundreds of thousands of dollars teaching me to sell. They made HUGE investments in me and I sold millions of dollars of stuff before I left to start my own companies. Take three years and REALLY learn how to sell. It is a BIG investment of your time, but along the way you’ll make a lot of money AND obtain a skill that is very hard to learn.

Most VCs look to hire a CEO who can sell when looking for your replacement. Be that guy/girl from the start. Selling makes everything else possible. Good luck!

Startup Quandary: Quitting or Pivoting

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startup-pivot-quittingThe other morning I had a heart to heart with one of the entrepreneurs I advise about whether or not he should pivot or quit. His startup had raised a few hundred thousand dollars and managed to build an MVP, but struggled to secure customers and additional investment. His investors weren’t impressed by his inability to get customers to sign up for their service and were unwilling to invest additional capital. The question? Should he come up with a new idea and pivot the company or should he shut the company down and come up with a new idea and start over with a clean capitalization table?

What do you think? What would you do? Have you ever faced this sort of quandary? Love your comments. If I get a few comments I’ll share my own experience with this issue and the advice I shared with the entrepreneur. Cheers!

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