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How To Sell A Startup Client On Value

So if you’ve been reading my work for a while, you know I’m pretty gung-ho about what I like to call the “financial upside” you deliver to your clients.

The ROI. The real reason they hire you in the first place. etc.

But over the months, I’ve got a lot of really good feedback and criticism around this, and I’d like to take a few moments to respond with some tips that I hope will help you if you’ve ever questioned, “How on earth do I figure out the ROI of this project?!”

In this first email, I’ll be talking about working with new startup companies. Next week, I’ll be answering how you can price according to value if you bill for your time (e.g. hourly.) And lastly, I’ll talk about how you can use these tactics when working with a department of a big business who might be many floors away from the department that handles money.

The “Greenfield” Company

Quick: What’s the product of zero and any positive number? Yep, it’s zero. Or cast as currency, $0.

A lot of us work on brand new projects for more-or-less brand new companies (e.g. startups.) There is nothing to multiply… yet.

If there’s one thing I’d suggest is to take me a bit less literally when I say ROI. The “return” doesn’t need to be money. It’s whatever’s important for the client.

I tend to work with a lot of SMBs who hire me in the same way I might replace a bank with too many fees or bring on a part time sysadmin for Planscope. I have revenue, and I have expenses. If I can bring down expenses, I make more money. If I can add more revenue, while flatlining expenses, I make more money. Or if I don’t need to worry about the server failing while I’m flying across the ocean, I’m more likely to make more money (e.g. lower risk of everything exploding and losing paying customers) and I’m more able to maintain a little peace of mind. These are things that businesses tend to value — decreased cost, increased revenue, and insurance.

So if you’re working with a SMB, instead of rambling on about features and colors and standards, talk about how those things relate to the three things above… Cost, Revenue, and Insurance.

But let’s say you’re working with a startup… they might not even care about revenue. Let’s face it, a lot of these “hot startups” are pretty vain. They want that stamp of approval from TechCrunch, or massive growth so they can be bought by Google or Facebook, or they want to say they founded a startup much the same way someone might say “they’re in a band.”

The return they’re looking for might not be profit. It might be user count. Press coverage. Or some other vanity metric. But it matters to them.

So if you’re selling to an ambitious founder, you’ll want to understand what he or she desires. Is it a lifestyle business? A small business they can run with a few employees through retirement? Or to become the new Mark Zuckerberg?

These things matter. And you learn these things through lots of discussion and probing. And once you know what the “ends” are, you’ll want to take everything I’ve been saying about communicating the potential ROI and your worth, and translating it accordingly.

Here’s a real life example that sort of paraphrases an email one of my coaching clients got the other day: You’re approached by a founder who’s convinced he’s has an idea that will have a valuation of $100MM in less than 3 years (quick exit). He wants it done quickly and cheaply, and constantly references the perks of offshoring (he sees you as someone who will hammer nails where he wants them to go; a commodity). But he wants a local partner, and even throws out an equity offering (if he really thinks his idea is worth what it is, the last thing he’d want to do is give that out; but he wants you cheap, and he’s likely not swimming in cash.)

Let’s imagine you ignore my advice of RUN AS FAR AWAY AS YOU CAN, and that you entertain the idea of a proposal… what would you say?

  • Quick exit: He’s looking to make a lot of money very quickly. You can go a long way and put yourself to the front of the prospects list by asking him what his exit strategy was, and offering suggestions for getting to that goal faster. Help him exit faster or for more money, and propose the right path to making that happen.
  • Commodity: He thinks that all things being equal, a coder is a coder. A designer a designer. And so on. If code can be acquired for cheaper overseas, then why not? Well, the third point — the “equity offering” — and the fact that he’s approached you in the first place means that he’s using cheaper labor to price anchor you. He wants you to know that he knows you’re going to be expensive, and that you can be scared into underbidding. Help him understand that you will help him significantly reduce the risk that this project will go belly up and it won’t turn into a high-valuation exit. Take the focus off the code or the design.
  • Partnering: If the founder is convinced that this idea will materialize into a profitable venture and has the funds (personally or through investors), there’s no reason whatsoever that they should try to give you equity. But when those conditions are not met, they likely will. I make it very clear that I’m a professional, and my job isn’t to take on risk. The founders and their investors are on the hook for either crashing or burning or making a boatload of cash; my job is to get paid for services rendered. Try to determine if the prospective client either can’t afford you and wants to partner (thus, this project won’t likely work out), or just wants to take the lowest risk approach possible and get you for cheap with a cash + equity offering. If the latter, I’d strongly advise trying to mitigate risk in your early discussions and reject any equity offering. I’ve been there. It’s hell to manage, hell to setup, and rarely pays dividends.

I consider the above example to be pretty toxic. I doubt I’d get past the qualifying stage with them. But hopefully this extreme example will help you get a little more insight into “reading between the lines” and determining what and why a prospective client really wants.

So this sums up my thoughts around working with startups. I’d love to hear your stories around working with startups — have you successfully been able to value price yourself with them in the past? Sound off below and let me know.

Once again, next week I’m going to respond to everyone who’s asked me how you can price on value when you’re billing by the hour (or whatever time interval you prefer.)

  • carrie dils

    Love this:

    “I make it very clear that I’m a professional, and my job isn’t to take
    on risk. The founders and their investors are on the hook for either
    crashing or burning or making a boatload of cash; my job is to get paid
    for services rendered.”

    Thank you for pointing out that ROI isn’t necessarily monetary. Great post.

  • Thanks for this, Brennan. I think there’s a topic wedged in there that may benefit from more exploration — when to RUN as far away as possible from a client (not just a potential partner)? Choosing the right clients is so important, yet so difficult to implement.

    • Totally Marcella 🙂 BTW, on my list of things to do is to get in touch with you… I know we mutually know Nathan, but I don’t think we’ve met officially yet. Running a workshop today and tomorrow, but expect an email next week!

  • OBVAVirtualAssistant

    Great points Brennan..I like your point that we will have to understand the desires of the client so that we can work with them for long term. I am a start up professional and am glad to share that I too work with long term clients..:)

    • Thanks 🙂 Understanding the client (and most importantly, why the cilent’s paying you) is critical and often overlooked.

  • Thanks for this Brennan, just wanted to say I really enjoyed this article. Cheers.

  • This definitely helps frame a current situation I’m in, wish I found it sooner. I’ve been offered equity but I may just pass…..

  • How would you get out of the situation with a clean vest if you took on a job like that?

  • This is gold! I love it, especially the “run from someone offering equity” part. I’ve had my share of offers in the past, and I’m glad I didn’t accept any of them.

  • What if a start up has a great idea and the right people you believe will make it successful, but not a lot of money upfront to invest. Would you consider accepting equity combined with a discounted rate? After all, equity in a start up that becomes successful should pay out way more than any flat rate, so maybe it would be worth the occasional risk?

  • Bruno Herfst

    Equity should be about commitment, never payment.

  • scottdhendricks

    This is the most relevant post on your site to my current situation. I’m just starting out and a close relative of mine wants me to build him a website for his business startup. The value I can sell to his startup should not be difficult to measure, and I wonder whether this relative will find or know where to find a better web consultant for his startup. So I have much to work with in anchoring my price. I know the startup had working capital available for investment, but I also don’t know how much ROI they can anticipate as I’m still learning. I plan to offer the following non-existing products for the start-up company: A dynamic, interactive and well-maintained website; social media promotion and maintenance; online advertising; email promotions; writing and editing all web, ad and sales copy — with the result of this anticipated value (that I am not certain I can guarantee): leads.
    Where am I caught up? The relative is my brother in law, I am worried about over committing myself to the client, and I don’t want to either make too many promises or undercut the price. How should I price the project?

    • Mauro Chojrin

      How did this work out? In my case, I decided not to work with close relatives. Friends I haven’t made up my mind yet, but I guess it’s going to be a no also.
      It’s better to keep things separate.

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