Pricing for early customers must compensate them for the risks of adopting early. Startups need revenue, references, and case studies
3D Negotiation: Pricing for Early Customers
“Sean Murphy always brings good advice around pricing a product and how to negotiate deals with early customers. With early customers, you might leave money on the table, but you are looking for references from them. You need the case study, a testimonial, introductions to their peers, and for them to speak with the media. There is a whole package of things that almost mean more to you than the money itself around negotiating the deal. He references a great Harvard Business Review article “3D Negotiation” by David Lax and James Sebenius. but his advice about how you actually put that into practice, is helpful.” – Francis Adanza, serial entrepreneur
SKMurphy take on pricing for early customers:
- Entrepreneurs focus too much on tactics at the negotiating table and not enough on preparation before they sit down and other outreach that takes place away from the table.
- Never negotiate one deal point at a time, always look at the entire deal.
- Always consider the negotiation with one customer in the context of the niche market you are attacking and the precedent you are setting.
- The most significant deficit you have to overcome is one of trust and trustworthiness: promises have no impact here, only proof of prior performance and a clear alignment of incentives between you and the customer.
- You often have to absorb most of the risk in early deals and then deliver on your commitments.
Additional Resources:
- 3D Negotiation
- Questions to Answer Before You Start Negotiating
- Negotiate the Level of Reference in Parallel with Price and Others Terms and Conditions
- Plan For Customer Reference as Much as Payment
- Harvard Business Review Article: “3D Negotiation” by David Lax and James Sebenius. They also have a book “3D Negotiation” that elaborates on the article, but the article captures 80% of the key insights in a few pages.