Episode Transcript
[00:00:00] Speaker A: Customers don't necessarily want a we win, you win, they want to win more than you.
[00:00:04] Speaker B: Pricing models got changed as well. So the stuff we were buying got really expensive. Other people who were sitting at home doing nothing decided to enter the space and so it got really hard to actually buy profitable goods. So the shoes we were buying for 10 cents on the dollar.
[00:00:19] Speaker A: I've done this before, by the way, where I've taken the initial fee investment up and I've taken the percentage down on the rep share. But when we did that, conversion went down slightly. Not much, just a little bit.
[00:00:30] Speaker B: And I think a lot.
CEOs and certainly startup founders, they run into a brick wall and then they pivot, looking for the next door to go through without really understanding what the customer is trying to accomplish or who their ideal customer is.
[00:00:46] Speaker A: Everybody wants more customers and they want their customers to pay more money. There's nothing wrong with that. As your business dynamics change, you should re look at your pricing model.
[00:00:54] Speaker C: Yo, Mike, check what's up everybody? You're listening to the Street Pricing Podcast, the only show where proven SaaS leaders share their mindset and mist takes in pricing so we can all stop guessing and start growing. Enjoy, subscribe and tell a friend. Now let's break it down with your host and sought after slayer of bad pricing, Marcos Rivera.
[00:01:16] Speaker A: What's up and welcome to the Street Pricing Podcast. I'm Marcos Rivera, the CEO of Pricing IO and today's guest I'm excited about because he's seen things from multiple angles, multiple sides of the table as an investor, an operator, a consultant. Today we have Evan Munsing. He is from Corbell Capital Partners. Evan, welcome to the show.
[00:01:35] Speaker B: Thanks for inviting me here, Marcus. Great to be here and good to reconnect with you. Excited to talk about pricing.
[00:01:41] Speaker A: Exactly. Reconnecting, indeed. We met back in our Vista days and there's a lot to learn in that environment. Vista is very fast moving and a lot of different roles there and I'm happy we had a chance to really connect and cross paths there. And here we are, fast forward years later doing what we do and I can't wait to jam with you because I think a lot of folks out there, SAS leaders, founders, operators, can learn from you. So real quick for the audience, just give us a really quick background on you and talk about what you do.
[00:02:09] Speaker B: Yeah, so as you said, I've been operator, consultor, investor. Started off my career actually in the Department of Defense as a research fellow at a think tank, then went in the Marine Corps. I was an infantry officer for four years, did a couple of deployments, decided to get out of the the core after my second deployment, went to McKinsey, started doing a lot of work with private equity firms, some pricing, then joined you at Vista. And that was really where I got kind of my, my feet wet and a little bit more education in pricing and was glad to learn from, from you and your expertise as well. Then I went to the operator side. So moved over portfolio company roles, sort of successive VPs, VP, CEO type roles. And one thing that's been constant through all of those is pricing. Because pricing is really where the rubber hits the road in terms of a company's value creation and also what understanding what the value is that a customer perceives in a company or a product. All of it boils down to pricing and what you can sell that product for and how you sell it. Joined Corbel Capital Partners three years ago. So Corbel's a lower middle market investment firm. So we invest in companies that are typically 30 to 70 million of revenue. We do go to the left and to the right of that and we do a lot of tech services, which includes both SaaS companies, which obviously you're very familiar with. But we also do things like software consulting, MSP work and even some of more blue collar trades that we're starting to wrap into a tech services framework because now tech kind of increasingly revolves and operates everything we do in our normal lives. And I think the company we're going to talk about is sort of a proof point of how that works out.
[00:03:54] Speaker A: Love it, love it, love it, love it for a lot of reasons. One is, it's interesting because you're one of the few people I could sit down and talk to who've done pricing or overseen pricing and seen it. Also at the board level, people presenting on what they're doing about their packaging, growth, pricing, etc. So having that multiangle view and going back to it is one of the reasons why I'm so excited because I think very few people have it and this is where we can really pull out some insights or some really just key meaty things for folks to keep in mind to make them better and one of my biggest things, moving them away from that guesswork. Right, so are you ready to get street with me?
[00:04:28] Speaker B: Let's get it.
[00:04:29] Speaker A: All right man, let's do this. So for everybody here listening, this show, street pricing is based on the book street pricing. So we tend to start with a story. That book is full, chock full of those Stories. And so what I want to do here is, is Evan opened things up. With a success, it could be a failure, whatever that is, but a story around pricing and packaging, how you handled it, what you learned from it, and then we can unpack it from there.
[00:04:52] Speaker B: Great.
So the company I'm going to talk about went through several pivots during our investment cycle. So you may need to ask me questions because it could get a little bit complicated. But effectively what we had was a company that moved from a consumer focused business through multiple pivots and ended up as a B2B SaaS company. So it's a really interesting journey. It was interesting to be there and to live it. It was also interesting from a pricing perspective because obviously as you pivot into those different venues, you're also naturally going to evolve your pricing. So this company, Upstream, started its life as a small startup out of someone's garage. So there were a couple sneaker heads who got into what we call re commerce, which is basically buying and selling used or challenged inventory and then typically putting it online or sometimes selling it out of a garage or a flea sale or flea market rather. And they created some interesting kind of new technology for, hey, we bought a bunch of sneakers. What you know, we're buying them wholesale challenge inventory pennies on the dollar. And we have a listing service that will put out a listing for, you know, this pair of Nikes on 10 or 20 different marketplaces. So ebay, poshmark, all the different kind of resale type places that you can think of. We acquired. The company was doing great. And then during COVID that whole supply chain just got totally changed. So Covid affected obviously people on sort of the 3 PL side of the house because you have everything that's coming from China that's getting delayed and stuff's being stuck on containers. But even on the resale side on the 4 PL or the reverse logistics supply chain got pretty messed up as well. And it was everything from labor, staffing and warehouses to the fact that because there was less inventory coming from China, all that challenged inventory got smaller because people were actually now buying it off the shelf.
[00:06:44] Speaker A: Right.
[00:06:45] Speaker B: And pricing models got changed as well. So the stuff we were buying got really expensive. Other people who were sitting at home doing nothing decided to enter the space.
And so it got really hard to actually buy profitable goods. So the shoes we were buying for 10 cents on the dollar were now 30 or 40 or 50 cents on the dollar.
And so but at the same time our technology was evolving. So this technology we had that originally was just how do I take a photo of a shoe and put it onto multiple marketplaces so they can then sell it at a profit. We found that we could actually expand the technology with a great engineering team and they built on some additional components so that when we received something we had some AI and some algorithms that would let us very quickly disposition the shoe. You could take photos of it and would compare to photos of other types of shoes that would then let you identify what was selling, where it was selling. So you knew the channel, you knew the price it should be selling at.
And then we could, early on we had some kind of very basic abilities to automatically create the actual listing framework as well and fill in some of the, the details about the shoe and talk about the quality and everything. So what we did was we then took this sort of direct to consumer model and changed it into a tech enabled services model. And so now we're going out to people who department stores who are getting returns as well as to like thrift store chains that are buying large amounts of challenged inventory. So you know, like T.J. maxx buys challenged inventory effectively and they wanted someone who could help quickly disposition things and then figure should this go into a brick and mortar store or should it go online or should go to a bin store or should it, you know, be disposed of in bulk or recycled or you know, all the different things you can do with return goods. So the first step was, you know, we had this company that was basically making money just by buying low and selling high. Now in this new tech enabled more business business services model, we had to come up with a new pricing model. And it started out as well. We're now processing stuff for you.
So if we're receiving physical inventory in our warehouse and processing it for you, we're going to take a transaction fee every time we touch something.
So every time we receive a good and take a photo of it, we'll charge you a few cents. And then if we need to do something more complicated like rebox it or repackage it, will then charge you a little bit more. And so very standard, standard, kind of outsourced 4PL, 3PL model. And then our CEO said well hold on, we're actually creating a lot of value for these people because we can tell them what channel to sell it through for the most value. So rather than taking stuff and putting it always into brick and mortar retail, that pair of sneakers that would sell for you know, 10 bucks at a, at a thrift store, we can put online and make 30 bucks. And so we also moved into a revenue model or a revenue share model where if we were helping you by putting it on an online channel which lets you. Lets the customer capture more value from the sale, we would then take part of that value and split the revenue between our company and their company, net of fees.
[00:10:00] Speaker A: Got it. So you're getting more complex, though. It sounds like as you keep evolving, you're adding more layers to the pricing. Right. I mean, it's simple as a pimple in the beginning, right. You buy low, you sell high, margins start to change around a little bit. Supply chain changes around, you guys shifted over, and now you're taking that there was more of a transaction related.
[00:10:17] Speaker B: Yeah.
[00:10:18] Speaker A: And now you're moving into rev share.
[00:10:20] Speaker B: Right.
[00:10:21] Speaker A: Wow. All right, you're getting the full spectrum here.
I want to make sure I didn't miss that. Keep going, man. Keep going.
[00:10:26] Speaker B: And then the technology continued to mature. And so in the the sort of the early days of the current AI boom, our engineers started adding on additional components to it. And at the board level, we quickly realized, like, hold on, this is a company that has legs to run with.
What's holding back growth is the fact that we're actually receiving physical inventory, which means we have to have warehouse space, which is expensive and it's not always easy to get. Plus, you have to find humans to go and then process everything. And the labor market was still tight. And so we said, okay, why don't we start pivoting this to be more of a true B2B SaaS model? So rather than providing the services, let's provide the software and the training to 3 PLs and 4 PLs who can put this in their own warehouses. Then we'll become like pretty much a SaaS company at that point. The scale is just how quickly we can build the technology rather than having to process physical inventory. And it solves a really core problem for 3pls, which is 3pls are really good at sending stuff out. Right. That's what they do. They stock inventory and then they ship stuff out. They hate receiving stuff because they're not designed to take in.
[00:11:39] Speaker A: Right.
[00:11:39] Speaker B: Returns and often returns. You know, if you send a pair of shoes back, you're probably a very responsible buyer, but there are lots of people who've worn them around for two or three days or there's scuff marks on them or they send it back not in the box. So if you're a 3 PL, you don't know what to do with that. Right. You have A pair of worn out Nikes. But we can help you figure out what to do with that. So you can take. Now take our software, take a photograph of it. The AI model in the background will automatically figure out what pair of shoes it is, where they should be sent to look at the quality, figure out what the pricing should be, who a potential buyer would be. Is this a bin store chain? Is it a wholesale buyer of pallets of used shoes? Or is it an online ebay seller? And in some cases the shoe quality is actually really good. Then it's just a question of can you find a new box to put that shoe back in. And so totally different model now. Right. Because now it's. We're selling to the 3 PL and selling our software to them. And so. And we also had hardware that went along with it. So you have like guns to scan stuff with.
[00:12:44] Speaker A: You have you filled those too? Okay.
[00:12:46] Speaker B: Specific camera we had to use. And so the model then changed a little bit again. And originally we started off with, well, let's take a transaction fee every time someone scans something in.
And then, you know, we like this kind of value share model or the revenue share model because it aligns what we're doing with the customer. So when the customer wins, we win. And it also makes it easy for them to buy because there's not a lot of startup costs. So we try that for a little while. What we found though was number one, it created a big working capital issue because we're implementing this stuff, training the team up, they're starting to use it, they're starting to ramp up on how to use our software. But the time between when A3PL implemented our technology and when they would actually start selling stuff or start paying us could be 90 to 120 days.
[00:13:36] Speaker A: So you have to float. I mean, yeah. You're not going to get the money.
[00:13:38] Speaker B: Back in and have all that up front. Yeah. And then the second thing was, and I found this in other places is value capture. Value sharing plans sound really good, but they're tough to implement. Well for two reasons.
One is sometimes customers need to like monetarily buy into something.
[00:14:00] Speaker A: Yep.
[00:14:00] Speaker B: In order to really want to do it.
[00:14:01] Speaker A: And I'm sure you've seen in the.
[00:14:03] Speaker B: Game where like, oh yeah, if you give stuff away for free, people don't really value it.
[00:14:07] Speaker A: They, no, they're conditioned to think that it's, it's free, it doesn't have much value. So it changes their behavior. And that's one of the reasons why folks, when they think about Charging for like an onboarding fee or implementation fee or something like that.
They realize that if we give all that away, we're going to lower friction. Yeah, well, yeah, but it's actually going to work too well in the sense that they're not even going to care. And your implementation cycles may go longer or they may not fully adopt the solution. So spot on with that.
[00:14:33] Speaker B: The other thing I found is that, and this is true in SaaS, it's true in like consulting firms when you do a value share model. So anything that kind of splits either revenue or profitability with your client, there's no way to do it so that everybody always agrees on what the actual value capture was. So you always end up at some point in disagreements with your client and typically you end up having to give some of that value back to the client. Even if you think you're right, someone on their finance team or their management team is going to say, I, you know, we had extra costs putting this in or whatever. So then we end up going through another pivot, which was exactly what you described. We said, well, we need the working capital and we need to make sure the customer is like committed to this because we don't want to give it for free to people who are going to be like cool technology, but don't really, you know, I'm not going to put in the effort to train my people and enforce that they use it. So we started charging an implementation fee for every new implementation. It was basically, you have to buy the software upfront for some period of time and the hardware and then pay us effectively a consulting fee to come in and train your team. And then we dialed up the transactional fees a little bit and took our revenue share down so that we had a little bit more of a guarantee that when they're using the technology, we're going to be making money. And by taking our revenue share down, it reduces some of the tendency of the client to fight you on what, you know, what their perceived value of the product is.
[00:16:00] Speaker A: That's a really big point here. I've done this before, by the way, where I've taken the initial fee investment up and I've taken the percentage down on the rev share. It reduces some of the sensation. You'll get this weird, you know, sometimes I'll say, hey, I feel like I'm being taxed on my success and attribution fights and all that stuff. But when we did that, conversion went down slightly, not much, just a little bit because the some people just didn't want to pay the fee. However, their overall lifetime value of their customers went up. So what happened with you when you guys did it?
[00:16:31] Speaker B: It's a great question. I don't really know the answer because shortly after that we sold the business.
[00:16:36] Speaker A: Okay.
[00:16:36] Speaker B: I'm still tied to them and they're still doing well, but it's still early days in terms of actually seeing where that plays out to something I've always struggled with and would love your thoughts on is there's this weird balance you have to play with, particularly I think with SaaS, where it's the question of how do you drive growth with pricing versus the stickiness of the customer committing to a higher level of pricing. Because when people pay more, that typically means they value it more.
[00:17:07] Speaker A: Yeah.
[00:17:07] Speaker B: And they've also kind of, from a human perspective, they've made a commitment to your product if they're paying a high fee for it. But obviously conversion goes down, growth goes down a little bit. And so I think that's really like where the art of pricing comes in and why people like you are so important to help figure that out. Because you have so much more patent recognition.
[00:17:25] Speaker A: It's a very nuanced trade off that you're making there. Right. So everybody wants more customers and they want their customers to pay more money. There's nothing wrong with that. But what you'll find is as you went through your different pricing model journeys, right, you went through like four or five different iterations of pricing. One thing I like about that, number one, is you realize that as your business dynamics change, you should relook at your pricing model. A lot of SaaS operators out there change their business, and some of them right now, as we're talking, are changing their business to, you know, adopt AI or pivot to, to serve AI in this day and age. And they're not revisiting their pricing model. They're sticking with the old. Maybe they were charging by the seat or by the channel or by the whatever and then just leaving it alone. I think that's a very dangerous thing in this world.
You even saw yourself as your cost structure was changing, you needed to make a move. And a pivot software traditionally never had to worry too much about cost because as you were shifting to the B2B SaaS, I'm sure your economics got better too, right? I mean, the software, you build it once, sell it multiple times, right. In this world with AI. And I know I'm folding this in because it's just so top of mind as if your cost structure is changing and you're now shifting your business model. You were a SaaS provider, you're now building agents instead, whatever that is, you should revisit that pricing and packaging model. So specifically back to you, there was a, if you think about the economics of your customer, right, so why do they buy? And then they have a certain profit and loss with their customer base too. So what does that look like? When does your payback sort of come back to them? So based on their customers, if they're doing lots of volume, low ticket, typically speaking, they're a little bit more risk averse and nervous because it's going to take a lot of volume to make up for your fees. If they're bigger ticket, then typically they can make up for your fees a little faster. But the stakes are higher. Right. So there's a different risk problem with those as well. If you're able to address those risk problems, you generally have a higher willingness to pay. Because something an old sales leader taught me is that customers are buying confidence, they're not necessarily buying your product. And I always got that kind of confused me when I was younger I was like, what do you mean buying confidence? They need to buy this thing to do the thing right. And he's laughing at me now. I get it years later as I'm, you know, in the role that I'm in. It's like when it comes to solutions around software and the services you provide, it's, there's risk. How long is it going to take? Am I going to get the results I want? Am I going to, you know, scale like all those things? And the more you can address those which are wrappers around the product, the more you can get a higher price and get people to commit and convert. But make no mistake, there are going to be those that just have a, some number in their mind. Maybe it's informed by a friend, informed by what they used to spend on the old thing or whatever it is. And then they won't, they won't convert. So you will drop a little bit on the conversion end. But again LTV goes up, you tend to cross sell and upsell that base a little bit more. And, and that's what leads to the overall better value, better economics for the business.
[00:20:26] Speaker B: Yeah, it's an interesting point you make about the pivot and AI pricing models because one of the benefits of being in this company, in this particular space, which is serving 3pls and 4pls is I think a lot of SaaS companies get stuck on seat pricing and something that's always been frustrating to me is like seat pricing is often not at all aligned with the value you're creating for your client. And so we were fortunate to be serving client base that isn't anchored on seat pricing or license pricing. But I've seen this in other companies where, you know, you go in and you try to change pricing away from license pricing to make it more aligned with both the value you're creating for the client, but also the value the client is experiencing and how they use the product. And sometimes it's like really tough to get the buyers to move off of the license pricing or the C pricing because you're just number one, so used to it. But I think the other thing is going back to your other point. Like, the risk of license pricing is just that you buy a product that you don't really like, whereas other types of pricing models, you run into the risk that you don't know how much you're going to spend with this company, if it's a transactional model, if it's a value capture model or whatever. And so that kind of makes that dynamic for the customer just a little bit harder to unwind.
[00:21:44] Speaker A: It does. It makes it murky. Hey, team, I want to take a quick pause here to ask for a small favor. This show is about helping entrepreneurs remove the guesswork and price with confidence. And it will be a huge help if you can rate the show and share it with a friend who you think is struggling with pricing. Takes about 10 seconds of your time, but it will mean the world to me. Thanks in advance. Now back to the show. The CFO has to know what am I going to budget for this thing? And you have to have a pretty clear answer. CFOs don't want a lot of fluff. CFOs want like the dollars and cents. Like, just tell me what this is. If it makes. If it makes sense, we'll get it in the budget because they have a balancing act to do. They have a lot of constituents to answer to and they're trying to, like, balance this equation on their side. If you keep saying, well, it kind of depends how much we use it, and we might do this and it might go up or might go down, you're going to have a really tough time selling into this.
[00:22:33] Speaker B: Right?
[00:22:34] Speaker A: So how do you, how do you mitigate that risk in a lot of this? And you're right. And you said it earlier today. I'll say it again. I think the value, the closer you're aligned to value and folks are even Talking about outcome based pricing. Right. And getting to that holy grail.
It sounds good on paper, but it is really hard to pull off in real life. And I think some companies can, right? You take, you take some of the companies that are charging by the call resolution now, hey, our robot AI will come in, answer this call for you and if we can resolve it, we'll charge you a fee, right? I think it's like 99 cents for each one and it's like, okay, and if we can't resolve it, we'll kick it back to a human and we won't charge you. Right. Simple as that. And that's a really nice aligned model. Right? That's that whole thing, hey, we win, you win sort of approach. But let me be honest with you, and I'm just going to say this out loud. People may disagree with me, I don't care, they'll disagree with me. Customers don't necessarily want a we win, you win. They want to win more than you. And as they use your software more, they want to continue to win more. And so it gets very difficult, especially when volume ticks up. Yes, they get more value, but the exchange rate of that value can change. And it's, that's why it's not necessarily linear. That's why that's where the old volume discounts and manufacturing came into play. Right? You want to share in some of that volume, their pricing power goes up, competitors get more aggressive and want to take them away from you. They want compensation in that exchange.
So the, the idea of fairness in terms of aligning the value is good up to a point. But customers always want the bigger, better deal and the bigger and better it all gets, that that share stand tends to change. And I think this is where some companies are falling down is they'll create a model, they'll create the share. They'll say, hey, you know, we'll charge you X amount of dollars for each one of these things we do or percentage or whatever that is. But as it scales and goes up, the customer is going to be like, yeah, that fee isn't good enough anymore. I'm spending on an overall spend freaking $3 million a year on you. And I don't even spend that on my erp. So we need to renegotiate.
[00:24:35] Speaker B: But yeah, I think certainty is, is a really critical part of it too because you know, as an, in my operator role, when I buy something, I want to know how much I'm going to be spending over the next year. And unless I know that every Time I spend, I truly am making more money and making more profitability, which is pretty much never the case.
That also becomes problematic because I have no idea what my P and L will look like at the end of the month or the end of the year. It's like if you could buy a house. If you were building a house and someone said, I will build you this house and you're only ever going to pay X dollars, you'd probably prefer that as opposed to being like, well, the builders now said, he can build me a cooler house and every time I talk to him, he's adding on cool features. But now my budget's like 3x of what it was. And yeah, I love it, it's great, but I've just totally blown through my bank account.
[00:25:28] Speaker A: That's never a good thing. Especially the CFO who has to answer to a bunch of folks. Let me tell you how companies have solved this one, right? So Snowflake was really good at this too, right? Which is they're really good at getting those pre commits to a fixed fee and then giving a lot of visibility into what overages could look like, right? So this is just good old fashioned sales scenario planning with your prospect, right? So what you have there is your base case, hey, how many, you know, shipments you did last year or how many, you know, customers you're going to get or whatever that is. And then you model, okay, this is what you're going to need if you commit to this amount. We'll add a 10% buffer just in case. But here's your amount, here's your fixed price. This is what you pay, this is what happens up to this amount. Again, snowflakes were, they were brilliant at doing this. And then this is if, if by chance you were to have a just an outstanding year and you were to crush it, and if you blew through your buffer, here's what you would pay, right? So now they have. Okay, I can see what the, like that, you know, the, the scars of the old AT&T bill that comes with the triple the price because you talk to grandma too long on a Wednesday, whatever that is, right? That goes away because now you've sort of put a boundary and you fixed it. And then you also told them what that overage would be so they don't have that surprise. And so you plan that scenario out. I've seen a company take it out a step further and they have something, what's called a true forward. So there's true up and then there's true forward.
So the True up at the very end says, all right, this is what you actually used. And so we're going to chew you up. We're going to, you know, lift your plan up to this amount instead of this amount because it's higher and this is what you're going to pay. And that's good.
A true forward is, here's what you use. Yeah, you went over, but I'm going to lift your limit going forward.
So now you actually are, you know, in a way, forgiven for some of the overage that you did.
[00:27:16] Speaker B: So is that like an annual pricing model where they pay upfront?
[00:27:19] Speaker A: Okay, yep, that would be more of an annual model as well. And so what it does, it removes the sting of, you know, the, the stick, if you will, of going over and penalizing them for using your product a little bit more. And then the nice thing is a lot of companies would, you know, take that and say, hey, I'll tell you what, I'll forgive the whole thing if you just raise up your limit and sign up for two years. Notice what I just did there. So I got the ARR up and I got the predictable committed revenue extended for from one year to two. And you just forgave a little bit of the extra, which in the grand scheme of things in the SaaS world doesn't really cost you too much. In the AI world, that processing does cost you quite a bit. And so you may, you may have a little bit more, you know, you know, split it or pay it or whatever it is. But at least the way they've been figuring out, how do we give predictability in a world where you're trying to share in the, in the growth, it's usually that, that pre. Commit up front with, with a true up at the end Snowflake. Others did it remarkably well.
[00:28:14] Speaker B: Yeah, that makes sense. I mean the, the predictability of what you pay is so important from making financial decisions that certainly as, as the buyer, you can often be more willing to pay a higher price if you're certain that that's all it's going to be. And so I think that's really smart business model certainty.
[00:28:32] Speaker A: And my buddies of mine, people don't realize this, but as a pricing person, I talk to salespeople and CFOs and product people all the time. So I always try to get their different points of view. The cfo, this is what he said to me. One of my good buddies, cfo, multiple companies, multiple exits, really sharp guy, said, I will pay for certainty, Marcos, I will pay for that. And I said, you pay for certain. He goes, it is so important to have that degree of certainty of what that number is going to be that I'm willing to pay a premium for it. Not, not a 50% premium. Right. It was probably more in the realm of like 10, but you know what I mean, 10%.
He said, I'll pay for certainty. So your point, Evan, is spot on. Companies need that certainty on what they're going to spend. And so a lot of these models, while again sounding good on paper and they're aligned and fair, but the variability can really get you. And then the way you break down that variability is through, you know, three part tariffs, including true forward, like all those techniques. So that way they get a sense for what they pay. But then on the upside, you both win because you can forgive it. You'll get the extra years, you'll get the higher ARR. Got to be a little bit patient for that revenue. And then that's sort of the dance that a lot of companies are doing. And it's working super, super well.
Speaking of working well, I gotta ask you this because you pivoted like five freaking times in that company. Right. People listening here are probably wondering, how do I pivot? How do I do it right?
What can I learn from someone who's done it multiple times? Can you, if you had to sit in front of a, an operator or founder right now, who's thinking about pivoting their pricing model, what, you know, one to two, like big lessons, you would tell that person on the pivot, the art of the pivot.
[00:30:07] Speaker B: Yeah. I mean, I wish I knew I could offer some advice, but I certainly won't say that I have, have a playbook that is going to work every time because it is an art and not necessarily a science. I think the first thing to understand is any, anytime you're pivoting your product, your business model, and certainly your customer base, you really need to look at pricing as part of that. I think often people kind of think about pricing as something that happens after product, after thought.
[00:30:37] Speaker A: Yeah.
[00:30:37] Speaker B: Or after the delivery or after the thing's been built and designed. And so you get all these strategies that are really focused on the product itself and the customer and the tam. But whenever you build a product, you really need to think about how it's being priced because at the end of the day that's, you know, what someone's willing to pay for a, a product is really what matters in business. I think the other thing is that how you price, there's a feedback loop between how you price and what kind of product you're going to build.
And so if you, if you build a product, we build a piece of software that does something, it automatically kind of limits what your left and right lateral limits are for how you can price.
Right. Because if it's, if it is something that like an AI model gets more expensive every time it's used, that, that definitely impacts how you're going to price. Whereas, you know, traditional SaaS software, it's really focused on how many users they're going to be.
And so all those things kind of need to, there needs to be a cross functional team that's thinking about that, or certainly the CEO in a smaller company needs to be really thinking about the product, the pricing and how customers are using that all in kind of one breath. I think the other thing that's super important when doing a pivot is you really need to understand your customers because the customers are going to drive all of the value for a company. You know, businesses exist to serve their customer base. And I think a lot of CEOs and certainly startup founders, they run into a brick wall and then they pivot, looking for the next door to go through without really understanding what the customer is trying to accomplish or who their ideal customer is. And you're just looking for someone who's trying to buy your product without actually thinking, how do I serve this customer better? Is it the problem? Is it the problem with me? Is it with the product? Is it with the customer? And so all of that has to be wrapped up into how you pivot, why you pivot, where you pivot to. It's.
[00:32:33] Speaker A: I can't agree more with that. I cannot agree more. There is most of the time the pivot is typically TAM and product led, where you really need that pricing. When you pivot, you're pivoting the economics too. And so what you put in and the pricing on the other end, what customers want to pay, how they want their problem solved, what parts of their problem they're willing to pay for, which ones they're not. All those things are factored into the pivot, but tend to come later after the pivot is already in motion and done. I think we need to pull that stuff up as you're evaluating if you should pivot and put that into the equation. I think you're, you're spot on with that, Evan.
[00:33:08] Speaker B: Yeah, I mean, something, something I've found through trial and error is if you really want to understand what your customers think about you, don't Change your product, change your pricing.
Because the moment you change your pricing and you charge them differently, there's gonna be someone on the other end of the phone who's gonna call you up and tell you exactly what they think about the product.
[00:33:26] Speaker A: No missing words. No, they'll say exactly what they feel about that. That is very true. You change your price, you'll get the real, the real reaction and not just what they think of you, what they value, what they don't.
I think that's. That tells all right? For me, pricing is, is truth and nothing more. Give me a sense here. Right, because you're sitting on the other side now as an operating partner. You're watching these companies try to grow, try to break through, capture tam, expand their profitability, all those things. And they're probably doing some things right, and they're probably doing some things, you know, wrong or areas where they can improve. Right. As you're sitting on the other end, what is the tell for you guys on the, the board side? What's the tell that.
I don't think these guys have their pricing and packaging quite nailed down. They need to do more work. Like, is there something that you look for when you're listening to these companies present their plans to you?
[00:34:17] Speaker B: Yeah.
The tell in pretty much any scenario, scenario, even beyond pricing and packaging, is a good news story that lasts too long or data that starts not to be reported. Ah, so if I'm sitting in a board and I'm hearing the same good news story being told each board meeting or each month during a monthly check in, if it's not directly showing up in the financial statements, then I immediately get very suspicious because it either means that you don't actually know what's driving value for your company, or you do and you're not doing it, and so you're trying to cover it up. And so there's sort of that bullshit detector that, that starts going off.
[00:34:59] Speaker A: I like that.
[00:34:59] Speaker B: I like that. The second story is if, if people stop reporting KPIs or financial data, and maybe it's just like one thing stops getting reported or it doesn't get reported with the same frequency.
That's always a warning sign to me that something's probably going wrong. Now it could just be as simple as, like, you know, that person went on maternity or paternity leave. But more often than not, it's like someone has something that they don't feel comfortable showing. And the thing I would say to both CEOs and founders is like, your investors are there to be partners with you. If they're not your partners, you shouldn't have taken money from them in the first place.
But they have a vested interest in your success. Right. Like, board meetings aren't a place for an investor to hit you over the head with a hammer. It's a place for everybody to get on the same page and figure out how to help each other out. And I think people get defensive when you're sitting on the operator side of the table because you feel like you're being judged. But the reality is everybody at the table wants to help you out. And so showing the problems, talking frankly about the problems, is a much better way forward than trying to tell a good news story or not tell the story at all and just try to skate through it, because then you're not getting help. You're setting off alarm bells for the investors, and it's going to end up just being a wound that festers and that needs to be healed some way or another. And it's not going to be an easy process.
[00:36:20] Speaker A: A wound that festers. I think that's a good analogy on this one, right? Because the more time that passes, the worse it gets. You're not getting medicine for it. Right? Because you're not showing it. You're hiding behind the numbers or not showing the numbers, or you're just kind of telling the same sort of vision, a story that's maybe not coming to fruition. I think a lot of people could take that one to Hartman. Thank you for that. I think there's a bit of a reality check on that one. The board's there to help. We all want to win. And so keeping, you know, everything up and front and center is key for that one, man. Listen, I. I got to ask you this question because for me, it matters that people know Evan as a human. They think of this guy as this operator, board person, you know, consulting, etc. Platoon commander in the Marines, all those things. But I also know Evan as a human being and a good dude. So I got to ask you my favorite question of all, which is what's your favorite song? That favorite jam that lights you up? What is it? And tell us why.
[00:37:16] Speaker B: That is a. That's a tough one. I'll tell you my two, like, favorite genres of music is. One is, I like alternative country, and I like punk music.
It's very, very different genres.
Jason Isabel is probably one of my favorite musical artists, and I have a lot of favorite songs from him. I think probably the most poignant song, and it's not a Pump Up Jam. But he has a song called if We Were Vampires. Okay, and you'll have to listen to it, but basically it talks about being in love but also knowing that at some point one of the people's gonna die or go away. And so you have to think about every moment you spend with that person and treasure it. And I think that's probably true in many other walks of life. Like, we're only on this earth for so long. We often get distracted by the day to day activities or by planning or by any of the millions of distractions that we have. But you can only live in this moment. And so you need to value every moment. You need to value the relationships you're in, the people you're working with and, you know, center yourself on what you're doing today and why you're doing it.
[00:38:23] Speaker A: True that, true that. Very deep. But hits home for a lot of us, I think. Also folks in the SaaS game, it's not an easy place to to be running a B2B SaaS company or starting one up. And you do lose that perspective. You lose sight, right? You're worried about the next release, the next contract, the next rfp and you forget to slow that down. Connect. We only have so much time around here, right? Evan, thank you so much for that reminder. Man. Team. That was Evan Munsing. He's from Corbell Capital.
Fantastic perspective. Follow him on LinkedIn and known him for years. Smart guy, friend and hope you take these lessons back. Please don't waste them. Try to get 1% better. Move away from the guesswork and remember, stop guessing and start growing. Until next time.
[00:39:08] Speaker C: Thank you and much love for listening to the Street Pricing podcast with Marcos Rivera. We hope you enjoyed this episode and don't forget to like and subscribe. If you want to learn more about capturing value, pick up a copy of Street Pricing on Amazon. Until next time.
