Startups — Stop Competing on Price! — Do This Instead.

Starting a business is easy. There I said it.

Anyone can register an LLC, source a product, throw up a website and start selling. The problem is that most new companies put very little thought into anything besides their product or service and what they can charge, but that’s not enough.

At what point do we learn that a good business is a variety of complex systems all working together as one, to meet a common goal. Each system is equally important as the next, but If one fails, they all fail. Price is simply one of those systems and should be the last to be adjusted, especially in the wrong direction.

Most entrepreneurs go for the low hanging fruit. I know this because I’ve done it myself, I’ve seen entire books written about it and I’ve seen businesses fail because of it. In this case, the low hanging fruit is competing on price. Sure, it’s easy to do because in our minds, we assume that if our prices are the lowest our competitions customers will start coming to us, which is partially true.

Have you ever stopped to think about what really happens when you compete on price alone? I’ll break it down.

1. Let’s say you launch your business and decide that you can undercut your competition by one dollar per item and still maintain a three dollar per item profit. This is a good price, so your competitions customers will probably start buying from you.

2. Well your competition doesn’t like losing customers. They will follow suit and undercut you by one dollar per item and maintain a two dollar per item profit. Their customers will come back to them.

3. This process will continue until no one is making any money!

Here Is the deal — In the world we live in today, unless you are doing something truly unique, you are probably just average. Odds are, you are selling the same products and offering the same services as your competition. If you compete on price, the more established businesses can afford to drop their prices to a point they know you aren’t making any money and they will simply wait you out.

Once you are out of business, they will raise their prices and continue operating like nothing ever happened. At most, you were a thorn in their side.

If the last couple of paragraphs were not self-explanatory, I’ll just say it. As a startup, competing on price is not only the worst thing you can do, it’s just lazy.

I’ve said this before and I’ll say it again now. Running a business is a ton of work, it’s hard and it’s certainly not for everyone. To be successful, you need to be a strategist. Every move you make is important and you need to be thinking five moves ahead. It’s a chess game.

Here are some ways to avoid competing on price.

1. Sell yourself, sell a story — People love a good story, but more importantly they like to know who they are buying from and the origins behind a product or service.

Are you selling —

“A brown wooden table with a durable stain that’s guaranteed to last twenty years”

or are you selling —

“A table that was inspired by the table my grandmother used to serve thanksgiving dinner on. She was a school teacher that loved to educate and inspire kids to reach for the stars. She was and honorable woman and was admired by many, but none more than her own family. Every year, we would sit around this very table, give thanks for many blessings we have in life and enjoy each other’s company for hours and hours. It was the best days of my life and every time I sit down at this table, it takes me right back to thanksgiving dinner.”

That’s not perfect, but you get the point. Sell a story, sell a memory. It adds value!

If you can do that successfully, price is irrelevant (to a point).

2. Create a unique value proposition — Come up with something you can offer to make your customers life easier.

Personally, I run a company where I help veterans with aviation experience and active security clearances land $160,000+ jobs working in combat zones. My unique proposition is that after my customers are members of my program, I connect them with mentors currently working in the industry.

This leads to valuable insights, answered questions, recommendations and a direct connection to the hiring managers of companies they want to work with.

The best part is that all of these “mentors” are guys that I know personally through my own experience within the field. They do this for free in part as a favor to me and in part to ensure they are getting good people on their teams. My company has a very high placement rate due to this unique position.

What can you offer that no one else can?

3. Raise your prices — It’s funny how the brain works, but sometimes a higher price makes people think your product is better than the competitions. It cost more so it must be better. I don’t know why, but it works about 40 percent of the time. Give it a try sometime.

There are thousands of ways to compete as a new or established business. It would take writing an entire book to get even half of the techniques outlined properly, but price alone should not be your main method of competing. Remember, you aren’t just selling a product or a service. People will buy into you. Connect, engage and earn the trust of your customers for real long-term success. The connections and experiences is what makes customers return over and over.