Ask YC: Competitor flying under us...

20 点作者 theyoungceo将近 17 年前

DISCLAIMER: This is kinda long, but if you take the time to read it I will buy you a karma lollipop.I remember distinctly reading one of PG's maxims: Never let anybody fly underneath you. And we never have.We are a low cost provider of a hotly demanded product that appeals to public/overnment clients. These particular entities usually pay anywhere between $100K and $20M to have this type of system installed, and can pay ongoing fees anywhere from $500 a month to $500K a year, depending on the size of the organization being outfitted. Suffice it to say that there is a huge market for this product...many many of these organizations all dying to have the product. We have done well with well over $500K in revenue in <2 years, no funding, and a win in a big name startup contest that netted us $100K in cash and prizes out of 250 entrants we competed against.There are about 6 competitors in the space now. 2 of them are the rolls royce variety -- they don't do any contracts under $1M, have several contracts over $30M, and are public companies or owned by public companies.....they do big government only where the big federal money is, no smaller fish. We aren't really big enough to compete with these fish right now which is fine...we're hot on their tail right now and are very close to taking business away from them.Two of them are in the middle....been around for 4-5 years, dabble in both big government and small government, both products fairly lackluster and way overpriced. Nonetheless, they are much cheaper than the rolls royces, so they have a smattering of clients that went with them for lack of better option over the years. We have consistently kicked the crap out of them multiple times; neither has ever beat us since we entered the market. We are way beyond them in features and way under them in price, and their customers hate them and call us all the time to switch. Lets call them the Mercedes of the world. They are the least threatening of the bunch.The last two are "startups" and I use the term loosely. One of these startups scored several "prestigious" contracts before we were around, with a reallllly limited product. They were a little less than the Mercedes variety in price, but IMHO distinctly inferior in features to the Mercedes offering, which was distinctly inferior compared to us. We have had no problem beating them, but occasionally they good a get looking over because they're cheap(er) than Mercedes, but still way more than us.Now to the issue at hand: the last startup. In this case we have a cornered animal. One man show, has one really small client and is barely a larvae. We knew about him, but never expected to have to take him seriously, because other clients never did and the government rarely goes with early stage startups for anything. The product is really obviously homemade, has zero features other than what we consider the one, basic, bare minimum feature of the product space.We are at least a third of the way to closing up a large string of smaller government agencies that are associated with each other....we have 3 of them and there are only a few more left. One of the entities in this group is different from all the others in that they draw their funding from an atypical source and are a really ramshackle operation. They are extremely price sensitive. Their folks really love our system, and are totally sold. One thing though: they draw their funding from another department that doesn't give a crap about features, track record, quality or anything, only price. This department also doesn't have to deal with consequences of an inferior system -- they are really just Mom and Dad writing a check for junior to go play with, and are limiting him severely in his allowance. We gave them our standard pricing (which has little margin) and they welched and said semi-finally they are going with the little guy. There are HUGE risks with this because he is remote to them and we are local, and this is an on-site support type of product. We are also universes away in features and they know and are not happy about it. They are aware and objecting to the funding folks, but the funding department just doesn't care. They seem to have come about 75% of the way to a decision to not go with us.So the dilemma is this: I can meet their price with little margin, and it's not a big deal, we'll still make money on the up-front but we'll make a lot less than usual on ongoing (not a problem). However, considering how closely associated potential clients X Y and Z are to this client, who are also very close to closing a deal, they might enforce the lowest available pricing on us later in the game due to us giving in on this one and really screw us. I don't think our friend the competitor has a prayer at matching us on features to X Y and Z (who are better funded and more demanding), but considering we might give this client steeply discounted pricing to beat the little guy, they might require it from us. If we don't though, it might give Junior just enough cash flow and exposure to not die, which we sure don't want to happen.So, what to do! Ask follow up questions and I will try to answer.

14 条评论

SwellJoe将近 17 年前

You're reading way too much into one piece of advice. The whole "eating from the bottom" thing is a time honored tradition in the computer industry. IBM mainframes were eaten from the bottom by Digital systems, which were eaten from the bottom by Data General mini-computers, which were eaten from the bottom by PCs, which will be eaten from the bottom by mobile devices.But, your problem is not a paradigm shift that alters the competitive landscape. Your problem is a competitor with unsustainable pricing. Don't play that game. It's foolish and you'll lose more customers than you win by playing it. You'll also dig yourself an early grave (figuratively, and possibly literally, if you take your business too seriously).Ignore your foolish competitor. Build better products, charge the right price for them (you may still be too cheap), and keep working. The low-priced competitor will continue to lowball his bids, and will eventually get a reputation for under-serving and over-promising. In a year or two, you'll have a chance to re-bid the same customers you lose this year. And the customer won't be so interested in getting the product cheaply.

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mailanay将近 17 年前

Let this deal go. The company, I was working earlier, had a habit of signing on every customer that knocked their door. In the long run, it created a lot of problems to support those customers (at a very low margin or at a loss), just to maintain the reputation of "not leaving the customers cold" in the marketplace.Letting this deal go, might also send a strong message to X, Y, Z potential customers, that you are offering much more than the cheapest solution and are willing to walk away.

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theyoungceo将近 17 年前

OK guys. I have to admit that I was planning on meeting the price and driving down to the customer site this morning to hand deliver it, but upon reconsideration with several advisors including the great ones here, I'm not going to do it. We do have the best product in the market at a very fair price by all measures, and our success shows that. The client in question has already admitted that he knows the funding people are making a mistake and they are probably going to eat it, so I'm going to emphasize the differences and let them stew in their own decision. We are all but guaranteed to win in three other sister entities to this one, and if we have to let one go to hold our line then that's life.I owe you all some karma lollipops, they will arrive overnight tomorrow.

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MaysonL将近 17 年前

Can you easily downsize your product to where it's substantially less than what X, Y, and Z will want, but more than what one-man Joe is offering? This would also give you the possible future opportunity of selling more features as add-ons.

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petercooper将近 17 年前

Be honest with this potential client. Don't act or sound bitter or jealous at all. Totally accept their decision but just point out that if they need you at all in the future, you're just at the end of the phone.If your competitor is as inferior as you say, those agencies might come back to you for advice on how to "fix" the problem caused by the competitor. Then you can charge more and still look helpful.This happens a lot in other industries and I have personally benefited from it myself. You get to look good, charge more, and providing service to a customer that was previously shafted is easier than one demanding perfection from day one.

dcminter将近 17 年前

I have no advice, but this worries me:"The product [...], has zero features other than what we consider the one, basic, bare minimum feature of the product space."That sounds like a well targeted product to me, however you feel about it. Could you produce an economy version of your existing application that only had that feature? Then you would be in a good position to upsell later on. Even if the time scales make it impractical for this bid, it might be useful if you come up against this guy again later.

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fdschoeneman将近 17 年前

A couple of short pieces of advice. This is a tactical sales problem, not one of strategy or positioning. It sounds like your strategy is just fine. Do your best to at least slow down his decision cycle (keep him from making a bad decision for his organization) which prevents your low-flying competitor from early success. You can do this by offering a very limited version of your product for him to review that matches your competitors features, or ask to delay the decision until you've had a chance to show your product to other stakeholders. There's some chance the buyer is simply using the other company as a negotiation tool to get your price down.In which case, ignore it. Find the customers who see their problem clearly, and why your specific solution takes care of their needs better than anything else, an concentrate your efforts on them.Also, if you haven't read SPIN Selling by Neil Rackham, consider doing so when you get some time.Good luck!

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iamelgringo将近 17 年前

You'll never win with a price buyer. You can cotton to his needs, but they won't stop until the price is free.It sounds like you are selling to enterprise and/or government. The normal rules about being the low cost provider don't apply like they would in the consumer market. Joe Spolsky has some interesting tidbits on that one. Every time they increased Fogbuz's, their sales went up as well. There's an aura of price==quality in enterprise software. Instead of offering a product with less features for a cut-rate price, introduce a deluxe version with a couple extra features and double the price. You might be surprised.

kashif将近 17 年前

Here is what I would do. I would take the contract at a lower price and ensure that the other guy is history. This is good because1. It breaks the competition's back. And leaves no room for him to claim territory in the future.2. With the one man competitor dead you can start increasing prices, clearly in your market there is room for higher pricing. And spend your energy on tackling the rolls-royce and whatever other car you got going there..

josefresco将近 17 年前

"I can meet their price with little margin, and it's not a big deal, we'll still make money on the up-front but we'll make a lot less than usual on ongoing (not a problem)"Industries with a high enough profit margin that they can still make good money even with discounting heavily are doomed for extinction, and replacement by someone smaller, younger and hungrier. Good luck and enjoy your success while it lasts.

skmurphy将近 17 年前

No one ever went broke selling at a profit. If you let this smaller competitor win he now has a bona fide win against you he can cite the next time you run up against him. If X, Y, and Z are close they will also be influenced by the win. The government buys on price, something to bear in mind if you want to continue to play in that market.

wehriam将近 17 年前

Perhaps you could lower the initial price, raise the support contact cost, and add a sunset clause. This may appeal to those in charge of funding (who you mention are absent anyway) by shifting dollars around. More diligent clients would see this is not necessarily an attractive alternative and opt for your more traditional pricing model.

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heyadayo将近 17 年前

Sell this customer a crippled version of your software. Just make it slightly better than your competitor. This 1) Provides a clear future sale when this customer wants to upgrade, and 2) Allows you to sell at your standard rate to X, Y, and Z.

maxklein将近 17 年前

Drop the price sensitive people. Those guys suck up your time and make the entire business no longer fun. The guys with money are always there for follow ups, upgrades and so on.