“Guys, we are on fire! I’m selling our product like hot cakes fresh out of the oven.” I exclaimed as I walked into our office/home.
Yu-kai and Stephen turned to me from their laptops with a bright smile. Our company, RewardMe, was off to a terrific start. In only 2 weeks of walking door-to-door, I had signed up 30 restaurants and retailers in Downtown Mountain View.
However, our positive attitudes quickly faded when we realized clients wouldn’t pay for our product. Yup, I was walking door-to-door, selling our product for free. We fell into a startup trap: we thought businesses loved our product, when in reality, businesses love free stuff.
We had to pivot our business model quickly or else we would run out of cash in no time.
Last week I met a founder with a challenge: he was making sales in person at conferences, but couldn’t convert sales online.
This immediately reminded me of the time I sold our product for free doing door-to-door sales with RewardMe.
I dug deeper into his challenge and it turns out that the price of the service he was selling was only $350.
“Of course, companies will buy from you in person when you’re selling them a $350 service and others sell it for $10,000+. You’re losing money on every sale that you make; you’re subsidizing your business with the money from your investors!” Alex and I exclaimed.
Free is not a sales technique
Freemium models work. Just look at LinkedIn, Dropbox, Pandora, Spotify, and the many other companies that hook a user with a free product to later convert them to a paid user.
But Freemium doesn’t work for just any product or service; to succeed, Freemium requires ALL of the following:
- A high k-factor
- A low user acquisition cost
- A high customer lifetime value
Let’s take the above three criteria and apply them to products that require a sales force.
Do products that require sales have a high k-factor?
No. If you had a high k-factor, then you wouldn’t need sales.
Do products that require sales have a low user acquisition cost?
No. You have to pay for the cost of a sales person.
Do products that require sales have a high lifetime value?
Yes. It better, or else you can’t justify the cost of a sales person.
Never, ever sell your product for free. You prove absolutely nothing of value and you spend the precious capital that you have.
So how can I get my first clients?
I know what you fear because I’ve been there too. You’re scared of getting rejected; you’re scared that a potential client will ask you those dreaded words, “who else is using your product?”, or even worse, “come back to us when you have some case studies.”
That’s why you resolve to give away your product for free. You’re holding on to the hope of all entrepreneurs: “if we can just get a few happy clients under our belt, then other clients will begin paying for our product.”
That hope is false hope. You can sell a high-priced product with no case studies; you can beat out the competition even when you’re overmatched. Don’t believe me?
Here are two examples of how I did it.
1. RewardMe: we closed a deal with a 50-store franchise in Texas
There we were, running out of cash fast because we were selling a free product to small businesses.
“Guys, we’re going to die if we keep going this way. Let’s change the product; let’s change our business model. Build an enterprise product and I’ll sell it.” I preached.
We felt we had no other choice. We put all of our eggs in the enterprise sales basket.
We purchased a booth at the Multi-Unit Franchising Conference held in Las Vegas. We bought a backdrop stand, printed hand-out materials, and showed up with more monitors and iPads than any other booth to show off that we’re a technology-driven company.
The plan was simple: demonstrate that we belong.
The target was clear: find a company that is a first-mover — willing to take a risk on a new company.
From that conference, we set up 5 follow-up meetings with potential clients. We sold our product and vision hard, asking for a $10,000+ contract. 4 out of the 5 leads asked us to come back after we had case studies of our work. But one company was willing to take the chance; one company was the first-mover that we were looking for.
2. Lucid Label: we closed an $80,000 deal with the largest cosmetics company in the US
A friend knew that I did “internet stuff”, so she referred me to her friend that needed a web app built for her company. It turned out that the company was the largest cosmetics company in the US and they had a big budget for the project.
Not one to shy away from big deals, I told my friend that I’d gladly do the project for her.
“Not so fast,” she said. “I’ll send you the RFP next week. If all goes well, you can pitch your service to the company next month after we’ve vetted all of the proposals.”
Turns out, they already had an agency of record, but were always looking for alternatives for future projects.
We had to remove the incumbent. Change is one of the hardest things to initiate — if the company is already comfortable with a service provider, then it’s really difficult to make them change. Because of this uphill battle, I knew I had to walk into the meeting with guns blazing:
- I enlisted the help of close friends, Rees (Senior Web Developer) and Joe (Strategic Marketer for the Los Angeles Clippers), to build out my team and make us look like a legitimate technology agency.
- I geared our pitch towards “making them look good in front of their bosses”.
- I priced ourselves higher than the competition.
No one ever got fired for choosing IBM
The majority of corporate professional are driven by one objective: don’t get fired.
If a corporate professional minimizes risk, then they can increase their chances of climbing the corporate ladder and decrease their chances of getting fired.
Changing their agency of record is a big risk; it’s a risk that could lead to the failure of the project, which is why my entire presentation focused on how we’re experts at putting out fires.
“A fire always happens. No matter what you plan for, no project is completed without any challenges. This is where we excel; this is where we feel most alive.” I presented while showcasing examples of our client work and how we put out fires to make sure that the project was successfully finished, no matter what it took.
Our positioning paid off. We closed the deal and were the agency of record for several years.
Price is perception. Lower your price and people will see you as the cheap, low-quality option. Raise your price and people will see you as the high-quality, premium option.
Sales is a battlefield. You always have a chance to win the deal no matter the situation. Don’t use price as a way to close the deal. People make emotional purchases — find out the true motivation that your potential client has and make that your sole focus during your sales pitch.
To learn more about the motivation behind “don’t get fired”, then read about Core Drive 8: Loss and Avoidance.