Industry winners and losers are changing at a dizzying speed. No one can hide. Innovative companies – large and small – are disrupting so many industries. Sometimes it just increases competition, at other times the incumbents go out of business. Think about how industries have changed due to Amazon, Netflix, Airbnb, Charles Schwab, and Kayak, just to mention a few.

Established companies need to be serious about innovation to survive, let alone thrive. However, for many this is not within their comfort zone. In my interview published by Inc, I answer:

• Where do companies most often go wrong with innovation?
  
• What are some of the innovation challenges faced by companies at different stages in their lifecycle?
  
• What are some ways that innovators can work more effectively with those who perform other roles in an organization?

Read more at Inc - The Secret to Business Success That Many Entrepreneurs Forget.

We all have a natural tendency to jump to generating solutions. I do it. Admit it—you probably do too. However, in the process we make flawed assumptions about the problem we are solving. 

Some risks in jumping to solutions, based on a quick guess at the problem include:

• Problem is ill defined
  
• Problem might not be a significant issue for customers
  
• Problem might be perceived differently by target customers (you are not always a member of the target customer segment)
  
• Problem might be superficial and not the real issue
  

Remember that the problem is not always what it first seems to be. Leo McGinneva described why people buy quarter-inch drill bits: “They don’t want quarter-inch bits. They want quarter-inch holes.” And Charles Revson made a distinction regarding the business of Revlon: “In the factory we make cosmetics. In the store we sell hope.” 

Therefore, we need to dig deep to uncover the root cause of the problem. 

Painstorming
Painstorming is one approach to understanding the problem as a team:

• Define the target customer segment
  
• Develop a list of potential problems target customers are facing
  
• Pick the ideas that seem to be the most frequent, most frustrating problems
  
• Develop hypotheses about the root causes of the problems
• Test your root cause hypotheses with customers
• Refine the definition of the problems so that they are clear and incorporate the learnings from customers
  

Once we truly understand the problem, we can brainstorm solutions. This way we will be solving a real, meaningful problem for which customers are craving a solution. 

Customers will not tell you how to price your product or service. The most accurate way to find out is to test pricing models and price points in the real world, where customers actually buy or don’t buy. 

Price testing is often neglected, but the lessons learned often lead to a dramatic impact on profitability. Given that many companies sell through the internet, we will use that model for examples of ways to test prices. However, similar types of tests can be constructed for other situations. 

1. A/B Testing
A/B testing involves offering different prices that are allocated randomly to customers. From a statistical perspective, this is a very clean approach because the only thing you change is the price. An easy way to do this is to offer a variety of price points on a website using an A/B testing program like VWO or Optimizely. Companies such as Dell often use this type of price test when they release new products. 

2. Offer Discounts Off a Stable List Price
By setting a relatively high list price and then showing a discount, one has the option of varying the discount and hence the end price can change without showing a frequently changing list price. This provides a flexible platform to try different prices without causing jarring changes to the overall pricing and it makes it easier to increase pricing by just reducing some or all of the discount. 

3. Segment Your Customers
If a company can segment its customers into groups that are very similar, it can offer different pricing for each segment—this is a manual way of simulating A/B style testing. For example, if there was a landing page off a specific blog, those visitors could be offered a different price (although, it should be lower than list price as they might make their way to the general pricing on the website). When price testing is done based on segment, one needs to be aware that different segments could have varying levels of price sensitivity, which could cause havoc on test results if the goal is to find a general market price.

Based on my experiences with clients of Stratapult Advisors, companies can often accelerate profitable growth through new pricing models or optimized price levels. Can you think of opportunities to increase profitability of your company from testing pricing models and price points? If so, leave a comment so we can all learn. 

A huge number of startups die in their infancy. The #1 startup killer: founders never found a successful product-market fit. This applies to all startup environments—within a large company or as a standalone startup.

Product-market fit is the alignment between the company’s value proposition and customer segment. In other words, do the products and services match the type of customers targeted and can this provide the foundation for a successful company?

Successful product-market fit requires three attributes.

1. Desirable  
The value proposition—the value offered by a company’s product or service—needs to be desired by customers. While this seems basic, I have seen many entrepreneurs dive into creating a product that they think is amazing, only to end up with a solution looking for problem. Unfortunately, in these situations, target customers don’t feel a burning desire to have the product. Marketing efforts are not the solution.

For a value proposition to be desirable, it needs to address a strong customer need—functional or emotional. Sometimes customers will not know they feel a need for something until they experience it, such as a team task management tool like Asana. In addition, the need may be an emotional one, such as the longing to be connected to friends that is fulfilled by Facebook.

2. Feasible 
A feasible value proposition needs to be able to be executed efficiently and effectively to bring a product-market fit to life. It has to delight, not disappoint customers. Setting unrealistic customer expectations can be fatal for startups. The result is lots of customer trials and limited retention.

Startups usually fall into this trap of creating an unfeasible solution for two reasons:

• Rely on third parties to meet unrealistic standards
  
• Technology development is unable to meet the expectation in time

3. Viable
A viable product-market fix provides financial results that are substantial and sustainable. The financial results are not always needed immediately, for example, Twitter survived on investor funds for many years before implementing a revenue model. However, at some point the startup needs to make money to survive. Moreover, investors will only invest in a non-profitable startup if they believe that they will still make a return.

When forecasting a company’s revenue, consider two main levers.

• Volume: How large is the target customer segment and what market share is realistic?
  
• Price: What will the price per customer be (pricing model, price points)?
  

Can you inoculate your startup to increase its survivability rate? 
Since the pre-historic times in the startup world (circa 2008), a number of approaches have developed to help startups find product-market fit and test if each idea is desirable, feasible, and viable. Two main ones are:

Design Thinking

• Gain deep customer empathy—really understand them
  
• Generate lots of ideas before zeroing in on a few
  
• Get customer feedback early on and frequently
  

Lean Startup

• Focus in on running experiments to refine the startup’s hypotheses
  
• Launch an MVP (minimal viable product) to get feedback rather than investing heavily in a product customers reject
  

Next time you work on a startup—within a large company or as a standalone—be sure you find a successful product-market fit. If your product-market fit meets the required attributes above, there is good chance you nailed it. This way, you can avoid falling prey to the #1 startup killer, the grim reaper of poor product-market fit.

Do you have some product-market fit stories? If so, we would all love to read about them in the comments section.

Has pricing your SaaS product got you in a state of confusion? 

The boom in software as a service (SaaS) offerings has created phenomenal opportunities. Software is more accessible, incremental costs to support a new user are minuscule, and maintenance and upgrades are simple to deploy. 

Pricing a SaaS product often is a challenging strategic decision that can have a dramatic impact on a product’s user growth and profitability. 

Typically, four pricing models are most frequently used in the SaaS market. You might be able to use a number of these models either separately or in combination to spur awesome growth in volume and profit for your company. 

1. Subscription
Subscriptions charge a recurring amount until cancelation. Google Apps, for example, charges businesses a monthly or yearly fee per user for services like email, integrated calendar, and storage. Subscriptions work well when the user becomes a long-term, frequent user. This way the price point doesn’t seem high, but is paid regularly so the revenue adds up over time. Given that subscriptions often allow for a high or unlimited level of usage, they are best used when the incremental cost of additional usage is small. 

2. Volume
Volume based pricing allows the price to change with usage. Typically the per unit price declines as volume increases, although sometimes a free offer for low volume is available to encourage trials. The volume model is good for situations where switching costs are high or operating costs grow with usage. As an example, the email marketing system offered by MailChimp is easy to get started with a free service for accounts with less than 2,000 email addresses. However, once MailChimp starts charging users they typically have their email marketing setup with templates, segmented lists, and autoresponders established, making switching painful. As a user’s email list at MailChimp grows, so does the monthly cost, although the cost per email address declines. If operating costs grow with usage, volume based pricing helps companies keep large volume users profitable. 

3. Freemium
Freemium offerings allow customers to use the basic service for free and them pay for premium services. Companies like LinkedIn use the freemium model to encourage a volume of customers--which creates its network value--while still charging for advanced functionality to power networkers and recruiters. The freemium model usually is only suitable when a huge number of users are expected because the share of those who upgrade to the paid services is often small (4% is best practice). And, the value of the premium, paid for services needs to be high for a segment of customers, while at the same time the free services need to valuable enough to attract many customers.

4. Packages 
Packages allow users to pay for groups of services based on their needs. QuickBooks, for example, has core accounting packages, plus an additional package to support payroll. It is suitable to offer packages when different customer segments have different needs. Packages work well when a customer’s needs develop overtime, encouraging them to upgrade when they can see the value. 

Are there opportunities to increase profitability from the pricing of your SaaS products?
Pricing is one of the most powerful drivers of profitability. You might find ways to leverage pricing to grow usage, profit margin, and customer retention.

Think about:

• Who your target customer segments are
  
• How each customer segment perceives the value you offer 
  
• How you can create a win-win situation with pricing
  

I have led numerous pricing projects where profits increased 25% to >100%. Look for ways to unleash this growth at your company.

Having your brand standout in a crowd involves a conscious and serious brand strategy, but this investment is a cornerstone to success. Think about bands such as BMW, Rolex, and IBM and the role brand plays in a buyer’s mind and how these brands were created. 

A brand defines a company’s personality and helps customers determine which products or services are right for them. A company’s brand defines how it differentiates itself from the competition by focusing on delivering and communicating a select number of areas of value that are of primary importance to the target customer segment. Furthermore, a brand is a personality that permeates the company’s strategy, processes, and people. It is not just a logo and tagline—it must a part of a company’s DNA.

Often a shotgun approach is applied to branding—trying a variety of messages and channels to see what works. This creates a confused group of potential customers who don’t have a compelling reason to try the product or service. 

Branding success requires a disciplined approach toward understanding one’s target customers and then having advertising and operations work in harmony to deliver clear, compelling reasons for the target customers to become brand loyalists. Done correctly, one’s brand can unleash superior profitability—just think of Nike, Starbucks, and Apple.

Masterminding a successful branding strategy that maximizes a company’s financial performance involves a number of sequential steps:

1. Segment the market and identify target customers
   
2. Position the brand
   
3. Create and deliver the value proposition
   
4. Make the value proposition real in customers’ minds
   
5. Transition the brand from being functional to aspirational 
   

Are you ready for your brand to standout from the crowd?