Item — HN Reader

> This is a bad strategy for a business. Price is the worst thing to compete upon.

What's the evidence for this? I know plenty startups who went down this path and are very successful - eg EmailOctopus is the one I'm most familiar with.

> Being really cheap is a red-flag to potentially good customers because they know you can't stay in business.

Doubt any business will do a solvency assessment based on the price you're charging. If you're a startup, they'll think it's a high chance you fail no matter the price you charge.

1 comments

I’ve never heard of Email Octopus.

Too cheap to stay in business is a heuristic that avoids the work of detailed analysis.

The basis of the heuristic is that cheap incentives cutting corners —- cutting corners has a large effect on profit when margins are low.

Cheap also pursues a market segment biased toward cost saving rather than growing revenue. Companies focused on growing revenue align better with companies similarly focused.

Finally, as the OP’s question might suggest, hoping low price will be enough is often a way of avoiding the hard work of sales.

That’s a positive feedback cycle. The lower the price the less money there is for sales and service and the more a company must rely on low price.

But hey, you might be right even though I’ve heard of Oracle but not Email Octopus.

Not sure why it's relevant whether you heard about the startup I mentioned. The point I wanted to make is that being cheapest is a valid path to success, and that there's evidence of this. It's also more realistic to aim to be a $1M ARR business than Oracle.

I'm aware of all the MBA theory around pricing. But it doesn't matter that much when you're starting off. You need to find the right entrypoint in the market, and pricing can be one valid reason why people will end up buying your product.

A company can be successful despite being cheapest.

Betting on logical possibility is bad business strategy.