Sent by Jonathan Stark on December 12th, 2016
List member Mike Julien (https://mikejulian.com/) wrote in with a wonderfully nuanced reply that expands on my message about why the typical early stage, “Silicon Valley” sort of tech startup is a bad fit for value priced software services. Mike has more direct experience with the SV scene than I do (my experience is partially direct and partially through students). His message is a little long but if you are targeting startups, it’s worth a close read:
---- Hey Jonathan,
I have a different take on this. I’ve been working in the San Francisco startup scene for years and my customer base are all startups. I think you’re painting with too broad of a brush and the market is much more segmented than you’re painting it as. The behaviors differ between the segments in significant ways.
I’ll say right up front that you’re totally spot on for #3 across all segments. Startups don’t care about your engineering prowess because in their mind, if you were so good, why aren’t you running a startup yourself? Many startups view contractors who provide engineering services as having “settled” because they couldn’t hack it at a “real” company.
The other two points are bit more nuanced:
You describe seed stage startups perfectly in point #1 (and seed stage is what Mike N is asking about). However, by late Series A/early Series B, they’re not as cost-conscious and certainly not by Series C and later. If they aren’t profitable, they may still be spending heavily on services (eg, Uber, who’s losing $2bn/yr, isn’t profitable but has tons of money and spends it).
Landing your Series A funding these days generally means you know who your customers are and why they’re buying. Seed money’s purpose is to find product-market fit and give the founders runway to do so. Seed stage is probably the worst time to sell anything: they have no money, no time, and no/few customers. It’s been my experience that investors aren’t nearly as active in the product direction as you allude to--most investors expect the team to decide and execute themselves without much involvement from their investors and advisors.
Of course, it’s important to remember that SF Bay Area “startups” don’t mean the same thing as “startups” in the rest of the world: SF Bay Area startups can have hundreds of employees and tens of millions in funding and still be a startup. There’s plenty of companies with a thousand employees still calling themselves a startup. Meanwhile, Joe and Bob launching a company in Boston/New York/St Louis with a few bucks would probably stop calling themselves a “startup” when they hit a few employees but still aren’t in the eight figures of revenue/funding.
I’ve found early stage startups to not like value-pricing in a general sense, but later stage are mostly fine with it--as long as you aren’t selling engineering services (they are experts in what that costs and will compare your price to simply hiring more FTEs). Being a specialist in an area is crucial for working with them as they can’t do direct comparisons between cost of another random engineering FTE and a specialist.
One last thing I’m still working out myself: the default option for SFBA startups is FTE. As mention, freelancing is viewed as not being good enough for a “real” job. It seems to me that the solution is positioning yourself in such a way that your services can’t be had by hiring an FTE to begin with.