Why Startups Should Never Give Discounts
When your business is starting out, it is common to want to sell right away, rack a huge number of clients and build credibility in your industry. Building all of that takes time. What startups tend to talk about these days revolve around motivation, grinding, and how well to treat to your customers. What they leave out is how not every client is good for your business, how “doing whatever it takes” may harm you in the short and long run, and how all this may affect your credibility overall.
From working with 300 startup clients, I have had the chance to see that our market is very dynamic from one client to the next. Normally, our clients are not known to have deep pockets so that is where I learned the unique lessons about discounts. A couple of key learnings have come out of that over the years that I wanted to share…
1. 80/20 Rule
20% of the people take up 80% of your time. This is a tried and true statement among many psychological situations. In business, this would be true of your clients. In a startup’s early days, it may seem like you are supposed to give discounts in order to make those initial sales and gain your credibility. However, we have seen a huge difference in those clients who will and won’t see your value. (Check out our previous article: Am I Being Paid What Am I Worth?)
For example, we had a standard fee for writing business plans as an extra add on for those looking for funding. We had a client in the past who tried to negotiate during the 11th hour when I was almost finished the business plan to demand a discount. The request was to do 3 weeks worth of work in just a few days and they did not finish preparing their research either. Because of the situation the client put us in and the hard deadline, we spent 40% of the time negotiating and 50% of the time working on the business plan (and about 10% of the time sleeping). It was a prime example of how a difficult client took 80% of our time and it was a hard lesson to learn.
What can you do about it?
A) Walk away…
In hindsight, we did not need their business. It would not have affected our brand and our core business of helping startups get investor funding. This business plan writing was a side service that was offered.
B) Flip your 80/20 rule to benefit your business!
2) Beware of Acquaintances Who Try to Squeeze Your Business
As your business grows and people start to see value in what you, some people will migrate back in your life and ask for discounts to gain the benefits. One example that happened was an acquaintance of mine who needed marketing consultation because he was part of a “Co-CEO” team but neither of them was the marketing/business person. This acquaintance is someone who I haven’t seen in about 10 years and only met through school friends a couple of times. I did not know he moved back to the city a few years ago. So after agreeing on the rate and services to be provided, this acquaintance messaged me back a week later and aggressively wrote this:
I’ve just checked the contract and want to point out one thing
Are you really charging me the fees the same as you charge to strangers ?”
I was not sure what this aggressive greeting was about. I eventually saw that it was his way to “ask for a friend’s discount.” I was really confused that this happened after everything was agreed upon and written up in a contract that he then refused to sign. His partner and I sorted it out later and we commenced the work. It was done in bad faith afterall because the 6 month contract...got cut into a 3 month contract…got cut into a 3 week contract…
What can you do about it?
There are a lot of support systems in your community or even online like a Facebook group full of entrepreneurs who will give great advice based on your specific situations. I went on a Facebook live chat full of entrepreneurs because I was new to this situation and was starting out this branch of the business at the time. I went on a live video to talk to people who have walked this path. They explained that I should not consider these people to be “friends.” Also, I should go back to them and ask for more. That is what I did during the second negotiation. They only hired for 3 weeks (but it was possible that is what they intended in the first place when negotiation a 6 month contract).
Another solution is to hire a sales coach if you are new to these negotiations. If you need recommendations for sales coaches or facebook support groups, send me a message!
If startups bow down to giving discounts every time they are asked, they will only be attracted discounted clients. These small clients will take up 80% of your time. You will be spending less time doing what you love — which is providing the solution or product. Even if your product or service is superior on the market, if you act like you are worth less, than that’s how the world will treat you.