In the past few weeks, the StartupYard Batch 7 startups have been practicing their pitches for DemoDay. Tonight, they’ll be live online and in person at Kino Svetozor, at 18:30 Prague time.
The pitch gets a lot of attention in the startup world, but for good reason. Done well, it is an effective way of communicating your ideas, and also challenging yourself to define the problem (or problems), you’re really solving.
Form and Function
Though you do hear the stray complaint about the emphasis pitches receive in the tech world, I generally find most objections miss the point. Certainly there are bad pitches, and there are ways in which founders and investors are not served well by them.
A startup pitch is very predictable. You introduce the theme in an exciting way, framing the pitch in the broader context. Then you address the “problem” you are solving. Then you present your solution. You then talk about the competitive landscape, and why your competitors (or whatever solution your customers currently have), are silly and outdated, and then you talk about your business and your team, and maybe ask for money.
Pretty simple. And anywhere you go, the format stays the same. Investors from anywhere, going anywhere else, know with some certainty that they will hear those things. The discussion is then about whether they agree with the conclusions the startup is making.
But every round, our startups struggle with staying in those boundaries.
This is at least partly because pitching is quite unlike the other ways in which founders are asked to prove themselves. We expect startups to break rules. To get around the usual processes. To “disrupt,” as the jargon word of the century puts it. But pitching is just not like that.
It’s the Problem, Stupid
For starters, pitching is form over function. It’s a tool of rigid constraint, that is meant to contain “out of the box” thinking inside a narrative box. Consider that at StartupYard, we spend 3 months helping founders to see that the normal rules don’t apply to them. And then we insist that they follow a pretty strict set of rules in order to pitch.
But we do that because the format shouldn’t matter. The only thing that matters is the content. What is the problem being solved? What does that problem mean in a broader sense?
The format is standardized because formal variations on that standard tend to draw more attention than the content of them. Anyone who’s been forced to write a haiku in school will know what I’m referring to. Constraints can force us to be creative in ways that we are not used to. Attention getting can work, in some cases, but it also carries a different set of risks.
I can give you an interesting example: a startup I heard pitch back in 2014 at LeWeb, called JukeDeck. Now what’s interesting about JukeDeck is that they use neural networks to auto-generate music according to a few simple parameters.
Of course, if you had been at that pitch, you wouldn’t have known that, because almost all of the pitch was taken up with the whole team dancing and rapping over music that had been generated using their software. It was certainly entertaining.
I did understand from their pitch that companies would probably use such software to auto-generate background music for corporate videos, and maybe even retail environments. But I learned nothing about the current solutions on the market, the business case for this one, or the actual pain point it was solving.
JukeDeck won LeWeb. And they won TechCrunch Disrupt a year later. If it’s a competition, certainly breaking the rules can help you win. But did that pitch actually help their business? I’m really not sure. The panel’s questions following the pitch were revealing: “why would a business want to use this?” and “how much would a company pay for this software, when stock music is relatively cheap?”
The whole panel was taken up with answering basic questions about the business- questions that could have been answered in the pitch itself. That instantly puts the founders on the defensive. This exciting, crowd-pleasing pitch, which generates buzz, might not actually help people understand what you do. And while the panel asked basic questions about the business, they consequently had no time to ask questions about the underlying technology.
StartupYard startups have won numerous awards for pitching themselves. Not least would be companies like Gjirafa, Neuron Soundware, and Speedifly. I’ve seen our startups pitch outside our program, and heard the feedback they get. Clarity, honesty, strength. These are none of them mind-blowing, but nevertheless more important.
I can tell you one thing about all of these pitches: they are not outwardly exciting. If you were to watch them from behind a pane of glass, you’d have no idea why they win awards.
Instead, they are exciting in the sense of what they talk about, and what new ideas and thinking they illustrate. But they contain no gimmicks. There’s no real flash. The founders, too, are practiced and calm. Everything goes according to plan.
Our thesis at StartupYard, when it comes to pitching, is that your plan better be exciting and game-changing, because trying to spice it up after the fact is putting lipstick on a pig. The drama is not in the performance, but in the story itself. If you hone in on a real, emotional storyline, involving real human beings and real world customer pain, then the pitch doesn’t need bells and whistles: it’s made of gold already.
Google is betting on beacons. They aren’t the first, but this time it’s with a twist. It initially struck us as odd, that though beacons as a concept have been around for a long time (Apple launched iBeacon in 2013, and we even accelerated an iBeacon startup back then), we had very rarely seen any really practical use case for them. Apple treated iBeacon as a bit of a novelty, failing to establish an attractive platform for developers, or to educate the public on how beacons could be used.
That’s changing– beacon technology may finally be getting its day in the sun. The proliferation of bluetooth enabled smartphones, and the rapidly dropping cost of the physical hardware mean that sooner rather than later, beacons will be an integral part of our experience of the world around us. Google calls it the “Physical Web,” and evangelists inside Google see it as tomorrow’s answer to the disconnect between in-person activities, like shopping, visiting a museum, or taking public transport (or parking… yes even parking), and our lives on the web.
Meet Beeem, the StartupYard 2017 startup that is looking to bring the Physical web to your smartphone. They’re doing it with a “WordPress for the physical web,” a platform that allows pre-configured beacons to broadcast the URL of a microsite which can be launched by anyone nearby using Android or Google Chrome, on any smart device. Beeem helps businesses, event spaces, and others to create web-apps and pages that connect their in-person customers with their web presence, allowing for smart enabled storefronts, content, interactive display ads, customer retargeting online via Facebook and Google, and even payment systems.
With Beeem, a restaurant could easily allow customers to order electronically, without having to wait in line, or a museum could do away with expensive audio-guides in favor of a web-app. An electronics store could allow customers to order and pay from the aisle, rather than lugging their purchases to the counter, and cities could eliminate pay boxes for public transport or parking. To Beeem, the Physical Web means is a website for every thing- the opportunity to create a web presence for virtually any physical object or location, with a central content management system that allows a beacon’s owner to easily configure the web experience it provides.
I caught up with Ferenc Brachmann, CEO and Co-Founder of Beeem, to talk about the Physical Web, and his young company:
Hi Ferenc, how did you come up with the idea for Beeem?
I think this story is going to sound very familiar to anyone who’s ever started a startup, really. I was at a Metallica concert in 2014. I’m really into thrash metal music. Anyway, at the concert, they had a voting system, where fans could vote on their favorite songs, and the band would play them. Pretty cool.
But here’s the thing: they asked fans to vote via SMS. In 2014. To this day I remember seeing the message to vote in an SMS, and looking down at my pimped up new phone with a quad core CPU and 1 GB of memory, and realizing there was something very wrong here. And that got me thinking a bit.
Of course, the concept of using the internet to interact live and in person was not new at all. But the fact is that there were essentially two approaches, neither of which work incredibly well. Either you could create your own app or website, and populate it with interactive widgets and forms (and face all the challenges of compatibility and scalability that entails), or you could use a platform designed specifically for the kind of interactions you want, and get everyone to use that.
Metallica could do an app, but then everyone would have to download it and it would still have to connect with something on their back end. Using SMS was the platform solution. It could easily have been some other web service, like Google forms, or one of a hundred voting platforms. It works, kind of, but it leaves a lot to be desired.
For starters, Metallica can’t turn around and leverage all those people who voted via SMS to come to their next show or buy an album. What can they do? Spam them with SMS messages? That won’t work, and it will be really expensive. They don’t own the channel they’re using in that case. The telco owns SMS, and charges a lot to use it despite it being decades old. They’re a gatekeeper.
This issue bothered me for a while, until I went on a trip to South Korea, and had an eye-opening experience. In Korea, mobile internet penetration is basically 100%. It’s everywhere, and it’s fast: you can get a strong connection even in the middle of the Busan Fireworks Festival, which means that there are about 1 Million other people around you in a very small harbour also connected to and using the same networks.
And yet there too, companies like Apple, Google, and Facebook function as the “gatekeepers,” just like the telcos formerly did in the days of SMS. And like the telcos, these big tech companies aren’t necessarily the best medium through which a live venue or a business could communicate with its customers. Their value propositions are all different, and none are a good fit.
WIth Apple, you need an app. That’s a lot of time to download, install, and log-in, not to mention the limited storage space. Google has the same problem with Android apps, or even with search, which requires you to search for the business you’re looking for, only to end up on their website, which is unlikely to work well for communicating with a business then and there.
Facebook is slightly better, especially with their focus on messaging and pages but even there, you don’t have real control over your own audience as a business. And people still ultimately have to actively find you there to connect to you.
So that’s a long story to say: Beeem is the answer to all that. It’s a way for businesses to connect directly with their customers, and to have complete control, without having to rely on any one of these other platforms where they can’t be in control. And it solves the problem of scalability and repeatability that a lot of businesses have, which is: maintaining a web presence takes a big commitment of resources to stay up to date. With Beeem, that part is all taken care of – you’re left just to worry about what you show your customers, and not about which platform to use, or whether your technology is up to date. The future of apps is no apps. No downloading. No waiting. The Physical Web is there when you need it.
How is your team uniquely suited to taking on the status quo?
After my trip to Korea, I came home and shared my frustration with my friends Norbert and Peter. Norbert is the owner of a software company with a ton of experience, and Peter is the brains behind the biggest e-learning platform in Hungary. I knew they were just the right guys for the job, so we formed a team, and we’ve been working together now for over a year.
Our team is ideal, I think, because we all really love thinking about these very complex problems of how people use technology, how businesses use it, and how the system in general fails to really reconcile these two sides. Once you start looking at some of the behaviors businesses and people have adopted to communicate, it’s really bizarre.
For example, you walk into a store -let’s say an electronics store- and you find an item you think might be the right thing for you. Does this part sound familiar? You probably pull out your phone, a computer more powerful than the sum of all the world’s processing power combined 20 years ago, and you… Google it. You Google it. And Google may or may not tell you what you need to know about the product. Maybe it even offers you a better price, and it certainly shows you ads from the store’s own competitors.
Do you think that makes sense to the store, which is bearing the cost of stocking the product, that its customers can walk in, Google something, and order it for cheaper somewhere else? There have even been movements to ban use of the Amazon barcode reader in stores in the US because of this problem. People would “shop” in stores that they never bought anything from, and Amazon would benefit from the capital costs that the in-person retailer bore to keep the store open.
That’s ultimately bad for the consumer and for the business, because in the end, the platform is going to win that battle. Cheaper is cheaper. Our team is genuinely committed to reversing that problem, and giving in-person retail a new and unbeatable advantage: which is a direct line to a customer who is interested in something right here, right now.
We need in-person retail. The social aspect of shopping and dining will always be important. Perhaps now more so than ever. But these businesses need new tools to fight the battle with the big platforms. That’s what Beeem is all about.
Where do you see the biggest impact for this technology in the next 1-3 years?
I haven’t touched much on what Beeem actually is, so I’ll talk a bit about that.
Beeem is like wordpress for the physical web. The physical web is something that will continue to grow in importance in the coming years, as physical beacons (using Bluetooth), become ubiquitous and cheap. What these beacons do (at least right now), is very simple. They can broadcast a very basic URL. A physical web beacon is detectable from any smart device with Bluetooth, and will continue to be integrated deeper into our devices both on iOS and Android work.
What we do, is help businesses to leverage that technology, by sending anyone within range of that beacon to a web-app that is set up under the complete control of that business. We provide the content management system that supports that web app, and provides the business with easy drag-and-drop tools to build the app that suits their business most. We can support virtually anything a smartphone can do, including easy stuff like messaging, video and audio, and even payments, but also complex things, like live interactive programs and even games that combine the real world and the web.
Ultimately, even beacons themselves will not be that important. Anything electronic will be beacon. A phone, a watch, and soon even a clothing tag can broadcast it’s own webpage, broadcasting useful content and services tied to that object specifically. Soon, you’ll be able to “search” the physical web that is around you, and interact directly with every day objects using your phone, or your watch, or maybe VR glasses, or something else entirely.
That’s why Beeem is an App for Every Thing. Because in the Internet of Things, nothing is very useful unless you can easily and seamlessly connect to it and tell it what to do, or ask it to help you. Beeem allows a business or a venue, or anyone, to target their messaging directly to individuals around them, with customized services, made only for them, based on past shopping habits, or location, or many other factors. It could be kind of like the advertising seen in the in movie Minority Report [starring Tom Cruise].
Do you worry about what this means for privacy?
I don’t. But not because I’m not concerned about privacy or about issues of space and invasive advertising.
The truth is that visions like that in Minority Report tend to get the general idea (ads that talk to you as an individual), but they get the execution all wrong. The truth is that people’s standards shift over time, and technology and business have a way of fitting into new standards as they evolve. For example, I very much doubt that businesses would be successful if they shouted at their customers in the way that ads do in many dystopian future films. In reality, we find that as advertising becomes more targeted, it should become more useful, and the need to be aggressive or “salesy” should actually diminish.
Annoying marketing is also inefficient marketing. It spoils the customer experience rather than giving the customer something they really want. The physical web allows online interaction to be much more efficient, and much more relevant to the customer. Nothing you don’t need- everything you do.
Ultimately, the best form of marketing and advertising is the kind you don’t even consider marketing and advertising, because it gives you exactly what you need, when you need it, and never offers you things you don’t want. We don’t consider the signage inside a store to be advertising, because we choose to see it. The same will be true of the physical web: we will be asking for this information, just as when you walk into a restaurant you are, in a way “asking” to be seated and served.
Let’s talk about some of the use cases right now. What can people do with the physical web and Beeem today?
As of today, you can create a fully customized web-app that your customers can access directly from the notification screen on their Android phones, or via Google Chrome for iOS. We expect that support for the physical web will soon expand in all Chromium browsers (Chrome, Firefox, Opera) and we see hints that other browser vendors will soon join the list.
Businesses, venues, or public spaces like museums and libraries can today create pages for visitors, gather instant feedback or field questions, share content like videos and images, and also receive content from visitors, such as visitor photos or other media.
We will soon be adding e-commerce to this mix, meaning that business can direct customers, with only a single tap on their phones, directly to the portal to purchase items from the store. This could be applied in all manner of environments, from sports events to public transportation. No searching, no downloading- just tap and go.
Those are a lot of diverse and complex areas. Where do you want to focus first, and why?
We’ve been focusing on live events like trade shows, sports, and conferences, because that’s often where the early tech adopters are. There are a lot of people with open minds, and strong incentives to be unique in their fields, so we are targeting hobbyists and geeks to really get a sense of how our customers will use the platform.
In order to scale, we’ll need eventually to shift focus to businesses and use-cases that will be easier to apply to a huge number of customers. Things like retail-location web-apps that let people buy on their phones instead of waiting in line, or restaurant apps that let people order on the go. To accomplish that, we are looking at a mix of online marketing, and cooperating with resellers who already provide payment, IT, or web services to these kinds of customers.
What do you see as not really working in the current status quo?
Well, the status quo certainly works for the gatekeepers. Their ad revenues are built on the lack of penetration that businesses have among their target customers. But ultimately, it just doesn’t make sense for consumers to be directed to 3rd party platforms that aren’t controlled by the companies they are actually doing business with.
There will soon be 5 billion smartphones in the world. Having a handful of platforms funneling all the traffic and keeping all the advertising revenue just isn’t right, or fair. Facebook and Google, as they grow in dominance, can demand more control over what businesses do on their platform, when it should be the opposite.
That forces businesses to play the game of Google or Facebook, instead of focusing on what they do best. It encourages them to be more like others, and less like themselves. And that ultimately costs consumers money. If you can spend your marketing budget more efficiently, and target it at the right people, then you can provide a better service at a lower cost.
We’ve seen this all before in the history of the web. Apple and Facebook could be seen as some later version of Prodigy or AOL – closed systems that wall off huge online communities. Facebook wants people to spend time on Facebook. Not go somewhere else. They want to scoop up all the customers, and control the whole experience of the web in order to make money, just like Prodigy and AOL wanted to before Netscape. The World Wide Web, at least for a while, stopped companies like AOL from doing that. It offered a variety and authenticity a single company couldn’t.
Mobile has given companies like Facebook and Google, and especially Apple, a second shot at end-to-end control of our online experience. They want us to stay in their worlds, and not create anything outside of them. But hey, that’s just not right. I believe it isn’t the way forward for business, or a healthy open society.
Where do you see Beeem in 5 years time?
Powering this revolution of direct, instant P2P communication between everyone and every thing. We aim to be significant in 5 years time, hopefully working towards becoming a global infrastructure provider.
How has your experience with mentorship at StartupYard been? What surprised you?
The mentors have truly been amazing. I personally never thought that you can put such a strong team of mentors together in the CEE region. Out of the close to 70 meetings we had, we had over a dozen fantastic meetings.
A lot of names come to mind but what has really blew my mind is that several mentors have reached out to us afterwards to recommend us or to get more involved in what we’re doing. That really showed me they take this seriously.
I’d like to specifically mention [Former SY Mentor in Residence] Philip Staehelin, [Longtime SY mentor] Tomas Riha, [Springtide Ventures] Karel Tusek and [Axa Insurance CFO] Sebastien Guidoni who all went out of their way and did things that we really did not expect from a mentor.
How has it been for you at StartupYard?
We got accepted to another accelerator in the region, but we decided not to go. We met Lloyd Waldo in Vienna at the Pioneers festival. We had a really good talk and he kind of sold me on the idea that the program here is good. Later I met Cedric Maloux in Budapest and at that time I realized that the program is probably going to be very good for us. Especially because all of Beeem’s co-founders own companies and know business, it’s just that we’ve never owned a startup before.
The startup mindset is all about scaling. It’s about repeating something millions of times. We wanted to get out of our comfort zone, out of our country where we know the market. Even though I had high expectations I think that this program is just spot on. The depth of mentors here is surpassing even my really high expectations. I think Lloyd and Cedric and the gang have their act together. They know how to put you in difficult spots, how to challenge you without you ever knowing about it.
Out of 7 startups that joined us just a few weeks ago for StartupYard Batch 7, only 2 are currently selling a product to real customers. Those 2 have just a handful of customers each. Most of our startups are very early stage; you have to have something to sell, before you can sell. But it surprises many of them how early it pays to think pricing.
While we expend days and weeks and months of effort discussing features and USP, design and everything else, it’s surprising to me how difficult it really can be to talk to startups about pricing. Talking about pricing is kind of hard. People don’t want to think about it. They panic at the thought of raising prices, and they cower in fear of having prices too low. It can be a rollercoaster.
Of course, pricing is a sensitive subject. As Tom Whitwell writes in his insightful medium piece on pricing psychology, “Prices are a shortcut to our most sensitive emotional responses.” Pricing is a deeply primal part of consumer psychology, and as Whitwell shows, leaves consumers surprisingly, sometimes shockingly, susceptible to manipulation or suggestion.
I suggest you go and read that piece: The First Rule of Pricing, to find out why. I’ll wait.
Hello! Now that you’re back, this piece is going to build on Whitwall’s, to talk about what all that means for early stage startups, and how they should actually approach pricing their products for the first time, or through the first few iterations.
Your Customers Don’t Know What They Want (Or How Much They Would Pay)
As Malcolm Gladwell explored in his best-seller Blink, and associated Ted Talk “On Spaghetti Sauce,” it has been known in retail since the early 1980s that optimum sales results could not be achieved by finding the ideal single product and price point. For decades, product companies had been simplifying their offerings in the hopes of reducing costs while optimizing their sales around best-selling lines of products.
The logic was simple. The attractiveness of products could be graded on a bell curve. An ideal point was where most customers would be willing to buy, whether or not any of them were completely satisfied. Simple product lines also made advertising easier, reducing the need to target advertising to specific audiences, because increasingly, products were targeted at the vast middle of the market.
As he explains, beginning in the early 80s, big food companies, and later other product companies, discovered that this tendency to optimize around single products was hurting their profitability. Instead of selling one popular product that was a mix of the qualities most customers wanted, producers began to develop products that catered to “clusters” of customers who had distinct preferences.
Importantly, research showed that customers were not well equipped to predict what they would enjoy or what they would buy. As Gladwell notes, “For years and years, the standard practice when you wanted to find out what customers would want to buy… was to ask them.”
But customers routinely used experience as a reference point for future behavior. People are bad at imagining a future that isn’t similar to the present. Likewise, they are not good at predicting their future behaviors, because they assume their behaviors will remain consistent.
Experimental field research discovered that “hidden preferences” in consumer behavior were powerful, and almost completely unknown. By testing products with “value added” features, researchers found that price tolerance was much more flexible than previously believed.
For example, about ⅓ of US consumers enjoyed “Extra Chunky” spaghetti sauce. And yet no major brand offered such a product. Customers failed to state, when asked, that they wanted “chunky spaghetti sauce,” but experiments showed that when given the choice, they readily bought it and paid more for it.
The post 80s flourishing of product segmentation was slow to be adopted for the digital economy. Driven by the technical difficulty of offering and maintaining more diverse product offerings at different pricing points, and the difficulty of marketing each individually in the online space, software and online companies often adopted the old model.
But today, tiered pricing has seen a major comeback. Customers are again comfortable with the concept applied to digital products. Thus instead of we have “9.99 for Standard, 14.99 for HD,” or the “Good, Better, Best” pricing model, in which features and functionalities are limited or exclusive to different products.
So what does this mean for your own pricing? First, there is no optimum pricing strategy- at least not in the sense that most startups tend to think. There is no perfect price, but rather a continuum of price and feature combinations, into which most customers fall somewhere. The work of a product company is to identify where pricing and feature expectations align for different categories of customers– what Gladwell calls “clustering.”
If you aren’t consistently testing the limits of your pricing and the feature expectations of your customers, then you will likely leave money on the table. Whitwell uses the example of The Times of London. Beginning in 2014, The Times began asking customers whether they would pay X amount for different combinations of features. They produced a range of prices and feature sets, to test different “flavors,” of plan to sell to their customers.
What they found shocked them. Although a minority of their customers would choose to pay more for certain features, the actual revenue to be gained from offering those features at a different price point far outweighed the lower number of paying users. They found that customers would gladly pay up to 3 times more than they currently did to retain only a portion of the same features they enjoyed at the old price. By throwing in features that customers had not needed at lower price points, The Times had co-opted its ability to upsell those features later.
The Freemium Trap
“Freemium” is generally taken to mean a product which can be used free of charge indefinitely, but which is limited in comparison with a premium version, either in offered features, or capacity (such as storage), or in other ways.
It’s not always a bad idea to have a Freemium model. Particularly, products that provide a long-tail value that is hard to see at the beginning may have to be freemium. Most casual games use freemium these days. Dropbox is also a freemium service, which makes sense, because customers typically don’t have a need to buy up to 1TB of storage in one go- instead, they collect data slowly. Slack is another example: a small team doesn’t always need unlimited message history, storage, and all the bells and whistles on day one.
It’s hard to get someone to pay for something of uncertain value. It’s even harder to get someone to pay for something for which a ready and free replacement already exists.
But on the other hand, many, many startups who use a freemium model shouldn’t. When you provide a product aimed at customers who easily understand the value, and who moreover really need what you offer, then offering them a Freemium experience may simply be giving them a handout. And addicting your customers to the free product can make it even harder to sell the Premium version.
One of our startups, 2016’s Satismeter, experienced exactly this problem. As Co-Founder and CEO Ondrej Sedlacek told me recently:
“Switching from a freemium model to free trial and ditching cheaper plans was a big improvement for us. The truth was that people who needed our product were ready to pay for it.
Freemium ended up being a barrier to selling to some customers, because they would get used to just making do with the free version. When we eliminated our free plan, we saw only a slight reduction in signups, and we increased sales overnight. Plus, free users were ironically the most demanding for support. Paying customers invest their time to understand the product and set up the whole process to get the most value out of it”
Customers who understand your product’s value are inherently better customers in the long run. Attracting people who don’t believe in your product might be necessary at the beginning, but it should be viewed as a means to an end.
Price is about Positioning
In his piece, Whitwell calls attention to this with reference to Apple (itself discussed in another piece: Why You Should Never Ask Customers about Price). When unveiling the iPad, for example, Steve Jobs had basically two options, assuming that he couldn’t actually change the price of the product significantly.
First, he could sell the iPad as an expensive version of the iPhone (something many internet trolls did anyway), or second, he could sell the iPad as a cheaper and better version of a netbook computer. He chose the latter- making a point to talk about the features of a netbook in comparison with those of an iPad, before revealing the iPad’s original price point- at $999.
Voila: the Ipad wasn’t a very expensive phone. It was instead a cheaper and better netbook- one with all the features of an Iphone, and the power of a real computer.
In pricing psychology, this is called “anchoring,” and it’s hard not to notice once you know what it is. Retailers will routinely display their best selling items next to items which are significantly more expensive, and items that are significantly cheaper, in order to give the customer the feeling that she is getting the best deal.
Often products are offered that are far more expensive than is actually justified by features. The logic is plain enough: a few customers might buy the Deluxe Collector Edition, but it’s really just there to make the more popular product look cheap in comparison. That’s how you get a $10,000 Apple Watch, or a fully loaded Mustang Cobra. Buying the next best thing is almost aspirational- the customer is invested in a product category where prices run very high, giving them a sense that they are in the “big game.”
By the same token, restaurants may list the most profitable wine on the menu in second place, just above the cheapest wine, and just below a significant jump in prices. This plays off of a human tendency to “reality check” prices based on other available evidence. $25 for a bottle of wine seems like a lot if the options are $5, $15 and $25, but it seems reasonable if the prices start at $15, and reach over $100.
In sum, pricing can function as a way of positioning a product in the market. Too cheap, and the product may not be taken seriously enough. Too expensive, and it may flash a warning to a potential customer that the product is simply not for them.
Think About Pricing: Cost and Value
There is no formula for pricing. One of the hardest lessons that many startups learn is that the value of a product as they understand it, can be very different from its value to a paying customer.
Thus, cost and value are only loosely correlated. This is why it costs $10 to use the Wifi in an airport. The cost is negligible, but the value to a traveler is worth the price. Most commonly, startups should learn much more about their own customers, in order to understand the value of their products to those customers.
That doesn’t necessarily mean doing what your customers want. But it does mean understanding what your customer’s needs and priorities really are. Anyone who has angrily paid an obscene price for a bottle of water on a train, or for a dongle they simply must have for their Mac, knows that pricing is correlated with need.
Most importantly: think about your pricing more. It rarely fails that, when asked about their pricing, startups lack key insights that would potentially allow them to make the difference between a profit and a loss. Absent a clear picture of the value of their products to customers, startups simply guess at what people will be willing to pay- and more often than not, they guess wrong.
Neuron Soundware: Winning Awards and Customers
Since leaving StartupYard in this year, Neuron Soundware has made “soundwaves” in the startup community in Europe, winning multiple awards, including Vodafone’s Idea of the Year, and now, this week, Ceska Sporitelna’s Startup of the Year.
The company has come a long way in a year– from a small team that was able to demonstrate, at SY Demo Day 2016, a machine learning algorithm that could learn to mimic a human actor, to a company that provides machine learning diagnostic software to large equipment operators. They’ve received considerable press coverage. Already, they count both Siemens and Deutsche Bahn among their customers.
I caught up with Pavel Konecny, Co-Founder and CEO of Neuron Soundware, to talk about what the team has been through since leaving StartupYard, and where they’re going in the near future:
Hi Pavel, a lot has happened for Neuron Soundware since you left StartupYard. Can you tell us what you’ve been up to since the program?
We were very busy of course. We have presented Neuron Soundware at international startup and advance engineering conferences in US, UK, Germany and Czech Republic. We got a lot of contacts, which we are going to leverage. We are also proud that we found our first paying customers including companies such as Siemens and Deutsche Bahn.
What are you providing for those new customers?
We provide sound analytics algorithms as a service – an early warning of the coming mechanical issues of machines such as wind turbines, escalators, etc.
Towards the end of StartupYard 2016, your team decided to focus on diagnosing mechanical issues for machinery. Can you tell us a bit more about how this works?
Complex machinery with moving parts always has multiple points of potential failure. There are basically two ways to solve that issue: either you wait until something breaks, or you proactively monitor the parts you know are likely to break, and fix them before they do.
Waiting for a failure can be expensive, and even dangerous. We can’t wait for an airplane engine to just stop working. You can’t have a printing press suddenly fail an hour before the trucks arrive. The loss in business alone makes it a major vulnerability.
Why can’t humans do this kind of work? Why is a machine more effective?
I’ll give you a real world example: just google “failed wind turbine”. You would find scores of different pictures and videos from all over the world. Wind turbines are giant and very fast moving machines. If the blade breaks a part in the full speed, you can find the pieces miles away and this can be quite dangerous. Preventing these events is a huge challenge.
Currently they do exhaustive physical checks. What we found was that sound, the sound of a machinery operating normally, or machinery nearing a failure, was a very important source of data that was not being employed fully.
If you can understand a machine by the sounds it produces, you can reduce the risk of sudden failures, and increase the effectiveness of maintenance, since repairs are directed according to some available data about what’s working and what isn’t.
A machine learning algorithm can learn to connect data points that a human would ignore. A particular sound or a particular frequency may lead to a particular failure at a higher rate. Many of these tasks are above the capability of a human, who has a limited attention span, and limited memory.
There are also practical ways in which a machine is more effective: nobody can listen inside an airplane engine while it’s flying. Nobody can consistently diagnose a mechanical failure based on auditory clues that humans can’t actually detect. You need machines and machine learning for that, and that’s the breakthrough we’ve made.
How does Neuron Soundware learn?
Some issues can be simulated and some just appear time to time and you need to be ready to record them.
Hence we have developed our IoT device equipped with several types of microphones, which we use for the initial data collection. The device is mounted to the machines, continuously listening and transferring audio files to our central server. When we collect enough samples, we use them as an input to our learning algorithm. The machine health monitoring is done using the same IoT device.
You’ve now conducted some pilots as well, how was the experience, and what have you learned that surprised you and your team?
We were surprised several times of the effectiveness of deep learning technology. It works with all type of sounds. If we collect enough samples, we can achieve quality of recognition above 99.5%. And that would get even better as the system would collect more data.
Already, our approach can detect and diagnose mechanical faults that human diagnosticians cannot.
What has been Neuron Soundware’s biggest challenge since leaving StartupYard?
We are travelling a lot. So the most of the communication happens via Slack and Hangouts. We meet in-person as the whole team only once or twice a week. That’s an intense time, when we need to sort-out a lot of items quickly. It was very refreshing, when (Co-Founder) Filip got married in October and we were all together and not discussing business matters. So we went to (3rd Co-founder) Pavel’s band’s concert last weekend as keeping friendly team spirit is very important to us.
You recently recommended another deep-tech startup for our program. Why did you recommend StartupYard? What do you think has been the most positive outcome of acceleration for your team?
We would not be where we are now, without StartupYard. We started with a long list of ideas, where to apply AI technology, and we end-up with The idea of the Year (awarded by Vodafone Foundation)- and now Startup of the Year (from Ceska Sporitelna).
So we would like to thank again the many mentors we met during the first month of the program. It also changed our mindset in several ways: how to validate the business potential; how to pitch our product. Rather talk to people than flood them with documentation.
I used to start a meeting by passing out a complicated document, outlining everything I wanted people to know. What I learned along the way is that it’s equally important for people to get to know me and my team as people. Business is about making a personal connection- and that was an important lesson.
You’ve been talking with investors recently. What have you discovered during this process? What are you planning to do with the funds when you raise them?
It takes much longer than anticipated. They all stated how simple it is. It looks nice as starts with an interview, a short two page document. Then you follow with more meetings and committee board presentations, longer documents and the whole process of due diligence.
It is difficult to imagine, even for me, what we could be capable of doing in two or three years with our self-learning AI technology. And how much value and money we can make. We will use the investment to expand our business. With a larger development team, we could quicker complete the self-service sound analytics platform we are working on. That would make our business highly scalable and we could ramp-up our sales team.
Neuron Soundware’s core technology has a lot of interesting applications. Where do you see your team focusing its efforts within the next few years?
We are working on a way to combine effectively the different datasets we are collecting.
That would practically allow us to skip the phase of training as the neural network would be already pre-trained to recognize a wide set of potential issues. This is basically the way a human mind operates: you use past experiences to gain insight on new situations, even if they are very different. A machine can be taught to do the same thing, once given enough data.
The goal then, would be to start shipping a small smart IoT device in large volumes, ready to be used within any machine. Imagine a kind of silent digital mechanic, always sitting and monitoring complex equipment, all the time, and getting better, and better at the job every hour of every day. That’s really the future we are building with Neuron Soundware.
What’s the pain point? That’s a question we end up asking all the time during the first month of mentoring at StartupYard. And this round is no exception.
Every year, we begin the first month of the StartupYard program working on Product Positioning and buy personas. An essential element of this is “the problem” that the startup is solving. That problem can be surprisingly tricky to identify.
Here, I’ll talk about identifying problems, or “pain points,” and how to think more deeply about them.
What is a Pain Point?
At the root, a pain point is something that a customer is aware of (if you’re lucky), and which bothers them. It’s a problem waiting for a solution. “I can’t do X,” or “X is stopping me from doing Y.” Pain is something you react to- it’s something you try to stop happening.
Pain points can be big or small. If the customer base is big enough, and the technology simple enough to use, the pain point can be very simple. If the customer base is smaller, and the pain point much bigger, the technology to solve it can be more complex.
Anything from: “It takes too long to order a pizza,” to “I can’t accurately predict machinery failures in airplane engines.” StartupYard has accelerated startups working on both those pain points. One is a simple problem everyone has, and one is a complex problem only a few people have.
Addressing the Real Pain
One of the most common issues with startups’ early attempts at positioning, is making the “problem” too self-serving. For example, if you’re making compression software, then the problem would be: “people don’t have good compression software.”
But that ignores the fact that people already use other solutions, and getting them to switch would involve solving a still deeper problem. What about their current solution is bothersome enough to change? The first round of positioning often breaks down to: “this product is for people who don’t have this product.” True, no doubt, but also not very compelling.
Pain points can be tricky to identify, because they don’t always reflect exactly what the startup thinks of itself as doing. The above example is useful: a company that is working on compression may see themselves as “providing compression software.” But the customer may not be looking for compression software. The problem isn’t “I need compression software,” but rather, “I need to send files faster,” or “I need a better storage system.”
One of the exercises I do with startups is to ask them to imagine positioning for basic tools everyone is familiar with. What is the positioning for a drill? It becomes obvious that “this drill is for people who need drills,” is not complete enough. In fact it misses the point entirely. “This drill is for people who need to make holes,” is better. Better still might be: “this is for people who can’t make many holes quickly and easily.”
This process forces the startup to stop thinking in their terms, and start thinking in end-user terms. Founders think about market opportunity, about technology, and about finding efficiencies– as well they should. Still, the question of what pain point they address must be raised. “I can’t technology,” is not a pain point. Nobody sits down and googles: “how to find efficiencies.”
Ok, maybe they do, but it probably doesn’t lead to a lot of sales. A startup can do a lot of cool and far out things with technology, but if it doesn’t solve a clear pain point -the instantly identifiable reason why the customer needs the product- then it won’t get very far.
Cost is Not Everything
A favorite mentor at StartupYard, Ondrej Krajicek, says that he wants to hear one of two things from every startup he meets: “can you save me time?” or “Can you save me money?” In a word, this is “cost.” Every second of every day costs you something, either in time, or in money.
Initially, it’s typical for a startup to begin with the assumption that the pain point is cost of some kind. Every company, and every consumer, wants to save cost. But there’s something incomplete about this as a starting point.
There are many, many ways to save time and money. The very specific reasons why a company or a person would want to save time on one particular activity, or save money on one particular cost are very important. Nobody sets out at the beginning of the day to “save time and money,” even though that imperative may drive many of their individual decisions.
The customer always has other goals in mind. And higher costs can be justified if they help meet some of those goals. If there’s a thing most customers, consumer or corporate, hate just as much as high costs, it’s missed opportunities. A tech startup can focus on either cost or opportunity, or both.
Cost is always material to new technologies. Either the pain they solve is great enough to justify spending more, or the customer is willing to endure a particular pain, because the solution is not yet worth the cost. But here lies an important point: costs do not always have to go down. Particularly with new technologies that create new value and opportunities, the attraction may be great enough to justify higher costs, either in time or money.
Identifying pain points is not just about semantics- it’s not just rephrasing the problem to make it sound like something a customer cares about. The customer has to actually care, and you have to show them empathy. And pain points are unique to each customer- you have to find ways of helping customers to see how a product solves their own pain points, and not just the broad ones you claim to fix.
And there’s only really one way of doing that- it’s shutting up and listening to the customer. As the folks over at Gong have shown with real data, more sales happen when the prospect, and not the salesperson, does the majority of the talking.
This is because a salesperson is limited in that they don’t know what’s most important to a particular customer until the customer identifies that problem themselves. This can only be encouraged by asking questions that reveal sources of pain for the customer.
Think back on that example about pizza delivery. You could explain to an office manager about how DameJidlo (our alum), or FoodPanda, or Deliveroo works, along with all the many benefits. But that office manager might never have a need for food delivery in the first place. Or they might feel perfectly happy with their go-to delivery options.
It’s only by talking through the customer’s routines, and their current outcomes, that you might reveal pains they aren’t considering. Maybe people complain that the delivery isn’t fast enough. Maybe it’s too expensive. Maybe the variety is lacking, and there have been complaints. Your product, in this case a food ordering and delivery platform, solves many pain points aside from the ones you assume are most important.
We actually practice this kind of selling on a regular basis, even if we don’t realize it. Have you ever explained to a friend or family member about how awesome a new technology really is, only to hear the response: “yeah, well I just prefer what I have right now.” Frustrating! But that’s not because they’re stupid or because they don’t listen. It’s because they haven’t heard anything that speaks to a real, urgent need from their side.
You can practice this kind of thinking by asking the person how they use the current solution they have. You’ll find, as they talk more, that there are indeed things that bother them, and things that could use improvement. Put enough of those together, and the new solution starts to look more attractive.
Shut up and Listen
Everybody Hurts, as the song goes. The question is how, and why. You have to talk to your customers to find out. There is no shortcut.
Try some of these open questions, starting with “how” or “what”:
what are you trying to accomplish?
What’s the core issue here?
How does that affect things?
What’s the biggest challenge you face?
How does this fit into what the objective is?
How does this affect the rest of the team?
What do your colleagues see as their main challenges in this area?
What happens if you do nothing?
What does doing nothing cost you?
You’ll find, most likely, that the customer knows very well what his or her problems and pain points are- although they may not think of them as problems. A problem that doesn’t seem to have a solution isn’t a problem at all- it’s just an aggravation. So showing a customer that a problem exists means getting them to acknowledge pain, and then to understand the solution.
Listen, and most of the time, the customer will tell you.
In advance of StartupYard Batch 7, we invited finalist 13 startups to join us for a full day of mentoring in Prague at our Startup Day. We do this every year, not only to evaluate and help decide which of the startups we will invite to the accelerator, but also to provide some value to startups that have taken the time and energy to apply, and to engage in the process with us.
What’s notable is that without exception, whether they are accepted to the program or not, when asked whether the day was valuable to them, startups tell us that it was of great value. Founders often go out of their way to let us know they’re grateful for the opportunity, no matter the outcome.
The Startup Myth: Not Having Enough Time
But every year, we invite one or two startups to the accelerator that don’t end up joining us. The number one reason? “We don’t have time for it.”
This reasoning is sometimes a little baffling. Yes, an accelerator takes time, but on the other hand, as we take care to stress, it is an accelerator. The program is about moving faster than a company would normally move on its own. This doesn’t just mean doing more work in a shorter amount of time. It also means doing more important work, and doing it at the right time.
When founders consider StartupYard, they sometimes start to see it as a kind of zero-sum proposition. If you spend 6 hours a day talking to mentors for a month, that’s 6 hours a day you can’t spend coding or selling. But let’s be real here- you aren’t going to code for those full six hours. You’re going to have your daily routine- the one you follow because nobody is telling you to do it differently. The one nobody challenges.
Being challenged on your everyday decisions by people who don’t know your company the way you do is sometimes frustrating, but it is also highly motivating. The time spent meeting with mentors is not wasted time. Just today, one of our founders told Cedric Maloux, StartupYard’s CEO, that every mentoring session so far had led to an actionable item for the team.
We have never had a startup come to us after the program, and say that the mentorship period was a waste. Even when they become frustrated at the constraints it puts on their schedule, in the end, they always see the value that it brings as being far beyond the time invested.
What happens instead, most commonly, is that startups simply work harder and better, accomplishing more meaningful progress in the limited time they have to actually build stuff, because they are responding to a constant flow of feedback and advice from people who bring them new ideas and new perspectives on what they’re doing, and what they aren’t doing.
The fact is that startups waste a ton of time on things they don’t need to be doing. It’s a fact of life, and it’s not a failing. Every engineer and creative knows that a huge amount of their work never sees the light of day. It’s not a mistake to waste time, because you need to make mistakes and do things that eventually won’t work out. Risks are necessary.
And yet, there are things that founders just never need to do, and never would do, if they had access to the right mentor at the right moment. We’ve seen countless examples. Startups operating without complete information just do things they don’t need to do, or that are doomed not to work at all. Mentors often know this, and know how to avoid these time wasters.
Is it a waste to talk to someone for an hour if he saves you 50 man hours of wasted effort? How many such meetings would justify one month of mentorship? Not that many, really.
A mentor driven accelerator is set up to save startups from wasting time in ways that truly don’t help them. The hours spent mentoring are usually spent stripping out many of the things that founders are wasting their time on, and prompting them to move faster in areas they are less comfortable with.
If you imagine your daily tasks piling up while you attend mentoring sessions, then consider also that the mentoring sessions are meant to savage those plans, and eliminate most of them anyway. Mentorship is not just about kicking around ideas- it’s about creative destruction.
The other aspect of acceleration that is frequently overlooked is that of time compression. Acceleration puts startups in a position of having access to processes that usually take weeks or months, and having them happen in days or hours.
A startup on their own may wait a month to get a single meeting with one of our busy mentors. A follow up may be weeks more. But while they’re with us, these meetings happen as soon as they can be practically arranged. Our mentors place our startups higher on their list of priorities, and when they connect startups with other advisors and contacts, that urgency shifts to those contacts as well.
We ensure this happens by only retaining mentors who consistently engage with startups, and keep our startups high on their own priority lists. Try and get a C level executive at a Telco, a Bank, or a major software company to not only respond to a request, but to do you a personal favor. We’ll wait.
The biggest time waster for early stage startups isn’t having meetings. It’s waiting for meetings. And with an accelerator, the waiting is not a major factor. Startups frequently tell us that they accomplish more in 3 months, as a business, than they expected to accomplish in 2 years on their own. That’s the power of acceleration- we save time, we don’t waste it.
As we welcome our Batch 7 startups for their month of intensive mentoring with StartupYard’s community of over 100 mentors, we start as always with a focus on two things: product positioning, and mentor relationships.
Product positioning, as you can see from our piece on that above, is essential to building the communication tools a team needs to communicate what they’re doing, and get the right advice at the right time. But being able to get the most out of your mentors is equally as important. Here are a few tips for that:
Get the Most out of Your Mentors:
Focus on Clarity, not Accuracy
One of the hardest things for founders to do early on, is to start speaking in the language of an evangelist for their ideas and work. It pays to keep in mind the difference between “clarity” and “accuracy.” A mentoring session can go fantastically wrong if the team starts leading the mentor down the garden path of fine-grained technicalities that distract, rather than enhance, the big picture.
Founders are likely, for example, to describe their competitive advantages in technical terms, rather than strategic ones. They are more likely to provide more detailed descriptions of their technology and its features, rather than talking about what bigger problems they solve, and what customer outcomes will look like.
Not only does this leave less for mentors to weigh-in on, but it also puts much of the conversation on the founder’s side of the table, keeping it on subjects where they are experts. It’s important to be clear about what you do, but to moderate the information you share to only that which is relevant to the mentor. Don’t defeat the mentor in detail; instead focus on helping them to understand what you do in their own terms.
Every Meeting is a Sales Opportunity
In a sense, mentors are a kind of customer. Either they’re going to buy into your idea and want to help you in whatever way they can, or they aren’t. Your job is to sell them on your potential, and to keep them on your side, helping you accomplish your goals.
Startups sometimes treat mentorship as some sort of an audition: “tell me what you can do for me”. Mentors sometimes do this too, and it’s generally not very useful. The more constructive angle is to spend the first few minutes of a meeting working to get the mentor into your thinking, and help them see the logic and opportunity in what you’re doing. A mentor that feels comfortable with your ideas and believes in them will be much more ready to help.
Mentors do become customers, but more often they become references for potential customers. We see this time and again. A mentor isn’t a customer, but knows the perfect customer, and a friendly recommendation from a trusted colleague is worth many times more than the best marketing in the world.
Do You Know Someone Who…
Mentors need help finding out what you need. Mentoring is partly about gathering advice, and partly about gathering contacts. This is a consistent point of failure for startups at StartupYard, and at every other accelerator where I’ve mentored personally.
Startups usually love the productive work of getting actionable advice, but they shy away from asking to tap into a mentor’s network. And yet this is a huge part of a mentor’s value. The advice you can get from anyone with enough experience, but each person’s network of connections is unique, and has its own strengths to consider. Don’t waste that opportunity to find out how a mentor can connect you with people you need to meet.
For the love of God, Follow Up
It never fails that when I run into our mentors or see them at our events, they will ask me about startups that they wish had stayed in contact with them. It’s usually something like: “Hey, how is [Startup] doing? I haven’t heard from them. I offered to get them in touch with [Important Person], and they didn’t follow up.”
This is prototypical, particularly among newer entrepreneurs. Failing to leverage offers from mentors is understandable, but it needs to be a strong point of focus. A mentor who promises something, and then doesn’t reach out, is not a flake. Usually, the mentor doesn’t really know how important the contact is to you, and doesn’t want to force you to waste time talking to people you don’t need to talk to.
And once a mentor makes an offer that is not followed up on, he or she is much less likely to ever offer such help again. Making mentors feel valued by following up on their offers, even if it just to be polite, leaves the door open to more constructive future offers.
Of any type of mistake startups make in mentoring at StartupYard, failing to follow up with mentors is the least forgivable. At best, it’s a symptom of shyness, and at worst it’s lazy and disrespectful to mentors you may well need in the future.
Simple, but disproportionately important. You need mentors to like you. You need mentors to want to introduce you to their colleagues, or to think of you when an idea or an opportunity strikes. You want them to feel like they can give you a call; that they aren’t bothering you, and that you like them.
It’s simple, but still, it’s hard to do consistently. Projecting your enthusiasm is a skill that entrepreneurs have to learn, and for that, I recommend one of my favorite books, the legendary How to Win Friends and Influence People, by Dale Carnegie.
Spoilers: it’s not really that hard. But it takes more than superficial manners. It takes focusing on how you view others, so that you treat them better and consistently focus on their needs and their interests. If you can do that, with a smile, you can build a productive relationship with almost anyone.
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