Joel Spolsky — A Real Cool Customer

  "Say, Joel, do you have any advice for start-ups?"
  "Yes! You should raise all your prices!"

    When I started the company, ... we would have a serious conversation about every expense. A hundred dollars was a lot. ... We ordered cheap, ugly business cards over the Internet. I designed the first logo myself. It consisted entirely of the name Fog Creek Software in lowercase letters and underlined like so: fog creek software. Did you catch the creative part? You see, the g isn't underlined! Think of all the money we saved on toner.

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    ...almost every start-up I have ever seen has set its prices too low. Founders usually imagine that they are selling their wares to people more or less like themselves--which is to say, smart, discriminating consumers. But they would do well to remember that there is a stark difference between selling to consumers and selling to businesses. And if you ask me, all things being equal, start-ups should almost always opt to sell to other businesses.

    FogBugz is used to coordinate teams of developers, so the real audience is almost exclusively established businesses, rather than individuals like me or impoverished, bootstrapped start-ups. In fact, to corporate buyers, the higher the price, the more respectable FogBugz appeared to be.

    As the business grew, our definition of the word expensive began to change. Should we buy a $400 off-the-shelf firewall? If it saves a few hours of time, why not? Later on, when we were looking for a domain name for a new line of business, we splurged and spent $10,000 to buy the URL Copilot.com. And we thought it was money well spent. ...

    As I was discovering, businesses spend money at rates that seem profligate, even obscene, to normal people. ... Copilot.com taught me: Businesses will happily spend large sums of money on fixed costs, because those costs can be spread out across so many of their customers.
Consumers, though, are a different story. On the whole, they tend to be very thrifty and price sensitive. They'll choose the $18 cell phone plan instead of the $21 plan if they believe they can live without the extra $3 in features. ...

    ...volume [of consumers] doesn't come easy. At the very least, a company will need to do something to reconfigure the brain cells of millions of humans so that 1. They know the product exists and 2. They want to buy it. This particular brain-cell reconfiguration takes a lot of work, and success is exceedingly unlikely for many start-ups. ...

    ...some companies sell to businesses and to consumers, but this is a tricky balancing act. If you raise prices too fast, you will lose consumers. But if you continue to charge low prices, businesses may think your product is cheap--and you won't be extracting very much money out of precisely the customers who are most willing to pay.

    To successfully sell to businesses and consumers, you need to realize that you're building two companies, not one. You need separate product lines. Cisco does this well, selling home versions of its business products through its Linksys division.

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